austerity

David Gardner

The focus in last week’s European elections was on the seismic waves of the distinct currents of Euro-populism and reaction that “earthquaked” to the top of the polls in France, Britain (or at least England), Denmark and Greece. But arguably the most intriguing insurgency was Podemos (We Can) in Spain, a phenomenon worth examining outside the swish and swirl of populism.

Much of what I have seen written about Podemos has them “coming out of nowhere” – a cliché employed by politicians and analysts that means “we didn’t see them coming”. Yet a three-month-old party with a budget of barely €100,000 shot into fourth place with one and a quarter million votes and five seats in the European Parliament – similar to Syriza, the Greek left-wing party they plan to hitch up with.

The eruption of Podemos and its compellingly outspoken leader, Pablo Iglesias, has already triggered the fall of Alfredo Perez Rubalcalba, the Socialist secretary general who has presided over the party’s worst electoral performance since democracy was restored in 1977-78. But while obviously a rising current of a new left, Podemos could be a broader catalyst for political change in Spain and beyond. 

Ordos, Inner Mongolia (Getty)

Not content with banning lavish banquets and overseas junkets in its efforts to shore up declining moral standards within its own ranks, China’s communist party has moved to stop the building of any more monumental offices.

As the FT’s Simon Rabinovitch points out:

Whether the latest ban has a similarly negative impact on the property market will depend on how it is interpreted by state-owned companies. Chinese corporate executives have felt pressure to comply with Mr Xi’s earlier austerity policies even though government officials, not companies, were his targets.

Beijing has previously tried to stop local governments from building massive new offices, but only with limited success. Even in poorer parts of China, cities and villages have built monolithic offices, replicas of the US Capitol building and faux-European palaces.

But just how excessive are these party palaces? We’ve got a few of them here for your gawping pleasure. 

♦ All change in Europe? French labour market reforms start to bear fruit, with signs of movement in industrial relations and eurozone austerity might be on its way out.
♦ India’s economy grew at the slowest rate in a decadehampered by electricity shortages and poor infrastructure.
♦ Mexico’s highest-grossing film is still filling multiplexes 10 weeks after its release. The NYT looks at whether audiences just want to see rich people humiliated, or whether they are actually looking for a form of middle class catharsis.
♦ Neal Ascherson reports on the state of German politics: “They are pissed off with Angela Merkel’s governing coalition, but reluctant to let go of Mutti’s hand. In short, the public are in one of those sullen, unreasonable moods which make politicians despair.
♦ Ethnic strife in Xinjiang, northeast China, is worsening with the growth of immigrant-dominated settlements – Uighurs are resentful of such powerful entities dominating the region and employing so few of their own ethnic group.
♦ And here’s something to chew on this weekend. When you’re having your morning pastry spare a thought for New Yorkers who have been lining up at 6am, or paying as much as $40, for a delectable new pastry – the cronut, a croissant-donut hybrid. It seems the bakery has a scaling problem, which is driving cronut-craving customers to the black market. 

Esther Bintliff

Irish President Michael D Higgins smiles during the official announcement of the Irish presidential election's results on October 29, 2011 (PETER MUHLY/AFP/Getty Images)

(Peter Muhly/AFP/Getty)

On Thursday morning, a small storm erupted in Ireland over an interview given by the president, Michael D. Higgins, to the FT’s Dublin correspondent, Jamie Smyth.

President Higgins, who is 72 years old, a published poet and a former government minister, argued that EU leaders needed to rethink their “hegemonic” response to the crisis.

“There is a real problem in what was assumed to be a single hegemonic model… The unemployment profile in Greece is different from the unemployment profile in Ireland. You need a pluralism of approaches… We have 26m people unemployed… There are 112m at risk of poverty, a contraction in investment and falling demand.”

Higgins’ remarks were quite frank for someone whose role is largely ceremonial. Some members of the public commenting on the Irish Times website praised his candidness: “He may be small in physical stature, but he is not averse to standing up to the heavyweights of the EU”, said one; another wrote: “THIS IS THE KIND OF PRESIDENT I HOPED FOR WHEN WE ELECTED MICHAEL D. HIGGINS!!!”.

