EUCOM Economic Analysis - Part I

[Surferbeetle]

Lost illusions on Europe, Editorial, January 9, 2013 7:13 pm, Financial Times, www.ft.com

Britain needs to adopt a hard-headed approach founded on the national interest – and hold a referendum

The UK’s troubled relationship is a matter of culture, geography and history. Britain is a post-imperial power with an affinity to other English-speaking countries, especially the US. Mutual incomprehension between the UK and Europe comes down to a basic difference in outlook: while the UK sees membership of the club in economic terms, France and Germany, the co-founders, see the European Union as a political project forged from the ashes of the second world war.

This newspaper has always argued in favour of Britain’s membership of the EU, and we continue to believe it is central to the national interest. Our reasons go beyond a purely economic calculation of cost and benefit. They have to do with Britain’s place in the world. Membership gives the UK influence over the biggest global market. It helps to keep the US relationship special. It amplifies the UK’s sway in a world where economic power is shifting eastwards.

The benefits stretch across national frontiers. Thanks to the single market, the British can live, work, travel and study freely across Europe. Enlargement of the EU southwards and eastwards has consolidated democracy in Spain, Portugal and Greece and created a zone of peace and prosperity in former communist central and eastern Europe. Nonetheless, today’s EU is vastly different from the one the UK joined in 1973, or indeed the one Britons voted to stay in when they were last given a chance to express their views in a referendum in 1975.

[davidbfpo]

Surferbeetle,

The last sentence from the FT article provides the context for my comments:

Nonetheless, today’s EU is vastly different from the one the UK joined in 1973, or indeed the one Britons voted to stay in when they were last given a chance to express their views in a referendum in 1975.

In 1975 I happily voted to remain a member of the European Economic Community (EEC). Somehow the European political elite converted this idea to a single market, with an explosion in bureaucracy and rules - which of course needed a state-like structure, with a parliament, court and more. This structure then became a federal Europe, the European Union (EU).

The EU being democratic oddly forgot to give everyone a chance to vote in national referenda on this decision. Those few national electorates that had the chance to decide and voted 'no' had to hold a second vote to get it right! IIRC Denmark and Ireland.

The European political elite have failed to persuade most voters IMO that the EU - which is a federal state - is necessary, even preferable. Along came the recession plus further weakening public belief in politicians.

In the UK the Conservatives in opposition promised a referenda, but once in coalition with the very pro-EU Lib-Dems David Cameron forgot.

Now I regret voting 'Yes' in 1975, if asked today I would vote 'No'.

[Surferbeetle]

The European political elite have failed to persuade most voters IMO that the EU - which is a federal state - is necessary, even preferable. Along came the recession plus further weakening public belief in politicians.

David,

Appreciate your insights and point that 'the brussels political elite' have failed to convince many that the EU as structured or as proposed can/will provide the highest and most authoritative good for the polis. Here across the pond we also have questions regarding 'the washington political elite' and their (apparent lack) of ability to concentrate on providing the highest and most authoritative good for the polis.

Ran a quick google search and found that France, Ireland, and the Netherlands all have had significant questions regarding the EU Constitution. As you have noted previously, Nigel Farage seems to be one of the stronger/more effective communicators on this topic of late. I am not sure about Taoiseach Kenney's latest. Nonetheless it's reassuring to see that civil discourse and the democratic process (as flawed and messy as it is) are the preferred method to examine and address concerns.

Meanwhile, back at the armchair, I have pulled out my quadrangle graph paper & pen and started drafting up likely trading & investing scenarios involving Brixit and the latest US debt ceiling debacle...

