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April 07, 2017

Who gets 40% in elections nowadays?

The Socialist government in Portugal is highly popular. The polls below show that if there were elections today, they would win with a comfortable majority of 40%, a dream figure by European standards.  

The centre-right PSD is the party that lost out, as only 27% would vote for them now. Amidst those dismal figures, the question of leadership is coming up. Pedro Passos Coelho appears combatant, saying that even if the PSD gets bad results in the local elections in six months' time, he would not resign from the party leadership. This is a sign that questions have been asked. 

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April 07, 2017

What’s so puzzling about the productivity puzzle?

How to cross the bridges of Königsberg in a non-overlapping path was a real puzzle - mercifully now solved. The UK productivity puzzle is not in the same category. The decline in UK productivity, which Martin Wolf writes about in his latest column, is certainly puzzling from the standpoint of classic economic analysis. But the list of the sectors most affected may give us a first clue: banking, telecommunications, utilities, management consultancy, and legal and accounting services. As Wolf writes, these sectors comprise 11% of the UK economy, yet account for two-thirds of the slowdown. 

Our own observation is that these sectors have two things in common: they are the most regulated of all economic sectors, and most belong to the category of EU single passport sectors. The regulatory crackdown on mortgages, for example, has reduced the amount of lending per worker employed in the UK banking sector. Banking and exportable services have been the UK’s party trick in the EU, a business model that generated a steady flow of income for parts of the UK economy - in London mostly - but little productivity growth of late as the eurozone itself has been through a long period of economic stagnation. We have argued for some time that it was unsustainable for the UK to maintain what must be one of the strangest large-country business models in existence - which is that of playing financial centre to a monetary union it refuses to join. By getting rid of the single passport, Brexit will in the long run lead to a different domestic specialisation, and thus address the productivity puzzle if accompanied by a loosening of regulation.

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April 07, 2017

Why this time is different in German poitics

Günter Bannas, the veteran German political commentator, looks at the history of German coalitions and notes that this time is different. In the past, the small parties have pre-committed each other to coalitions with other parties, but this time they do not. The reason is that it is impossible for them to do so because even small arithmetic deviations from expected outcomes would put the entire system into a different position. The Green Party was always committed to a coalition with the SPD, but not yet with the CDU, except at state level. The FDP has switched twice - towards the SPD in 1969 and then back again to the CDU in 1982. The party almost perished after the last switch. This time the only pre-commitments anybody is willing to give are negative ones - the CDU/CSU is committed not to enter a coalition with the AfD or the Left Party. The SPD will not join with the AfD. Bannas says the upcoming two state elections in May, in North-Rhine Westphalia and Schleswig-Holstein, may change the SPD’s position. But the bottom line is that, with six parties in the Bundestag, it will be impossible for any two to form a majority - except for a grand coalition of CDU/CSU and SPD. That will only happen if there are no other arithmetic alternatives that are politically feasible - i.e. without the participation of the AfD.

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