Tuesday, June 7, 2011

What are the high Industrial Producer Prices in April (EU, Eurozone) a sign of?

This is a follow up to my post of May 4: "Updated! Industrial Producer prices hikes among Eurozone members: Cause for concerns"

According to Eurostat (June 6)

April 2011 Industrial producer prices when compared with March 2011 are up by 0.9% in Eurozone and up by 1.0% in EU27.

But the worrying picture becomes more clear when one looks at the April 2011 figures compared with 1 year ago, ie April 2010:

In April 2011 compared with April 2010, industrial producer prices gained 6.7% in Eurozone and 7.8% in the EU!

Eurozone (April 2011 compared with April 2010):
Total industry excluding construction +6.7%
Total industry excluding construction and energy +4.4%
Intermediate goods +7.3%
Energy +13.3% (yes 13.3%!!!!)
Capital goods +1.3%
Durable consumer goods +2.0%
Non-durable consumer goods +3.4%


Industrial producer (or wholesale) prices are a sign of upcoming inflation (consume price index) trends (a few months later).

Let's look at the figures for some EU member states (April 2011 compared with April 2010):

No 1 (highest in the EU): UK +13.1% in April, vs +8.1% in December 2010 (compared with Dec 2009) and only +5.1% in November 2010 (compared with November 2009).

No 2 (and No 1 in the Eurozone): NL +11.7
No 3: Bulgaria +10.7%
No 4 (and No 2 in the Eurozone): Belgium +10.6%
No 5: Lithuania +10.5%
No 6: Denmark +9.9%
No 7: Poland and Latvia with 9.4%
No 9: Romania +8.8%
No 10 (and No 3 in the Eurozone): Finland +8.5%

Germany's and France's are both +6.4%! How about that!

See full Eurostat figures by country

Note that the Eurozone17 average in 110 basis points below the EU27 average!

Whereas international energy (oil) prices and the prices of some staple foods are said to be pushning industrial production costs up (and thus leading to higher wholesale prices) these high numbers seem to indicate that industries in the EU and the Eurozone seem to think that they can afford to pass these prices on down to the intermediaries and the final consumer (whether consumers (b2c) or other companies (b2b). Of course, some of the sales will be made inside the EU some outside.

But with the Euro being at a relatively high price vis-avis the USD, the Yuan etc, one wonders what makes those industries think they can afford not to absorb more of the extra costs of the ebergy and other inputs.

a) Are their products that unique, in the EU, EUrozone and global markets?
b) Is competition not working well in certain sectors and/or member states or the EU Single Market?
or
c) Are they merely desperate (cannot internalise more of the extra input costs, pass them on and prey)?

I have no clue as to whether it is one of the above or something else. But I am wondering.

But I cannot help wonder, more generally, whether the way to best curb inflation in the Eurozone that the ECB is gung-ho for (2% target) is via "tightening" (ie raising interest rates) or by removing barriers to more competition intra-EZ or intra-EU or both! Any views?

The real Greek tragedy of Europe

In the last few months, the word Tragedy or Greek Tragedy has been used a lot by international media.

Yet the real Ancient Greek tragedy was that Greek city-states did not unite into one federal state (back in the 5th century BC). If they had, 400 BC - 2011 AD history would have been quite different.

Europe's real modern tragedy is the same, ie the absence of political union among Europe's states.

And the Greek crisis is one of the in-your-face reminders of that.

Reminders of the absence of political union, military union (Greece No. 1 defense spender per capita in the EU, 22 in the world, 2006 (CIA World Factbook), fiscal union (federal tax and federal budget and of course federal European "IRS"), economic union, etc. No EU-wide "NHS", no EU-wide car registration/plates, no EU-wide job market, no EU-wide online systems in banks (how many banks operate throughout the EU the same way they operate throughout eg a federal country like Germany), etc.

The real Greek tragedy of Europe

In the last few months, the word Tragedy or Greek Tragedy has been used a lot by international media.

