Archive for the ‘Europe’ Category

nobel prize in decline

Three years after awarding Barack Obama the Nobel Peace Prize for no reason, the Norwegian Nobel Committee has once again made an absurd decision. In a world with probably thousands of outstanding people, the European Union was chosen for this year’s Nobel Peace Prize. Let aside the so-called Euro crisis, and neglect the bureaucratic mess, what the EU has caused by its agricultural subsidies alone is worse than most war crimes of the 20th century. But who really cares about poor African people?

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european presumptuousness

Just a few days ago Jose Manuel Barroso, head of the European Commission, told the Greek people that they have to “deliver, deliver, deliver”:

This sounded arrogant and was offensive to many listeners. But in order to emphasize his own presumptuousness, Barroso moved on today and suggested to raise EU’s budget by a stunning 6.8 percent for the next year. This is nothing but outrageous given that the budget for the Commission is already 5.8 billion Euro, and 129 billion to cover all 45’000 EU officials. Let alone his personal salary of 24’422 Euro. Per month.

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no crisis

Pascal Salin, professor emeritus of economics at the Université Paris-Dauphine, argues for the Wall Street Journal that there is no such thing as a Euro crisis:

There Is No ‘Euro Crisis’

The “euro crisis” is a pure political construction without any economic content. It could even be said that the crisis is a splendid opportunity for many politicians to impose some of their longstanding goals on everyone else.

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About a week ago Nigel Farage, member of the European Parliament, presented his thoughts on why one EU “solution” after another has failed:

The Spanish prime minister […] might just be the most incompetent leader in the whole of Europe. And that is saying something because there is pretty stiff competition.

Ten years ago […] we were told that with the Euro, by 2010 we would have full employment and indeed that Europe would be the competitive and dynamic powerhouse of the world.

 

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If we were to believe in Keynesian economics, shouldn’t we encourage more Greek people to riot in the streets? One day they will have destroyed enough to make reconstruction jobs stimulate the economy…

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The other day I had an interesting discussion about the European Fiscal Compact and its Article 11 in particular:

With a view to benchmarking best practices and working towards a more closely coordinated economic policy, the Contracting Parties ensure that all major economic policy reforms that they plan to undertake will be discussed ex-ante and, where appropriate, coordinated among themselves. Such coordination shall involve the institutions of the European Union as required by European Union law.

As far as I read this, Article 11 puts an end to each signatory state’s sovereignty. If a country can no longer pass ‘major economic policy reforms’ without agreement by other states, this constitutes a significant lack of independence. However, my colleague argues Article 11 is (a) too vague and (b) does not differ too much from previous European agreements.

That did not set my mind at rest. So what do you think?

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A few days ago the European Union published its updated economic forecast. All in all, the outlook is far from sunshine and roses:

The EU economy is estimated to be currently in a mild recession.

The picture presented in the interim forecast in February is broadly confirmed for 2012, with real GDP projected to stagnate in the EU and to contract by -0.3% in the euro area. For 2013, growth is forecast at 1.3% in the EU and 1.0% in the euro area.

Looking at the detailed statistics, we find huge cross-country differences in per capita income growth. Furthermore, we see that the EU had to lower its forecast for 2012 by about 0.7 percentage points: instead of 0.4% growth, per capita income is now expected to fall by 0.3% this year. With these adjustments we also observe severe cross-country differences. Slovenia’s per capita GDP forecast changed from +0.8% to -1.6%, while Germany’s outlook only changed from 0.9% to 0.6%.

The question is, do these tiny differences actually matter? Does it make a big difference whether a country’s GDP per capita grows by, say, 1.0% or 1.5%?

The answer is simple: Differences in growth rates do matter. And they matter a lot.

Consider the following illustrative example: Suppose we have six countries with a per capita income of 100 in the year 1960. What would have happened to their GDP per capita if they had grown at different rates?

Different growth paths

The figure reveals the striking impact of differences in growth rates. While all countries started at a level of 100, the richest would now have 465 while the poorest country is still at 130.

So, what is the lesson here?

If the EU lowers its economic forecast by 0.7 percentage points, that is certainly not a minor adjustment. Although it may not have a huge impact for one year, it certainly affects long-term prosperity.

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With the ECB and Fed increasing money supply, it will not come as a surprise if we observe higher rates of inflation in the years ahead. Thus it is a good idea to have a closer look at the causes and repercussions of inflation. Nobel laureate Milton Friedman has dedicated much of his work to the role of monetary policy and he discussed the issue some years ago:

Inflation is always a monetary phenomenon, a result of too much money.

Governments control the amount of money. As a result, inflation is made in Washington and nowhere else.

Inflation is a form of taxation. If government spends more than it takes in through what is called taxes, it has to meet the difference either by printing money or by borrowing.

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Some years ago, Dr. Warren Farrell published a much-debated book called “Why Men Earn More“. At that time he also gave a bunch of interviews that have gained importance now that even the European Union believes it must act.

If men earn a dollar for each 76 cents that women earn for the same work, why would anybody hire a man to do anything?

 

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Irish economist David McWilliams explains the ECB’s massive cash for trash scheme:

We have insolvent banks lending to insolvent governments and we are calling it success.

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