Although you are likely more familiar with the topics at hand than am I, here are a few of this evening's search links that I found to be of interest:

• Plato, Aristotle, and the Purpose of Politics, Dr Kevin M. Cherry, University of Richmond, http://www.cambridge.org/aus/catalog...7021679&ss=exc
  
• French European Constitution referendum, 2005, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/French_...ferendum,_2005
  
• Irish European Constitution referendum, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Irish_E...ion_referendum
  
• Dutch European Constitution referendum, 2005, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Dutch_E...ferendum,_2005
  
• Nigel Farage, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Nigel_Farage
  
• Enda Kenny: “Brixit” would be “disaster”, By Pierre Lemoine in Dublin | Wednesday 09 January 2013, Europolitics, http://www.europolitics.info/europol...346907-46.html
  
• Goodbye Europe, The Economist, Dec 8th 2012, http://www.economist.com/news/leader...ld-be-reckless
  
• Britain needs to lead in a strong, reformed EU, From Mr Roland Rudd, Sir Richard Branson and others, January 8, 2013 10:01 pm, Letter to the FT, www.ft.com
  
• Banks Win 4-Year Delay as Basel Liquidity Rule Loosened, By Jim Brunsden, Giles Broom & Ben Moshinsky - Jan 7, 2013 9:23 AM MT, Bloomberg News, http://www.bloomberg.com/news/2013-0...roup-deal.html
  
• Japan’s Abe Urges 2% Inflation as Shirakawa Attends Meeting, By Andy Sharp & Keiko Ujikane - Jan 9, 2013 7:09 PM MT, Bloomberg News, http://www.bloomberg.com/news/2013-0...-meetings.html
  
• If the tide goes out, investors beware, By James Mackintosh, January 9, 2013 8:35 pm, Financial Times, www.ft.com

[Fuchs]

This may interest you

http://delong.typepad.com/sdj/2013/0...ecessions.html

[Firn]

Interesting. Thanks for the links.

[Surferbeetle]

Energiewende, spare economic capacity, what the heck is FRED, linkages between soft & economic power, Japan, trillion dollar coins, France's economy...

Der zweifelhafte Erfolg der deutschen Stromexporte, Matthias Benz, Berlin, 13.1.2013, NZZ, http://www.nzz.ch/aktuell/wirtschaft...rte-1.17937315

Deutschland hat im vergangenen Jahr so viel Strom ins Ausland geleitet wie nie zuvor. Dies geht aus einer neuen Schtzung des Bundesverbandes der Energie- und Wasserwirtschaft (BDEW) hervor. Demnach exportierte Deutschland 2012 Strom im Umfang von 23 Mrd. kWh. Im Vorjahr war dieser Wert auf 6 Mrd. kWh gesunken. Als Hauptgrund fr das Exportwachstum wird der starke Ausbau der erneuerbaren Energien, vor allem von Windkraft- und Solaranlagen, angefhrt.

Der Chef des deutschen Energiekonzerns E.On, Johannes Teyssen, betont etwa schon seit lngerem, dass man in Polen und Tschechien die Stabilitt des Netzes gefhrdet sehe, wenn die deutschen Windkraftwerke im Norden zu viel Strom lieferten. Beide Lnder wollen deshalb ihre Netze mit sogenannten Phasenschiebern zeitweise abschotten. Dies luft freilich der Idee eines integrierten europischen Binnenmarkts fr Strom entgegen.

How much spare capacity does the world have left?, January 13, 2013 5:12 pm by Gavyn Davies, Financial Times, http://blogs.ft.com/gavyndavies/2013...rld-have-left/

What does all this imply for the future? In the short term, it suggests that any rise in nominal demand, stemming from expansionary policy or a recovery in private spending, is much more likely to be reflected in rising real output than in higher inflation. Demand management policy can be expansionary.

However, in the longer term, it does not support the view that the developed economies can easily return to their pre-2008 trendlines for GDP through demand expansion alone. Perhaps they can never get there, or perhaps there is a speed limit which cannot be safely exceeded [2]. In either case, supply constraints would not be as remote as the use of linear trendlines would imply.

Federal Reserve Economic Data, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Federal..._Economic_Data

British tin ears leave EU deaf to demands, By Tony Barber in London, January 13, 2013 4:46 pm, Financial Times, www.ft.com

On January 22 Angela Merkel and Franois Hollande, the German chancellor and French president, will lead celebrations marking the 50th anniversary of the Elyse treaty of postwar Franco-German reconciliation. Only tin diplomatic ears, or minds closed by arrogance, can explain why British policy makers fail to care that Paris and Berlin might be offended if David Cameron, the UK prime minister, were to choose this almost sacred date for his long-awaited speech on Europe.