Yet the real Ancient Greek tragedy was that Greek city-states did not unite into one federal state (back in the 5th century BC). If they had, 400 BC - 2011 AD history would have been quite different.

Europe's real modern tragedy is the same, ie the absence of political union among Europe's states.

And the Greek crisis is one of the in-your-face reminders of that.

Reminders of the absence of political union, military union (Greece No. 1 defense spender per capita in the EU, 22 in the world, 2006 (CIA World Factbook), fiscal union (federal tax and federal budget and of course federal European "IRS"), economic union, etc. No EU-wide "NHS", no EU-wide car registration/plates, no EU-wide job market, no EU-wide online systems in banks (how many banks operate throughout the EU the same way they operate throughout eg a federal country like Germany), etc.

Monday, June 6, 2011

Global and EU systemics: Major systemic imbalances in urgent need of fixing!

I am not sure how the following model fits with traditional economic models (note: I am an MBA, decision scientist and a policy analyst, not an economist or financial analyst anyway) such as the capital - labour - land or the capital - labour - knowhow ones:

In "my" model, there are 4 factors: capital, goods, services and work. And IMO for a system, be it the EU or the USA or the world (globalisation) to work, these 4 factors must have more or less the same level of freedoms ("4 freedoms").

Also IMO, the current instabilities in the global and EU systemics are due to uneven levels of fredom between these 4 factors.

Capital has a very high level of freedom to move and relocate around the world. Capital movements have, realitively speaking, few restrictions, within the world and within the EU.

Goods have seen their freedom grow exponentially since GATT was founnded after WWII leading to the creation of the WTO in 1994. But still, the level of freedom of goods is nowwhere near "free trade". Many tariffs and quotas, especially the former exist even between the WTO membems (and within WTO rules). Even in the EU Single Market for goods, many problems still exist, especially for small firms.

Services at least the most tradeable ones, have been making progress but their freedom is nowhere similar to that of capital and goods. At WTO and at EU level. Eg in the EU many are in fear of the travelling plumber!

When it comes to work or the freedom of labour, then things are quite sad, especially at WTO/global level and even at the EU level many problems exist. Too many.

My thesis is that unless the level of freedom of all these 4 factors converges upwards, it will soon start to converge downwards (that applies to the global and to the EU "systems"). In goods, the by now admitted failure of the WTO to reach agreement in the Doha agenda, opting for an effort to conclude a lite or extra lite one instead, the backwards pressures can be seen. With a zero or low level of public debt being reconised as a key factor in sovereignty (due to the Euro crisis etc), the concept can easily be expanded to the trade balance and the CA balance. Already certain countries have been accused (by the US) of "exporting too much" (eg Germany and China). Movement of workers, free lancers and people is "near apartheid" level globally and be in for political asylum or so called economic immigration reasons, it is alas getting worse pretty much all over the world.

What is more, the economic globalisation, in the form of the freedoms of capital and trade, needs to be balanced, structurally by a global political and a global social pillar!

Else, it is structuraly unsound.

If there is no global polity (a world parliament and possibly government (eg for the WTO 153)), or at least continental-level polity, I would not exclude de-globalisation and either regionalisation or nationalisation/localisation of capital and goods freedoms (see eg "buy local" initiatives).

Or a system of 4-7 major global players (federal EU, USA, China, India plus Russia, Japan, Brazil (or UNASUR), see my recent relevant post).


It is in the good interest of capital and the finance world to encourage or at least not block the globalisation of the other factors and the creation of global political and social pillars.

That is maybe why, in a way, the financial markets seem to be pushing the EU or at least the Eurozone towards political union!!! Because a single currency and a single market need a single polity as foundation and the financial system may not be always responding to crises in rational ways, but its vision is as good as anyone's. And the prudent financiers IMO know that either the other factors gain more freedom or capital loses much of its own.

