Papademos sticks up his finger to the Fed
The FT reports on remarks by Lucas Papademos, vice-president of the ECB, as saying that the ECB’s primary goal is domestic price stability, and it would pursue that goal even if it conflicts with the Fed’s goal of stabilising the dollar. The ECB’s readiness to fight inflation does not deflect from its continued concern about financial stability, however. The same article also reports on the ECB’s latest financial stability report, which warns that there remain substantial risks to the financial systems, and that the ECB remains ready to continue providing ample funds to European banks. The report in particular said there is a possibility of further large losses by banks.
Zapatero criticises Trichet
The only thing that surprised us is how long it took the Spanish prime minister to try to blame the ECB for his disastrously complacent economic policies (essentially his government’s refusal to reign in a property boom that is now in the process of turning into one of the biggest property crashes of all time). Frankfurter Allgemeine quoted Zapatero as saying that the ECB’s reaction to the rise in the oil prices was excessive, and said Trichet should more careful in the future. Spain runs a ludicrous system, where almost all mortgages are tied to the 3-month Libor, which is the money market interest rates that has risen the most during the credit crisis – which now stands at over 5.4% (against expections of ECB policy rates of 4.25% or 4.5% in three months time). The markets are current discounting a rate rise to 4.75% until October (which we think is a little pessimistic).
The Franco German alliance is back
Whatever Nicholas Sarkokzy and Angela Merkel may think about each other (we still hear she does not like him much), they certainly have found a way to do business with one another. Here is a good news story in Frankfurter Allgemeine about yesterday’s Franco-German summit in Bavaria, where the two sides agreed on a joint negotiating position about the planned reduction in CO2 emissions for diesel cars. Given the reliance on large diesel engines, the German motor industry has lobbied hard against a European Commission proposal to cut the diesel emission by 2012. France and Germany have now agreed to push for longer transition periods.
Slovakia has found a new way to fight inflation – jail
The FT Deutschland has a hilarious report from Bratislava, where the government is in panic over the introduction of the euro in 2009. To prevent price increases, the government has passed a law that would make it criminal to use the introduction of the euro to raise prices. In fact, the courts have been instructed to throw business into jail if they convicted of abusing the euro introduction for the own benefit. So it is interesting to see that in this supposed bastion of free-market economics, the central planners are still in charge when push comes to shove.
Swedish Riksbank dumps core inflation measure
This is very interesting (to us at least, who have been railing against core inflation indices for quite some time). The Riksbank has dumped its favourite inflation measure, call CPIX, which excludes some volatile items such as mortgage rates, and changes in indirect taxes and subsidies. The Wall Street Journal economics blog quoted Barbro Wickman-Parak, the deputy governor, as saying that the Riksbank no longer thinks that CPIX is a good leading indictator of CPI – which is the point that core inflation enthusiasts have made.
Bernanke says worst is over for US economy
In a speech in Boston, US Federal Reserve chairman Ben Bernanke essentially made two points, according to the Calculated Risk blog. The first is that the prospects for the US economy have improved markedly, and that the Fed will weigh down more heavily on inflation. Specifically, he said the FOMC will strongly resist an erosion of long-term inflation expectations.
Ooops, Austria had an excessive deficit in 2004
Austria always revelled in the role of an overachiever of the EU budget goals. But a statistical revision by Eurostat has resulted in an unexpected reassessment of the country’s 2004 budget deficit, which is now put at 3.7% of GDP. The reasons are subsidies paid by the government to reduce the debts of the national railways, which the Austrian government did not include in the budget deficit, but as an off-balance sheet transaction. Eurostat counts it as a subsidy – as part of a wider campaign against the prevalence of off-balance sheet accounting. Austria’s Der Standard says that Belgium, Spain and Italy may also be affected by this. The Commission said the case was regrettable, but no sanctions would be imposed ex-post.
Finland has a scandal
Finland, the country listed number two on the Transparency International index of squeaky clean countries, has an old-fashioned party funding scandal. The FT has all the details. During a talk show, the chairman of the Centre Party casually revealed that he broke the law by accepting illicit donations. Ooops, there I said it. As it turned out, this was not an isolated case, but very common in the country’s political system. Matti Vanhanen, the prime minister, is now under pressure to call early elections – not a good a time for him as there are many excited reports around about his private life.
Polls puts Flemish majority in favour of secession
Do the Flemish really want the breakup of Belgium? This is at least what a poll in Het Laatste Nieuws last weekend suggested, in which 49.7% declared to be in favour of the breakup of Belgium and 45% are against it. It was the first time that the separatist partisans are leading in the polls. But Le Soir quotes another opinion poll according to which only 9% of the Flemish really are seperatists, the majority, 45.3%, want a federal state with more competences to the regions. Yves Leterme has to get the different parties to agree on a reform the federal system before the 15 July after one year of continued radicalization between the two language communities. His party already threatened that if there is no vast reform the solidarity principal will be put into question.
The economics of climate change
Geoffrey Heal has a very useful primer on the economics of climate change on Vox, which unlike the science of climate change, is not yet settled. The two central concepts are the pure rate of time preference (PRTP), which he argues should be zero, as it was in the Stern report, as it is unethical to discriminate against people on the grounds that they live in the future. The other concept is the consumption discount rate (CDR), which we apply to future consumption. His bottom line is that the PRTP should equal zero, and that there is no single CDR – and that it is not equal to return on capital – an argument made by some economists. He also writes about other important aspects of the debate, including a closer look at costs and benefits. Definitely worth reading.
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