Not everyone was positive. “By speaking out on matters which don’t concern his office, he is skirting dangerously close to creating a constitutional issue – and he does not have a mandate for that,” said ‘PaulFlynn’. When a Sinn Féin representative mentioned Higgins’ remarks in the lower house of parliament (the Dáil) later on Thursday, the parliamentary speaker immediately warned: “Don’t go there with regards to the President, we don’t discuss the President in Dáil Éireann.”  

More on the Great Tax Race
Luxembourg is set to share currently confidential information about multinationals’ bank accounts, showing how much it wants to shed its image as a tax haven at a time of a political and popular backlash against tax avoidance.
♦ One of the biggest hedge fund service businesses on the Cayman Islands has tried to block sweeping reforms to make the tax haven more transparent.
♦ Jeffrey Sachs writes about how austerity has exposed the threat of global tax havens: “In the new world of austerity following the 2008 crash… they are increasingly seen as a cancer on the global financial system that must be excised.”
The rest of the world
Despite Dutch politics being roiled by waves of populist anger and anti-elitism, Willem-Alexander ascends to the throne amid an outpouring of popular enthusiasm – polls show support for preserving the Dutch monarchy running as high as 85 per cent.
♦ President Hamid Karzai acknowledges that the Central Intelligence Agency has been dropping off bags of cash at his office for a decade: “Not a big amount. A small amount, which has been used for various purposes.”
♦ Reuters takes a look through the confidential report prepared for the Cypriot central bank, which found that the Bank of Cyprus had been willing to invest in risky, high-yield Greek debt in its efforts to offset an erosion of its balance sheet from non-performing loans. The report also alleges that 28,000 files, containing emails from a crucial period during which the Bank of Cyprus spent billions of euros buying Greek bonds, were erased before investigators could copy them.
♦ A singer’s lament for Syria, broadcast on “Arab Idol”, has become a hit in the Arab world.
♦ Bangalore, once an advertisement for a new, confident India, is losing some of its sheen.
 

(DOMINIQUE FAGET/AFP/Getty)Austerity appears to be an increasingly dirty word in Europe. The past week alone has seen European Commission President José Manuel Barroso, Bill Gross of Pimco and Italy’s new prime minister Enrico Letta calling for an easing of austerity.

Spain’s surpassing of the 6m unemployed mark on Thursday added fuel to the debate. But even in Germany, the austerity police of the eurozone, cracks are beginning to show ahead of the elections with the emergence of an anti-euro party.

a) Are there any austerians left? Yes. Here are some of them.

- UK: Chancellor George Osborne hit back at criticism over his apparent excessive austerity by claiming there is no other alternative. And after a tough week when he was criticised by the IMF over the excessive pace of his austerity programme, this week has brought better fortunes for his stance as figures showed a lower deficit and the economy expanded 0.3 per cent in the first quarter.

- Germany: Chancellor Angela Merkel’s view as articulated this week couldn’t be clearer: “I call it balancing the budget. Everyone else is using this term austerity. That makes it sound like something truly evil.” Germany is the only eurozone country with a 2012 budget surplus.

- US: The situation here is different because of sequestration, which triggered automatic spending cuts and tax rises. And the White House faces a July deadline to raise the borrowing limit or default on its debt.

- Latvia: The tiny Baltic state is emerging from a state of uber austerity – part of its bid to join the euro later this year – and it could end up being seen as a poster child for successful deficit cutting implementation, with real growth of more than 5 per cent in 2011 and 2012, despite the broader recession in Europe.

- Spain: The push by Europe’s fourth-largest economy to cut spending and raise taxes has led to record unemployment topping 6m for the first time in its recent history. The government of Mariano Rajoy announced economic reforms and structural measures on Friday.

- Italy: The technocrat government of Mario Monti has been steadfast in carrying out fiscal consolidation. All eyes will be on Mr Letta, who has already said: “Europe’s policy of austerity is no longer sufficient”. 

♦ The ever-growing ranks of unskilled and unemployed youth in Spain not only pose a challenge to the economy but are also threatening the fabric of Spanish society – a problem Madrid is only now beginning to address.
♦ Voter outrage sparks José Manuel Barroso’s concerns about eurozone belt-tightening.
♦ Paul Kevin Curtis, who has been cleared in the ricin letter investigation, might have been framed, according to his lawyer. James Everett Dutschke, another entertainer, is now the focus of the investigation and it seems that the two men’s lives have coincided before.
♦ Thirteen female corrections officers were charged with federal racketeering at a state prison in Maryland, US.The indictment described a jailhouse seemingly out of control. Four corrections officers became pregnant by one inmate. Two of them got tattoos of the inmate’s first name, Tavon — one on her neck, the other on a wrist.”
♦The 200m emails to be kept in the George W. Bush Presidential Center are creating years worth of work for archivists, a growing problem for the U.S. National Archives and Records Administration, the federal agency that keeps the nation’s trove of historic documents.
 