Plus, the business world, those who produce and deal in goods and services, have clear vision too. And to the extent that the finance world does not manage to be part of the solution to the imbalances, they will ally with the politicians and societies against them.

Not for the battle for midde earth though! Enough metaphorical headlines or slogans (overdone by media etc in recent months). What is going on is the world today is the ultimate real show, much more interesting and cruel than any fairy tale or show.

The humans will prevail, eventually, they always do. Ask the monarchs, the Romans, the Soviets, etc. The financial system is next, it seems, if, as a system, it does not read the signs of the times and listen to the prudent voices inside it.

Saturday, June 4, 2011

Summer in the City: Making Love in the heat of the Night



Made in 2010.

I philosophise therefore I endure

This is a philosophical and "political" song of mine:


I philosophise therefore I endure
What I watch
What I hear
What I read
What they tell me




Dedicated to the Greeks, the Irish and the Portuguese!

The EU Single Market needs EU political union even more than the Euro single currency!

Some (or most Eurosceptics want the EU to revert to a common market or free trade area that they think that the EEC was all about (yet see my post The EEC was never (mainly) about economics of May 27, 2011, for an analysis why this was not the case, though).

Economics, trade in partuculat, was used as a way to bring the countries and people of Europe closer together with a view to creating better conditions for political (and defense) union than the ones in the early 50s (when the proposal for a European Defense Community was defeated in a vote of the French General Assembly (parliament)).

Yet, what the experience of the WTO rules based "free trade", including the failure of the Doha Round have shown, is that a free trade area needs single rules (laws) not only in policy areas that affect trade directly but in most policy areas. Even more so, a single market, as the one in the EU since 1/1/1993!

The EU way of creating those single/uniform laws/rules in the EU Single Market, via EU reguations (that become national law in the member states directly) and EU Directives (that need to be transposed into the national legal systems of the member states by those member states governments) did work, but IMO only to a certain extent.

Subsidiarity, a Roman principle re law making, that is embedded in the EU system, says that laws must be formulated and applied at the most appropriate level, depending on the case, ie the local (municipal regional), national or EU level.

In 2009, more than 40,000 state laws were formulated, voted and applied by the 50 states and territories of the USA. One can argue that this does not make sense, and that such volume of non-national (federal) lawmaking balkanises the country (USA) and creates problems for its citizens and legal entities, eg companies, especially the micros and SME ones. How easy is it for a micro or smal or mid size company to do business inside the whole of the US? Not as easy as non-American might think! How easy is it for an American (worker, free lancer, pensioner, job seeker, etc) to do all the red tape that comes with relocating from one US state to another? Not that easy!

What makes things easier in the US case is the common/single language. Other than that, the US Internal Market is not that single for workers, self employed, micros, SMES, large companies, retired persons etc!

Eg. They have to change car license plates when relocating, pay state and local taxes to a different authority (while their national (federal) tax remains the same). If their insurance company does not operate in the state they are moving to, what do they do? It used to be that banks were not allowed to operate in all 50 states but I think that has changed in recent years. Certain US professsionals who voluntered to go and work in the state of Luisiana after the recent catastrophe were not allowed to because their professional licenses did not apply in the state! Inter-state online commerce was exempt from any sales tax because as I read, otherwise it would render it difficult if not impossible (I am not sure if the exemption still applies or what has happened recently)!

It is one thing for local and state governments in the US to decide how to spend their budgets, ie that does not distort the single entity of the US systemics, but when laws and taxes are different then people and legal entities face not a single system, but one with local sub-systems. Ie internal market for products, services, capital and work, in principle, but in practice not single.

That is why I am now examining the German federal model closer to see happen "on the ground" of the Federal Republic of Germany's federal model. Relevant post coming soon.

The situation is much worse in the alleged EU Single Market. First, all income tax is collected by member states, no national EU (federal) income tax. Even double tax avoidance is based on bilateral agreements based on a OECD prototype! That is because the EU has no competence in matters of income tax, of persons and of legal entities! Only some in indirect taxation (eg VAT).

