Sarkozy edges towards pensions reform

 

The FT reports that Nicolas Sarkozy is planning to raise the maximal contributions periods for a full pension from 40 to 41 years, which effectively amounts to an increase in the pension age. He does, however, not want to touch the official pension age of 60 – the age at which people are entitled to draw a pension. Sarkozy has not yet taken a decision, but is under pressure to do so as the pension system is forecast to hit a deficit of €10bn in 2010. The country’s political classes are also aware of the political sensitivity of the issue, still remembering vividly the downfall of the Juppe government in 1995.

 

French reject Sarkozy’s deficit plans

Le Monde reports that a majority of the French reject Sarkozys deficit expansion plans. 54% are opposed, 39% support the idea, and 7% are neutral. Worse for Sarkozy, 63% think that the government’s economic policies are wrong, with only 33% in favour.  75% want Sarkozy to yield to his party’s mainstream to modify the spending programmes.  The article quotes a pollster as saying that this poll is bad news for Sarkozy in view of next year’s regional elections.

 

German exports up 3.8% in September

After the surprisingly strong fall in August, the latest data show a recovery in German exports, which were up by 3.8% m.o.m. in September. FT Deutschland said Germany was benefitting from strong demand from China and the Middle East, where the recovery is strongest. Relative to the pre-crisis levels, both exports and industrial orders are still about one third below prevailing index levels at the time.

In a separate article the newspaper asks several economists about whether the exchange rate is going to have much of an effect. Industry representatives are saying yes, some economists believe that industry can adjust well even to large appreciations. The calculation by Prof. Ansgar Belke, and colleagues (see his article in Eurointelligence) shows that a euro/dollar exchange rate of $1.55 would constitute a critical level.

Yesterday, the euro climbed back up to above $1.50 – and gold reached $1100.

 

 

EU  finance ministers outraged about Greece

FT Deutschland has an article about the sheer sense of outrage felt, and expressed, by EU finance ministers about the situation in Greece, where the new government suddenly revised upwards the deficit projections from 6 to 12%, citing statistical discrepancies. The EU has lost confidence in Greek statistics, and is now demanding, as a first step, the independence of the country’s statistics bureau. The finance ministers have also commissioned a study on the quality of statistics in the country.

 

How long does it take to unify a country or a continent?

Volker Nitsch and Nikolaus Wolf have undertaken an interesting study about trade relations within united Germany, and concluded that the lifting of border controls and trade restrictions takes at least one generation to work through. Writing in FT Deutschland, they found that east-west trade flows were still 30% below what they could be, and that it would take about 30 to 40 years until the intra-German border has truly disappeared in economic terms. They say these results are also relevant for intra-EU trade flows, and may explain why the internal market takes such a long time to have a real world impact.

 

Not quite so good news from the OECD for Italy

Writing in Lavoce, Francesco Giavazzi makes the point that the latest OECD data apparently painted a relatively positive picture of the Italian economy at this stage of the crisis. But the indicator shows the turning points of the cycle with reference to the output gap – i.e. the deviation of the level of economic activity from the level consistent with full employment. This can improve simply due to a fall in potential output in the medium term. For Italy, the fall of potential growth in 2010 is worse than for other countries.

 

Mishkin on bubbles

Frederick Mishkin, one of the most reliable apologists for the Greenspan-era ignorance of bubbles, still essentially maintains the old discredited line, that central banks should ignore asset price bubbles. He now makes one qualification. Credit bubbles are dangerous, other bubbles are not. Writing in the FT, he says the present increase in asset prices is clearly of the second kind, and does not warrant an increase in interest rates. (This is blatant nonsense. These bubble never occur in isolation. Credit is an element of most bubble, as speculators needs, and banks are eager to provide, cheap finance to support the bubble. When you start pricking only after a credit bubble is under way, you are way too late in the game.)

 

UK house prices rising at fastest rate since 2006

Here is some reality check for Mishkin. The Guardian reports that the London property market is now expanding at the strongest rate since 1996, as house price are beginning to approach 2007 levels. The Royal Institute of Chartered Surveyors said real estate was once more turning into a sellers’ market, predicting further price rise down the road. In actual levels, sales were still about 50% of pre-crisis times, but these numbers are likely to pick up as well. (There is no question that the recovery in house price to bubble levels is driven by a single factor: almost zero nominal interest rates)

 

 

 

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