♦ Martin Wolf argues that the UK industrial revolution shows the Reinhart-Rogoff thesis on debt is not always right.
♦ Frigide Barjot and her fellow protesters have taken the heat off Hollande as people take to the streets to protest over gay marriage rather than the state of the economy.
♦ The planting of sugar cane has exacerbated the effects of the worst drought in more than four decades in the Indian state of Maharashtra.
♦ Critics say that Nelson Mandela’s family members have been using his status for their own enrichment. Two of his grandchildren are involved in a US reality show called Being Mandela and his daughter has launched a wine business called House of Mandela.
♦ FT Alphaville take a typically irreverent look at the ‘tweet retreat’ in their Occupational Indifference series.
♦ The number of people in Britain receiving emergency food rations has more than doubled in the past year as inflation eroded incomes and government spending cuts have pushed hundreds of thousands into crisis.
♦ Jacob Heilbrunn at The National Interest examines Israel’s fraying image and the possibility that US interest in Israel’s fortune could wane: if Israel remains stymied in dealing with the Palestinians… its predicament is likely to intensify. And the range of options for dealing with the country’s mounting problems is likely to expand toward more radical solutions.”
♦ Japanese drivers are getting televisions installed in the front of their cars. “Japanese law prohibits “staring” at a screen while driving, without saying anything about glancing at one.”
♦ The New York Times is debating the usefulness of Nato.

 

The Austerity Debate
Europe may have hit the political limits of how far it can go with austerity-led economic policies because of the growing opposition in the eurozone periphery, according to the president of the European Commission.
Tim Harford tells the story of Thomas Herndon, the student who uncovered a mistake in a famous economic paper that has been used to make the case for austerity cuts, and considers what it means for austerity economics.

Italy Deadlock
Choking back tears in his inauguration address, Giorgio Napolitano, who at 87 reluctantly accepted an unprecedented second mandate as Italy’s president, slammed the country’s political parties for their failure to reach agreement and for the “unforgivable” lack of political reforms.
♦ Tony Barber argues that public outrage is not bred only by economic crisis, and that politicians in Italy (and elsewhere in Europe) should get their houses in order.
♦ Italy’s political and economic torpor is epitomised in the ruined and abandoned city of L’Aquila.

Elsewhere
In northwest Pakistan, militants are using bombs as campaigning tactics ahead of the May parliamentary elections.
♦ It’s the UK’s turn to host the G8 and Richard Dowden, director of the Royal Africa Society, wants to know if it will do anything to stop companies avoiding tax in poor countries: “More important than giving aid would be to stop doing bad things to poor countries. The worst thing we – the British – do is to maintain the world’s most iniquitous secret tax havens.”
♦ In the past year, two trillion dollars has not been reported to the IRS because “ordinary Americans have gone underground, and, as the recovery continues to limp along, they seem to be doing it more and more.”
Kidnappings of ordinary Syrians are on the rise as lawlessness spreads.
♦ The byline was borne of a need to make reporters more responsible for what they wrote about the Civil War in the US.
 

Esther Bintliff

Want to make your own mind up over Reinhart-Rogoff? Here are links to the original working papers that gave us the mother of all economic dust-ups, the responses of the two sets of authors, and some great secondary sources.

PRIMARY sources:

The working paper by Carmen M Reinhart and Kenneth S Rogoff, published in January 2010:

The critique of the Reinhart-Rogoff research, by Thomas Herndon, Michael Ash and Robert Pollin, published on April 15 2013:

Reinhart and Rogoff respond:

Ash and Pollin respond to the response:

And a selection of SECONDARY sources:

Here’s the post by Rortybomb blogger Mike Konczal that brought the critique to the attention of the masses. Konczal notes that the episode is “good evidence for why you should release your data online, so it can be properly vetted.”

Over at Slate, Matthew Yglesias asked:

FT Alphaville’s Cardiff Garcia and Joseph Cotterill shared their thoughts on the debate:

Paul Krugman has been busy: