Time the UK elites stop badmouthing the EU if ...

Reality check: Merkel et al finally realised it was time they stopped badmouthing Greece to the German people. Time the UK elites stop doing the same with the EU/Brussels to the UK voters, if they realise this:

With a Euro in crisis, the UK may be able to market itself on its own merits to world investors (as opposed to as a gate to the EU Single Market until now) but, if the EU/Europlus pull off some kind of political union step forward, then where will that leave a non-EU UK in the world investors' map?

Those who sow wind, reap storms. Merkel realised that. Cameron and Hague know it too. But do they have the long term interest of the UK at heart to try and possibly pay the price of telling the British people the truth re "Europe"? Or maybe they do not have confidence in their ability to influence UK media and public opinion the way Merkel?

More analysis on this topic and strategic implications available upon request.

50+ yrs since the EEC and ...

50+ yrs since the EEC and a real "common mkt" for goods, services, jobs still not achieved!

Single Market: How single is single?

A labyrinth of federal, state and local laws make life difficult for average citizens & SMEs even in the USA.

A "single market" that works for ave people & SMEs needs single laws.

Hence a United States of Europe may not be what Europe actually needs. Maybe it's a Federal Republic of Europe? How single is the German single/internal market?

Want EU and Eurozone growth? Then ...

Markit data for Germany, France and Italy for April shiowed in all 4 surveyed post lower sales, with record decline in France. UK is recession again, based on GDP on Q4 of 2011 and Q1 of 2012. The situation in Greece, Spain, Portugal is also well known.

And while there seems to be a a shift in the dynamics of austerity (see my April 19 post), in my opinion, what the EU and the Eurozone need, for growth, is a neither Merkelian austerity nor good old Keynesian spending, but a combination of:

a) Curbing of over-legislation at national and EU levels (polynomia) and the resulting red tape that suffocates EU and Eurozone firms, especially the SMEs (exception from curbs: some sectors including the Financial one which actually needs heavier EU legislation-regulation even w/o G20 agreement)
That does not cost a lot of money, but requires lots of work.

b) Raising the trade walls of the EU by art at least a few meters. No need to go chasing growth via exports to the other 4 continents (especially given the narrow scope of WTO rules) when the EU has 500,000,000 at home and the Eurozone 330,000,000 (more than the USA). Abandon the WTO in favour of bilateral agreements with China, ASEAN, USA, Brazil or Mercosur, India, etc (agreements that include not only trade and other econ but econ immigration as well, etc)

c) Revamping of the Fiscal Coimpact, removing fixed and sclerotic targets and increase the co-operation of EU and EZ economic policies w/o transfer of sovereignty. Based on targets that are realistic given the global and European conditions.

d) Spending for growth, but wisely and within reason, probably less than you would be required without (a) and (b).
.
Part of my above post I also posted as commentary to the 27 April 2012 "Plan B for the Eurozone – it's not what you might hope for" article in The Deep End of Conservative Home. 

Dear Mrs. Merkel what's the point of a Single or even Common Market if .....

World Trade & the EU Single Market:

The German reply to the Barroso proposal re the EU's trade policy can lead one to ask the German government (and the UK one of course) the following:

What is the point of a Single or even Common Market or even a Free Trade Area (Cameron's dream for the EU) if the members of it do not have some benefits from it compared to non-members?

Seems that some EU members (eg Germany) want to have the cake and eat it too, ie fully exploit the EU Single Market and the Eurozone market (60% and 40% respectively of German exports in 2011) while fully exploiting WTO free trade to outsource production to ...?

It is accidental that German and Chinese domestic consumption is relatively low?

Or that China's WTO entry took place 1 month (December 2001) before the introduction of the Euro coins and notes?

Are German governments "team players" in the EU or Eurozone "team"? Which ones, in the last 10-20 years?

There is no I in team nor in Eurozone.

People in glass economies should not ....

People in glass economies should not throw stones at Portugal, Spain, Italy and Greece.

Euromyth busting: It's rich for an economy to sit pretty in between 3 mega markets, piggyback on them and then boast how competitive & hardworking it is (when it is pretty high in the OECD list of least hours worked per worker).

How would that economy "perform" if it was in the geo position of Greece or Portugal?

A free trade area is not the same thing as a Single Market, so ...

A free trade area is not the same thing as a Single (or Internal) Market. Thus those who cannot understand or do not wish to understand the difference should have remained in the EFTA or the rely only on the WTO (or the Commonwealth).

