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May 18, 2016

A man with sharp suits and a soft tongue

The Austrian opinion pollsters were so humiliated in the first round of the president elections that they are no longer publishing any polls ahead of this Sunday's second round. The last ones we saw were a few weeks old and had the two candidate neck-and-neck, but most commentators see Nobert Hofer of the far-right FPÖ ahead of Alexander Van der Bellen of the Green party, the other surviving candidate. As with Brexit (see more below), the outcome is genuinely uncertain. But this election is important. The role of the Austrian president may be described as ceremonial, but it becomes ultimately very powerful during periods of government change. The president has the right to refuse the nomination of a chancellor. He can also force elections. These are powers that go far beyond those of the German president, whose role is genuinely ceremonial, and even that of the Italian president.

Christian Kern yesterday became Austria's next chancellor. Der Standard was impressed with both the perfection of his sharp suits and of his language. He made one important remark after being voted in, which is that he could envisage a cooperation with the FPÖ, not now but at some point in the future. While the ÖVP used to be in a coalition with the FPÖ previously, the SPÖ, the Social Democratic senior partner in Austria's current coalition, had so far categorically declined any co-operation, though it was in a coalition with the FPÖ in the past before it became radicalised under the late Jorg Haider. If Hofer were to win the elections, Kern may have no other choice since it would then become impossible to ignore the FPÖ. In any case, expect Austrian policy to shift to the right.

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May 18, 2016

Where did all the bailout money go?

There is a growing number of papers out there assessing where the money in the two Greek bailouts went. Pablo Gabriel Bortz gives an excellent overview of the common points and discusses the differences between the papers. At one end of the spectrum we have Hans Werner Sinn, claiming that only one-third of the financing actually went to pay the creditors, another third financed the current account deficit, and the remaining third was used to fund capital flight by Greek nationals. At the other are papers by Rocholl and Stahmer (2016), Mouzakis (2015) and Bortz himself (2015), coming to the conclusion that 80%-95% was used for debt-related repayment (depending on what is considered debt-related), while less than 5% was available for primary expenditures. Fabio Colasanti (2015) differs in including interest payments and bank recapitalisation as part of Greece’s public expenditure, as he considers them the responsibility of the Greek government. But they all come to a similar conclusion that the lion's share of the money received under the bailouts went back to the original countries and only very little remained in Greece.

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May 18, 2016

The message of conflicting Brexit polls

When we looked at the latest Brexit polls, we saw something that struck us. ICM has two polls on the same day with contradictory results: 47-43 in favour of Leave, and 47-39 in favour of Remain. The difference is due to methodology: the first is a phone poll and the second is an online poll, and conventional wisdom has it that phone polls are better, or at least that was the case last year during the general election. We also noticed another poll, by TNS, which has Leave ahead the first time since February, with 41-38. The polling organisation says there is some evidence of a trend among undecided voters to join the Leave camp.

What do all these polls tell us? The Guardian has an interesting analysis on this, which essentially concludes that the technically correct answer is: we don't know. The concurrent ICM polls, which also include questions about party preference, constitute a good statistical test on polling methodology. The article quotes a pollster as saying that phone polls overrepresent pro-EU Labour voters, while the online polls overrepresent pro-Brexit Ukip voters. They are both biased. The article concludes, correctly in our view, that there is no way adjudicate between the two polls, and says a good guess is that the answer lies in the middle. But we don't even know that. This is genuine uncertainty, meaning "not a clue", as opposed to a 50/50 chance implying you know the probability distribution but not the outcome. These fine details matter.

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