So, the types of single laws that a polity has, are the types required not only for a well founded single currency but more importanty, for a single market, for firms and persons, as well. Otherwise the alleged single market works only for large companies and wealthy individuals who can hire the types of experts needed to weed through the labyrinth of state and local laws. That is why mobility intra-EU is very low compared to the US or eg intra-Germany. The 21+ languages is but a relatively small barrier to the EU Single Market for real people and the real economy!

Friday, June 3, 2011

Political and Trade compatibility between countries and economies and geopolitical "polyamory": The UK's case

The recent effort to conclude the 9.5 year old Doha Round of WTO world trade talks with a very lite agenda could be seen by this POV, inter alia:

Food for thought:

Are the 153 members of the WTO "trade compatible"? Is it any accident that many groups have formed within WTO as a WTO document shows (see PDF here). Other than the 27 member EU (which did not form for WTO related purposes), the other most "active" (according to the WTO doc) groups include:

* ACP (79 members, 58 of which are WTO members),

* The African group (48 members, all WTO, ie a portion of the African Union of 53 members),

* APEC (20 members, including the US, China, Japan and Mexico. some are members of ASEAN),

* Mercosur (4 South American countries, also members of the wider UNASUR "EU type" of bloc outside the WTO),

* LDCs (43 members, 31 of which are WTO members and the rest WTO observers).

What unites countries or economies is such groups (note: quite different in content, compare eg the EU with APEC)? In the case of WTO is it common interests in the negotiations? Common "adversaries"in the negotiations? Any common "philosophies" (re economics or politics or culture or some other factor)?

What unites together The Commonwealth (formerly known as the British Commonwealth) with 54 members (not a WTO group)? According to its official site: "Beyond the ties of history, language and institutions, it is the association’s values which unite its members: democracy, freedom, peace, the rule of law and opportunity for all".

Which brings me to my main discussion point in this post:

Is the UK more compatible with the other 53 Commonwealth members than it is with the other 26 EU members? Are the factors listed by it (see above) implying a "free trade area" or "economic union" or "political union" potential that is fundamentally better, for the UK, than the one with the other 26 EU members? Is the UK willing or capable of a "committed relationship" with any group of countries/economies?

In January 2011, the UK PM got together for a summit with the PMs of the 8 so called Scandic or Nordic plus Baltic countries ie Iceland, Norway, Latvia, Sweden, Finland, Denmark, Lithuania and Estonia (1) and declared that they had compatibility in areas such as their valuing of free trade (implying the other EU members do not?), see eg BBCnews' "Cameron calls for northern European alliance" . According to the BBC: "Describing himself as a "salesman for British business", Mr Cameron said he hoped the event would produce opportunities to boost trade between the UK and the Nordic and Baltic region which was worth about the same as that with France or China".

Let us also not forget the effort to keep a "special relationship" with the US.

It seems to me that what the UK's current government (and many in the past) want is to keep all their options open, in other words the geopolitical equivalent of "polyamory". In other words, there is a commitment problem or maybe syndrome.

This type of polyamory can work, provided there are enough others that wish to engage in such relationships. Eg do the other 26 in the EU wish to accommodate/tolerate the UK's unwillingness to commit to a single currency, Schengen, and what is more crucial, political "union" ("marriage")? How many of the other 26 see the EU as a mere "friends with benefits" group instead of a "marriage"?

Does the UK's unwillingness to commit contain a visible risk of winding up all alone without a partner and real friends?


Footnote: (1) Of the 1+8, 1+6 are EU members, 2 Eurozone members.

Thursday, June 2, 2011

Is Trichet's EU Minister of Finance proposal paving the way for a Merkel-Sarko plan for move to federal political union?