Instead of the EU using its 500,000,000 Internal Market ...

Instead of the EUrope using its 500,000,000 Internal Market (albeit a tad internally dysfunction 19 years after launch) as a huge negotiations chip in bilateral trade deals it's engaged in intra-EU blame each other "games".

European Single Market needs federal income tax

EU policy makers please remember: Creating a single space for firms, workers, free lancers, job seekers, et al to live & work is No1 goal

An EU or Europlus federal income tax to replace national ones is one of the ways towards a real Internal Market for people & firms.

The "Vikings Invasion" model for SME led exports!

1. Intro:

Who in Europe has really cared to examine "sur-le-terrain" the real problems of SMEs and micro firms in the EU's or Euroland's periphery and find real solutions to them?

Greece's rebound in growth and jobs can come from a mass/pack of new exporting micros & SMEs that will "invade" with their products and in some cases services, the Euroland, the EU Single Market and world markets as the Vikings ships invaded Europe 1000 yrs ago.

Not via large corporations or large private investors.

2. Business as a revolution:

October 9, 2011: 44 years without Che!
Che, an Argentinian of Spanish and Irish descend, had concluded that Latin America's ingrained economic inequalities were an intrinsic result of capitalism, monopolism,neocolonialism & imperialism.

Which of these variables apply in Europe today?

What would a European Che do today? IMO go to Greece or Ireland or Portugal or the Baltics, the EU's periphery, and start an exporting SME. To the Eurozone/Euroland, to the EU Single Market or even to the global one!

Because I ask you, what is more revolutionary and heroic than starting an exporting SME in the Euroland of 2011, especially its periphery?

Plus: Not tolerating monopolies, oligopolies, monopsonies and oligopsonies is not a Leninist monopoly! Real free market fans share this POV!


3. Scope

It is true that most SMEs are occupied with local and national regulatory, redtape and other issues.

That is precisely the main problem of SMEs. Their local "worldview". That is why I call the model I propose "Vikings invasion"!

The EU27 even EZ17 spaces are alas a bureaucratic swamp where mainly large companies and corporations can "work"/operate! The swamp is created mostly by local/national regulations/polynomy and resulting red tape.

Almost 18 years of BS re the EU Single Market is enough!

SMEs need a REAL Single Market now!

The Europlus Six-Pack is no solution to Europe's growth and job creation problems.

The "Vikings Invasion" SME pack-exporting model is!

4. The "Vikings Invasion" model for SME led exports (and growth and jobs creation)

Look into history texts on how (method) the Vikings invaded and dominated Europe for 3 centuries! The key success factor was the independence of each vessel. Yet these vessels formed a "loose" pack that because of its non-coordinated nature it made it difficult for others to defend against! Viking "SME" vessels, due to their size, used Europe's inland waterways to reach all parts of Europe.

This model is what Greek, Irish, Spanish, Portuguese SMEs and their economies need today!

The "Vikings invasion" model for exporting micros & SMEs can be a solution not only for Greece and Ireland & but other EU/Eurozone economies too!

Even a free trade area does not allow "polyamory" in trade, does it?

The other day I was having a discussion on current affairs and dynamics in Europe and the world with an economist friend. Mind you, yours truly is not an economist but an MBA with 2 more degrees (a BS and an MS in decision sciences).

During the discussion the topic of "customs unions" and "free trade areas" came up. My friend gave me a POV that has proved valuable food for thought: He argued that a customs union between let's say countries A, B and C, implies a clear intent by these three countries to trade primarily between them as opposed to a global scope in trade.

If that is true of a customs union (which is what the UK claims it joined in the 1973 EEC), a "common market" as my 50s plus barber in Brussels called the EEC back in 1992, then that is even more true of a "Single Market" (launched on 1/1/1993).

What does all this mean?

That members of the current EU, the Eurozone, even those who claim they openly want a "free trade area" Europe (UK Tories etc), have to de juris accept that all these are not compatible with a multi-lateral global free trade system (WTO, ex-GATT), that members of non only the EU but also EFTA, ASEAN, Mercosur and the emerging UNASUR must have, explicitly or at least implicitly, the will and view of trading mostly (to say the least) with their partners!

And what is more, if they do not, then they should not be a member of any such entity and rely exclusively on the WTO membership.

Thus:

a) If the UK does not want to export and import mostly within the EU27 Single Market, then it has no place in the EU
b) If Germany sees China and Russia as its key trade partners from now on, then it too has no place in the EU or its Eurozone.
and so on!

Thus, if my economist friend is right, membership in the EU or even as its old EEC or "common market" form presupposes a commitment to trade with mostly the other members (at the expense of global (WTO etc) trade).

Consider that!

Sur-le-terrain of the European reality show

In the meantime, sur-le-terrain of Europe, SMEs need uniform European laws in order to have a REAL single market not this Single European Act Babel of 1992.

To work for independents, micros and SMEs the EU SIngle Market needs uniform/single laws, a single tax system, ie full political union.

It's a disgrace 4 the European "union" tht double tax avoidance inside the EU is based on bilateral agreements of the 27! EU federal tax is needed now.

An EU-wide "NHS" would have the economies of scale to survive the hawks attacks on the European Social Model.

An EU-wide income tax system would make intra-EU, intra-Single Market relocation, mobility etc more practical for the average person & firm

EU-wide operators of landline & mobile telephony wld make for a better functioning single market. Same for energy, water & other utllities. And of course banks with offices all over the EU27 territory are needed for a real single market.

How bad public policy destroys growth and jobs

I have worked with the owners of quite a few SMEs and I have experienced first hand that they spend more time & energy understanding new regulations than complying to them!

This is also what a survey by the UK's FSB (Federation of Small Business) concluded a couple of years ago!

When an SME also exports, imagine doing that for more than 1 countries/bodies of law/regulationss!

That is one of the reasons why IMO the EU Single Market needs Political Union in order to "work" for the SMEs and micro firms. Instead of the Eurozone being a playground for US, Chinese and other multinationals due to the low prices of their products in the Eurozone due to the expensive Euro! But that is another post (or posts, see my archive and labels on this blog).

Competition, pricing, inflation, interest rates and the EU SIngle Market

In business school I was taught that when a company is thinking of a new product or service, it must estimate costs, then research what the market is willing to pay, if larger, price at max. But many companies use a costs + % profit expectation = price system.

In Economics I learned that prices go up when companies see more demand and decide easier to raise price than expand capacity. Of course, in Services expanding capacity is ceteris paribus and in theory easier/cheaper than in Manufacturing.

In practice market structure (and enforcement or lack thereof, of competition law) plays key role in pricing decisions and in inflation. I suspect that is one of the reasons the Euro interest rate set by ECB is 1.5% in order to curb inflation compared eg to USA (0-0.25%): Less competitive markets than eg the US ones. That merely what I suspect. . As well as more regulations that tie the hands of business to adjust to the ups and downs. And of course a very imperfect 19 year old EU single market!

I even recall some analyses ib the last 2-3 years that said that EU single market works better outside the Eurozone than inside! Makes one wonder!

One of the key mistakes of the EU's periphery has been

One of the strategic mistakes of the EU's/Eurozone's periphery was/is not pushing the 27 and the EU institutions for a friendlier EU Single Market to SMEs in the last 18.5 years!

Yes, my assumptions/hypothesis is that a better working Single Market would habe benefited all 27, but Greece, Italy, Spain, Portugal and Ireland more than the others!

2.5% intra-EU migration, only 4% non-EU immigrants in the EU!

According to the Eurostat, "Foreign citizens made up 6.5% of the EU27
population in 2010 Foreign-born people accounted for 9.4% of the EU27 population"

But I do no see why the Eurostat's press release headline merged the number of intra-EU and non-EU "immigrants.

Out of the total 6,5% of the 500 million EU27 population, the 6.5% includes two parts:

a) 2.5% of inta-EU27 "immigrants"

b) 4.0% immigrants from the rest of the world (ie non-EU)

The 4% figure is lower than some would imagine and puts a dent in the complaints re "foreigners" in the EU!

It would be interesting to know how the 2.5% internal migration of the EU27 population (citizens) in 2010 compare with the intra-USA one!

Which interests will prevail in EU trade policy?

A key strategic question is whether Germany still relies on Euro & EU markets for its exports or can rely on China et al.


Different exporters in Germany and the rest of the Eurozone17 have different geo-strategic trade interests: Some prefer the Eurozone, some the opportunities in China et al, etc!


For a large % of Eurozone export & other firms, a EU exit from the WTO would be a blessing (inter alia, it would curb Chinese exports to the EU and its Eurozone that compete with many made in Eurozone products) . For many, a curse. 


