Monday 29 April 2013

The global economy

This is what a world economy “in reoovery” looks like!

Coffers draining, Egypt knocks on world's door for loans, aid to tune of $30 billion



During a meeting in a Black Sea resort city, Egypt's president and members of his government turned to Russian President Vladimir Putin and asked for a sizable loan, according to a Putin aide.

Egypt's Mohammed Morsi appealed to Moscow and Cairo's past ties, recalling how the former Soviet Union stepped in to finance the building of the Aswan High Dam in the 1950s after the United States abruptly withdrew from the project, according to Russian media.

Still, the Russians' response seemed rather equivocal: We'll talk later.

Egypt has been knocking on doors around the region seeking billions of dollars in loans, bond purchases and grants, trying to fill rapidly draining coffers so it can keep power stations running and bakeries churning out cheap bread for the country's millions of poor.

The drive appears to have accelerated ahead of the summer, when the country's fragile electricity network often breaks down under increased energy use and when officials have predicted a drop in wheat supplies....



Greece starts firing civil servants for first time in a century
The Greek government began its first mass-firing of public-sector workers in more than 100 years this week, part of an effort to lay off 180,000 by 2015 under Europe-imposed austerity.



Pushed by its European creditors amid its crippling economic crisis, Greece began this week to do something it hasn't done in more than 100 years: fire public-sector workers en masse.

Following weeks of tough negotiations with its lenders – the "troika" of the International Monetary Fund, the European Union, and the European Central Bank – the Greek government started laying off public-sector workers in an effort to implement the austerity that the troika has demanded. The first two civil servants were let go on Wednesday under a new law that speeds up the process – one, a policeman, for stealing debit cards, and the other for 110 days of unexcused absence.

The mass layoffs were announced last week in a televised address by the Greek prime minister himself, Antonis Samaras. Despite the massive unemployment in Greece, the goal of the government has become the laying off of 180,000 civil servants by 2015. “This is not a human sacrifice," said Prime Minister Samaras. “It’s an upgrading of the public sector and it’s one demand of Greek society.”....



In France, more than 3.2 million unemployed, a record



A record 3.2 million persons in France were unemployed in March with an additional 36,900 out of work in the month, the government said.


Radio France Internationale reported the number of unemployed rose for the 23rd consecutive month in March.


An official unemployment rate was last posted at the end of 2012. At that point, the unemployment rate was 10.2 percent, below the 1997 peak of 10.8 percent.


Every French minister should "engage in the battle for jobs," Socialist President Francois Hollande said while on a visit to China, where he is pursuing business deals for French companies.




Fallen Italian nobles turn castles into B&Bs



Italian princes and countesses, struggling under the European economic crisis, are converting their dream-like castles into bed and breakfasts and luxury vacation rentals. The wealth of the aristocracy has shrunk across centuries and heirs, unable to live-off what remains of family fortunes and assets, have become entrepreneurs.


While noble titles haven't held legal value since Italy's monarchy was abolished in 1946, a loophole in the Republic's 1947 constitution allowed them to be retained as part of a family name. The titles still carry cachet, however, when it comes to attracting tourists to rent out the spare tower....





Spain Is Beyond Doomed: The 2 Scariest Unemployment Charts Ever
This is what a permanent underclass looks like.



26 April, 2013

Spain is in a great depression, and it is one of the most terrifying things I have ever seen.

Five years after its housing boom turned to bust, Spanish unemployment hit a record high of 27.2 percent in the first quarter of 2013. It's almost too horrible to comprehend, but 19.5 percent of the total workforce has not had a job in the past six months; 15.3 percent have not in the past year; and 9.2 percent have not in the past two years. You can see this 1930s-style catastrophe in the chart below from the National Statistics Institute.

(Note: The "already found work" category refers to people who did not have a job at the time of the survey, but did have a job lined up).
SpanishUnemployment2.png

Here's the story of Spanish unemployment in three acts. During the boom, joblessness was relatively high due to persistent structural problems. Then it shot up fast and faster as Spain's building bust and then Lehmangeddon hit in 2008. But it has kept climbing up since the panic abated, albeit at a less catastrophic pace, due to the toxic combination of too tight money and budgets.

In other words, austerity hasn't been the path to prosperity. It's been the path to perma-slump.

But the real story of the Spanish depression has been the story of theindignados: the mostly young, long-term unemployed. It's a bit hard to see just how dramatic it's been in the chart above, so I converted it to a line chart below. Almost all of the increase in unemployment since 2010 has been due to the increase in long-term unemployment of two years or more.