"Would it be too bold, in the economic field, with a single market, a single currency and a single central bank, to envisage a ministry of finance of the union?" asked (proposed) today the ECB's President Jean-Claude Trichet (read Bloomberg's news coverage here)

IMO, yes it would be too bold, unless this EU Minister of Finance was part of a EU federal government cabinet (including Ministers for Transport, Employment & Social Policy, Environment, etc), led by an EU Prime Minister, on the basis of the number of seats of political parties in the European Parliament. In other words, as part of a move to federal political union in the EU with a number of the 27 states (maybe the 17 of the Eurozone, maybe the 23 of the Europlus, maybe 26 but that last one not that likely).

So why is Mr. Trichet making this bold (and IMO incomplete) proposal and why now?

a) Maybe he is expressing his view on the portfolio (Finance or ECO/FIN) that is related to his role of (near end of term) President of the ECB.

or

b) Is he paving the way for one or two national leaders, let's say Angela Merkel and Nicolas Sarkozy to propose what is within their own scope, ie the EU government and political union I referred to above! Who knows, maybe at this very minute, their advisers are working on a proposal that could be brought up even as early as the next European Council, later this month! The same way they introduced the Pact a few months ago! Sci-fi, you say? We shall see! The scenario makes sense in many ways.


No need for the EU to re-invent the wheel re federalist political union

More EU, more federalism is actually the solution to the financial crisis and many other problems.

By that I mean an immediate move to Political Union which should have been decided in Maastricht in 1991 before or instead of the EMU.

A political union, US or German (FRG) federal style with a real budget financed by a federal income tax (like the US one).

Collected by a federal EU "IRS" (again like the US).

No need for the EU to re-invent the wheel when it comes to federalist political union. The US and German federal models are there. Almost pret-a-porter (ready wear) with some minor adjustments that does not require a master tailor but will (leaership.

Wednesday, June 1, 2011

Systemics and prospects of the WTO and of a USA, EU, Russia, Canada merger!

"Doha Trade Deal Seems Likely" reports the Wall Street Journal on May 31. 2011 (must read, here).

Whether the Doha lite, or in my opinion "extra lite" agenda is agreed upon by the end of the year, or even a "zero" one (ie no deal, end of the round that started in November 2001 in Doha) I do agree with the view that the era of progress in trade multilateralism is probably over.

As I have pointed out in my posts that one can find on this blog, after the 2003 failed Cancun meeting of the WTO, many bilateral and regional trade (or more than just trade) agreements have popped up.

A few days ago (25/5), I posted on what systemics I can see developing post Doha. IMO China, India, the US, the EU (mainly) plus Japan, Russia and Brazil or UNASUR (South America's "EU" project that of course includes Brazil) will be the main "players" in the world economic "arena".

The WTO rules as they stood before the Doha Round of talks in 2001 will probably still exist (although the survival of the WTO is not a given IMO) plus whatever rules come out of the Doha lite agenda that some seem to hope to be concluded (I have my doubts, read the WSJ article for some of the reasons, aka USA, plus. as far as I know, the US Pres has no fast track powers given by Congress on concluding a deal, and if that is indeed so, it is possible that the US Congress may decide to amend (!!) any deal, thus bringing a new deal back to the WTO, etc).

Conclusions
1) Most progress in rules or deals will most likely between 2 or more of the above 4+3 main players.
2) The EU, the US, and the other main players will continue to conclude (or at least try to, see US) bilateral deals with others, in some cases group agreements, regional or not.
3) The EU needs to strengthen its position and a political union of the EU is the main such way.


More:

Here comes some thinking that some may consider sci-fi, but we shall see:

I was involved in a most interesting discussion on Twitter (aka "tweetscussion") with a very esteemed fellow tweeter, @paulstpancras) on the night of May 29 to May 30. At some point, talking of the EU, political union potential, the UK POV, I said: "Or maybe UK would be OK with EU if merged with (the) USA; 77+ states. Then (UK) could ally with Texas, Arizona, etc! :)".

"Or a circumpolar space... USA, Canada, EU, Russia ..." proposed my fellow tweeter, which was exactly what I was also thinking as another potential scenario.