Of course, in that scenario, EU trade would be conducted on the basis of existing or new bilateral agreements of the EU with countries (China, USA, India) or groups (eg Mercosur, ASEAN etc)


Which interests will prevail in EU trade as well as other policies (eg the implicit exchange rate policy of the Euro)?

From "buy local" to "hire natives" to "invest at home (not abroad)"

Many of EU & world problems stem from systemic imbalances due to uneven freedoms for capital vs services, people/labour even goods.

It seems some policy makers et al in some EU members think that the Chinese market is more attractive than EU Single Market. A grave strategic mistake!

The China imports slowdown is bad news for those EUropeans who think exports to China can replace Eurozone & rest of EU Single Market ones.

Note that German's exports have rebounded in June after a bad month in April and a record month in March (should one try to correlate them with the exchange rate of the Euro?).

The inflation curbing policy (or obsession) of the ECB that has led to an expensive Euro for much of the 11.5 years since the introduction of the coins and notes, makes exporting to Eurozone easy. Exporting from Eurozone is the Herculian task!

In other words, the Euro exchange rate has been eroding most if not all Eurozone economies for most of the Euro years. Even Germany's. In a way, the bailouts of the GIPs are the price the Eurozone/EU is paying for the ECB/Bundesbank perennial obsession against inflation that hurts Eurozone biz, exports and tourism (especially Portugal, Spain, Italy, Greece).

Are there socio--economic & poitical forces in Germany that have had enough of the uber hard DM/Euro obsession of Bundesbank/ECB? One would hope so, beceause then there is hope for a less destructive Euro exchange rate policy (that could also require a change in the mandate or powers of the ECB (almost typed: Bundesbank).

Otherwise, a key strategic option is the activation of an "Economic Fortress EU" that ought to include:

a) Exit from the WTO and reliance of specific case-by-case agreements of the EU with other countries (eg USA, Canada, India, China, etc) or groupings thereof (eg ASEAN, Mercosur or UNASUR, ACP, etc). Those could include agreement not only on trade of goods, but also services, intellectual products (and protection of intellectual property (see ACTA and the Singapore WTO agenda), economic migration, and of course capita movement/relocation).

b) Upgrading of the 4 freedoms inside in EU Single Market.

Will come back on both (a) and (b) in future posts.

My point is: capital, goods. services, labour & people should enjoy same level of freedoms at global or regional scope. The latter is more feasible

Another point is that the EU Single Market has to offer members benefits non-EU countries/economies should not have, ie more value.

Humanity has moved from city states to nation-state and now moving to region/continental-states. Like empires, globalisation is too unstable. Regionalisation will inter alia be good for the environment

Direct globalisation has failed. There's no global free movement of services & labor even goods. Why not build walls 4 capital then? Only route is via phase of regionalisation (NAFTA, EU, UNASUR, ASEAN, etc) with some links (capital, trade, services, labour/people) between regions

From "buy local" to "prefer to hire natives" only short step to "invest at home (not abroad)". That is not the solution. The solutions are at regional/continent level. And maybe someday, the global one.

What is driving Eurozone prices up?

What is driving Eurozone inflation up?

a) Global energy & food prices

or

b) a deficient EU Single Market for goods, services and jobs?

Here's a hint:

UK (11.9%), NL (10.7%) and Belgium (9.7%), continued in May 2011 to lead the EU in the hike of industrial producer prices (when compared to May 2010 prices) along with Bulgaria (10%) and now Denmark (10.8%), Lithuania (9.9%) and Latvia (9.7%)

France (6.1%) and Germany (6.0%) seem to be in somewhat of a convergence - cohesion as one would expect even in domestic market, since a domestic market of an EU member state is open to competing products from other EU member states (not to mention China, et al).

Due to proximity and the resulting alleged close economic links, one would expect at least NL, Belgium (partners in the Eurozone17 with Germany) and maybe Denmark (outside the Eurozone but Northerly neighbour of to Germany) to have similar figures to Germany. Yet, they do not!

What does this indicate?

See also my previous posts:

Industrial producer prices in April, Eurozone vs USA and
What are the high Industrial Producer Prices in April (EU, Eurozone) a sign of? plus

Updated! Industrial Producer prices hikes among Eurozone members: Cause for concerns

(Source of stats: Eurostat, July 4, 2011 - see PDF)

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!