SpainUnemployment1.png

In other words, unemployment is a trap people fall into, but can't fall out of. Indeed, the rate of new unemployment has stabilized at a terrible, but not quite-as-terrible, level, as you can see with the flat blue, red, and green lines. But the steadily rising purple line shows us that the rate of job-finding for the jobless has collapsed.

That is what a permanent underclass looks like.

Housing Lows and Hiring Laws Feed a Disaster

Why has Spain's jobs depression been so great? After all, its GDP is "only" 4.1 percent below its 2007 level, compared to 5.8 percent below for Portugal, 7 percent below for Italy, and 20 percent below for Greece. But despite this better (negative) growth, unemployment is higher in Spain than the others. In other words, Spanish unemployment isn't just about inadequate demand. Part of it is structural.

Spain's labor market problems fall into two big buckets: too much regulation, and not enough education. It's almost impossible for companies to get rid of older workers, which creates a horribly bifurcated labor market. There are permanent workers who can't be fired, and temporary ones who can -- and are. Indeed, as Clive Crook points out, about a third of Spain's workforce are temporary workers who enjoy few protections and fewer opportunities. Companies go through these younger workers without bothering to invest much in their human capital, because why would they? These temporary workers will be let go at the first sign of economic trouble. Young people get stuck in a never-ending cycle of under-and-unemployment since firms are always hesitant to hire permanent workers who will always be on their books.

But it gets worse. The housing bust hasn't just cast a shadow over household and bank balance sheets; it's cast one over young people's educations too. At its peak, building made up a whopping 19 percent of Spain's economy, which, asTobias Buck of the Financial Times points out, lured many young men into dropping out of school for well-paying construction gigs. But now that building has gone into hibernation, all of those young men are left with no work and no education to fall back on. And, again, even if they can find temporary jobs, it's not as if the companies will spend money to develop their skills.

No Hope

It's hard to see anything resembling a case for optimism. Even though the Spanish government's borrowing costs have fallen since the ECB introduced its backstop, Spanish business borrowing costs have not. Small and medium-sized enterprises can't get capital except on prohibitively expensive terms. As Ryan Avent of The Economist points out, this broken monetary transmission mechanism means austerity is hurting Spain more than it otherwise would -- which is clear enough in the data. Despite its cuts, Spain's deficit actually worsened from 9.4 percent of GDP in 2011 to 10.6 percent of GDP in 2012, because its economy fell more than its borrowing costs. The only hint of good news here is Spain just announced it will take two more years to hit its deficit target. But less (self-defeating) austerity isn't enough. Spain needs stimulus. And it might need bailouts too (or, if Cyprus does turn out to be a "template", bail-ins). Indeed, The Economist calculates Spanish housing prices are stillovervalued by 20 percent or so -- which will be even more bad news for its banks.

I wasn't exaggerating when I said this is one of the most terrifying things I have ever seen. Spain needs shock therapy for its labor markets, but that's an impossible political sell when more than a quarter of the population is unemployed. In an ideal world, Spain would pair major reforms with major stimulus; in the real world, it will drag its feet on reforms, try to cut its deficit, and fall deeper into depression.

Let me leave you with this, well, depressing question: Assuming everything goes perfectly, how long will it be till Spanish unemployment gets below 20 percent?

Don't answer that.


Spain revises down its economic forecast
Spain's government has revised down its forecast for the Spanish economy this year, saying the level of contraction is likely to be worse than previously predicted.



Madrid now expects the economy to contract by 1.3% in 2013, compared with its earlier estimate of -0.5%.

The announcement came as the government presented its economic programme for the next three years.

Spain's unemployment rate hit 27.2% in the first three quarters of 2013.

This was the highest level on record in the country. The government expects the unemployment rate to remain at about this level this year, before falling to 26.7% in 2014.....




Eurozone crisis drying up credit to households: ECB
Bank lending to private households in the euro area contracted again in March as the region's long-running debt crisis continues to choke demand for credit, data showed on Friday.



Eurozone bank loans to the private sector declined by 0.8 percent in March compared with the same month in 2012 after already shrinking by the same rate the previous month, the European Central Bank said in a statement.

The ECB has long argued that falling loans to the private sector reflects weak demand for credit rather than tight lending conditions, given the pessimistic view of eurozone growth prospects and heightened risk aversion during the crisis.

The ECB also published eurozone money supply data, which suggest that growth in the money supply -- a key guide to future inflation -- slowed last month.

Growth in the M3 indicator, which measures the amount of money in circulation, grew by 2.6 percent in March, compared with 3.1 percent in February.

The ECB regards the M3 figure as a key guide to inflation pressures and uses it to set interest rates accordingly.


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