Why, because in addition to covering a ring around the planet, this union would have a population size that starts to approach that of China (1.3 billion) and India (1.2 billion):

USA+CAN+EU+Russia = 0.3 + 0.03 + 0.5 + 0.14 = 0.97 billion people.

In terms of GDP (nominal (in trillion USD) 2010 estimates (Source: CIA, World Factbook)) the picture would then be:

European Union 15.9 + United States 14.6 + Canada 1.6 + Russia 1.5 = 33.6
China 5.7
India 1.4

There is an obvious imbalance between the 33.6 and China's and India's GDP but with their rapid growth the potential for more GDP balance between the three exists.

There is another reason why a USA+EU merger would have to bring in Russia too. Russia would get very itchy if the US and EU were to merge, and including it could fix that. Canada has only 30+ million inhabitants but huge natural resources.

So while one scenario is EU+USA+Russia+Canada, another is EU+USA+Russia with almost the same population as the former, 0.94 billion and 32.0 instead of 33.6 2010 trillion USD.

But is a EU+US merger scenario even a remote possibility? Well, yes and no. 2-3 years ago, when I think the US proposed a free trade deal, some in the European Parliament said, why not a "single market". Well, IMO a single market, even without a common currency, needs single laws, which brings things, again IMO, towards a single legislature, ie political union. IMO the US+EU potential will largely depend on developments in/with China.

But what about the rest of the world? Well, China+India+EU+USA+Russia = almost 3.5 billion people. That leaves out 3.4 billion people (of the 6.9 billion total in 2010). Note: Only 11 countries have population size over 100 million but there are many countries, more than 200 in the world (planet).

Since world GDP was estimated at 62.2 trillion USD in 2010, the result of this scenario would be:

EU+USA+Russia: 32.0
China 5.7
India 1.4
Rest of the world: 23.1
including in that 23.1:
Japan 5.4
Brazil 2.0
Canada 1.6
Australia 1.2
Mexico 1.0

Such a merger could prompt other countries to merge in groups, eg Japan, ASEAN & rest of Asia (with or without some of the ex-USSR states) plus Oceania, Africa, South and Central America. The world would not become a global polity, but a small number of super-countries/states (regionalisation+). Global trade talks would bring to a table reps of 4 to 6 such super-states. Not all of the world's countries would want or be included of course (and why should they, there should be room for exceptions and other approaches).

But in any case, in the complicated and perpetually changing world after 10% of the 21st century has elapsed, and the rapid growth, economic and in "power" of the BRICs as well as other developing countries, the EU has to be a single polity, it cannot continue to be a loose group of 27 countries. EU political union is a must, for the EU to be taken seriously by the rest of the world (see eg recent issues re selection of new IMF chief, the issue of a UN Security Council seat for the EU, the marginal role played by the EU as opposed to the US and China in the Copenhagen COP 15+, etc).

Real

Real capitalism is not about real estate based business & investing.

Real economy is elsewhere (other sectors).

The issue is:

How much "real economy" is left in the US and Europe for it to provide real growth & real jobs?

The future of work, work in the future!

Food for thought: In the future, robots may do all the work and humans may spend their days philosophising, full of poetry, arts, athletics, etc, much like Ancient Greece, but with some key differences (eg w/o the slaves and with men and women in equality).

A crucial question is, though: Who will own the machines/robots and the product of their work.

Cruel to be kind, miserable to be happy?

I am pondering whether one can be happy in his/her misery! Miserable to be happy?

Note: Is feeling miserable the same as feeling unhappy? I think misery and unhappiness are not the same thing, but that only my opinion .... I think that misery is a few steps above unhappiness! And a few below happiness! But then conformity is also a few steps below happiness, and some people, I guess, can be comfortable in misery. After all, happiness does tend to attract others' envy, whereas misery is less "provocative" to others!

Originally written: 2007
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