Notes on Japanese Numbers (Boring), Paul Krugman, January 13, 2013, 11:28 am, NYT Blog, http://krugman.blogs.nytimes.com/201...umbers-boring/

In a way, recent developments can be seen as a demonstration of a point I’ve tried to make about bond vigilantes: even if they show up, they won’t drive interest rates up, they’ll drive the dollar down, which is a good thing. In Japan’s case, you can think of what’s happening as a growing belief on the part of investors that Japan will end up inflating away part of its debt. This has led to a currency drop; it has *not* led to an interest rate spike:

Debt Limit Showdown Spurs Debate On Trillion-Dollar Coin, By Ian Katz - Jan 8, 2013 11:33 AM MT, http://www.bloomberg.com/news/2013-0...llar-coin.html

The proposal for the Treasury Department to mint a platinum coin worth $1 trillion and deposit it at the Federal Reserve to give the U.S. enough money to pay its debts...

The Treasury will run out of funds to pay its bills between Feb. 15 and March 1, the Washington-based Bipartisan Policy Center said in a report yesterday.

IMF Concerned With the Pace of France’s Economic Reform, By: Domenico Lombardi, January 8, 2013, Brookings, http://www.brookings.edu/research/op...onomy-lombardi

While the IMF had hoped for a “competitiveness shock” reform package, Paris has responded with selective and incremental measures to be put in place gradually. On the whole, the Hollande presidency has yet to put forward a convincing reform agenda. And yet, experience teaches us that the first months of government are the most fruitful in terms of reform.

Bloomberg Risk Brief, 01.11.13, http://www.bloombergbriefs.com/files/RiskP1_011113.pdf

The 10 largest U.S. money-market funds’ holdings of French bank securities overtook their British counterparts for the first time in at least 16 months on growing confidence in the euro region and cheap U.K. state funding that lessened the need to issue short-term debt.

The funds’ French bank holdings increased by $9.6 billion to $42.8 billion in December, while British banks were cut by $11.2 billion to $29.4 billion, according to a survey of the funds’ bank holdings by Bloomberg Brief: Risk Newsletter. The bank with the largest increase was Natixis SA, the investment-banking unit of Groupe BPCE, France’s second- largest lender by branches.

[Firn]

Energiewende, spare economic capacity, what the heck is FRED, linkages between soft & economic power, Japan, trillion dollar coins, France's economy...

Der zweifelhafte Erfolg der deutschen Stromexporte, Matthias Benz, Berlin, 13.1.2013, NZZ, http://www.nzz.ch/aktuell/wirtschaft...rte-1.17937315

I will have to drop a couple of questions to my uncle, an engineer, who manages a couple of hydro power plants on this issue which is highly interesting. (Water being a hot topic as a source of potential kinetic energy storage). I personally understand all too little about the issue. It seems to me that an old and quite proven interplay of entities is heavily unbalanced by the influx of this renewable energy revolution. Adaption is necessary to overcome this, but how to do it and who pays for it?

Of course, and needless to say E.on is also one of the players and suffered heavily by the Merkel switch which was partly an expropriation for the owner of it's stock which saw their value go down a great deal. (I invested quite recently in E.On IIRC I also wrote so in this thread) So we have to take everything they say with a pinch of salt. Still the basic problem is, I guess, quite clear: The demand does often not match the (forced) supply.

With wind and solar energy the supply side does get of course determined by exogenous variables which can partly be planned for but not positively influenced. A better interBund infrastructure could spread the shocks better, but much more so a European one. As usual the solution will best come at many levels. For example energy-intensive industries might be attracted by a plain lower price to consume more on sunny and windy hours. This will mean some head-scratching and some € invested but may give a good return on it. Or for example boilers might get increasingly get switched on during the day.