The ECB in July 2013 published an extremely interesting paper on “The Impact of Political Communication on Sovereign Bond Spreads.” Here are some highlights.
Keep in mind that, “Euro area countries are more exposed to the risk of self-fulfilling crises whereby investors generate a liquidity crisis that can degenerate into a solvency crisis.”
Correcting for financial, economic and other political events, this study finds that political communication – both of a positive and negative nature – does have a daily contemporaneous effect on sovereign bond yield spreads.
Similarly, an interesting finding is that economic fundamentals appear not to have a significant influence on bond spreads in the short term, but are instead overwhelmed by statements, credit rating changes and country specific events.
Bond investors will price risk appropriately only if the realistically face a danger of default. Governments will run sound fiscal policies only if they know that they are not going to be bailed out by the euro area and that they might face higher financing costs. This debate about incentives and principles is a fully legitimate one in open democratic societies. However, it has sent a possibly destabilising message to potential investors in the bonds issued by troubled countries, namely that those bonds are not safe assets because the probability of a complete redemption was seen as reduced, and this with a perceived (semi-)official sanction. Investors have therefore demanded a large risk premium. This, in turn, may have contributed further to the fiscal problems in the peripheral euro area countries over the past two years. Policy-makers are therefore confronted with a certain trade-off between conducting open democratic debates and respecting the needs of the financial markets, reflected by the controversy over the notion of a “democracy in conformity with market needs.”
This study does not find any strong empirical evidence that the amount of political communication has an impact on the level of government bond yields. Rather, our finding is that the connotation of the communication determines the type of impact on government bond yields: positive communication can lead to a compression of spreads, whereas negative communication can cause a widening of pspreads.
Communication policy would be more effective if certain principles were respected in the design and implementation of politicians’ communication strategies.
At several points during the crisis, certain types of political communication may have added uncertainty rather than certainty to market perceptions about the sovereign debt crisis in the euro area, and that unconstructive and inconsistent communication can have real and tangible effects on countries, their financing conditions, and by extension, on their populations, as well as on the cohesion of the euro area.
I fear that one can safely argue that the impact of governmental change in Germany in 2009 and especially the entry of the FDP into power was not a good thing for the Eurozone.
J’ai récemment publié un billet sur Rue89, une critique du livre « Made in Germany : Le modèle allemand au-delà des mythes » écrit par le rédacteur en chef des Alternatives économiques Guillaume Duval.
Steven Erlanger, the NY Times London bureau chief, has written a piece that made quite the buzz in social media about France as ‘A Proud Nation [That] Ponders How To Halt Its Slow Decline.’ I am a bit at a loss as to why this piece would be considered as noteworthy. More of the same it would seem, preaching to the – Anglo-Saxon – media choir that has announced the imminent end of the French model for decades. Craig Willy has written convincingly about this in regard to the Economist, so let me just add a few points in response to Erlanger’s piece.
He starts out wondering whether “a social democratic system that for decades prided itself on being the model for providing a stable and high standard of living for its citizens can survive the combination of globalization, an aging population and the acute fiscal shocks of recent years.” Now, of course all three of these are true for the rest of Europe – to some extent the Western world + Japan – also, except of course that France in fact is in a notably better position in what concerns its demographics than, say, Germany or really almost anybody else in Europe (the one exception being Ireland). Why France should be discussed as a particularly failing model based on criteria that actually speak favorable to its – relative – sustainability hardly seems logical.
Yet, “Mr. Hollande may simply lack the political courage to confront his allies and make the necessary decisions.” What those decisions are seems far less clear, which really is little surprising seeing the contentious nature of academic debate on these questions. Still, for Erlanger it is clear that “in a more competitive world economy, the question is whether … the French can continue to afford [their]” “social model.” “Based on current trends, the answer is clearly no, not without significant structural changes — in pensions, in taxes, in social benefits, in work rules and in expectations.” I don’t fundamentally disagree with his overall assessment of France requiring some reform, I do wonder if the New York Times would ever publish a similar piece arguing the same thing for the US’ military and public health spending for which “based on current trends, the answer is [as] clearly no.” France is in no way an outlier in the unsustainability of its public finances and this hardly is a reflection of the size of its social model.
Let’s keep on going though, French “growth is slow compared with Germany, Britain, the United States or Asia.” Ignoring the (still) rapidly developing nations in Asia that it is a bit weird to directly compare to any rich Western country, how does France compare with the rest of the West? France is growing slower than the United States and export-dependent Germany, growth has interestingly enough been faster in France since 2005 than in the UK though. This even while the latter clearly outperformed France from 1995 onwards. Not only does the rest of Europe differ little from France once more (it is worse off actually), it is additionally far from clear what a comparison between the British and French experiences of the crisis should tell us.
I could go on and wonder about Erlanger’s criticism of “82 percent of the new jobs created last year [being] temporary contracts” that are “not the kind of full-time work that opens the door to the French middle class,” which of course sounds like exactly the French Leftist he had been criticizing before. Isn’t that the kind of deregulation France is supposed to pine for? Or that a national debt figure of 90% of GDP is little different from Germany (82%), the UK (88%), and much better than the US (101%). Obviously France needs to do some reforms, but so does most everybody else. The attention focused on France’s supposedly dire economic situation in the English-language media in particular – but also in Germany – hardly seems justified by any objective measure. To the contrary, it is oftentimes based on faulty assumptions.
Comparisons between Algeria and Egypt have been all the rage recently. A whole number of interesting pieces about the worrisome potential similarities (and the seemingly reassuring dissimilarities) have been written. Amongst these the most insightful ones I read were Hicham Yezza on Open Democracy and William Lawrence on Fikra Forum. Of course, as Lawrence puts it, stating the obvious, “Egypt is not Algeria,” yet at least superficial similarities between the two military-led putsches against an electoral majority abound and make a closer look into them worthwhile.
Following a suggestion by Shadi Hamid on Twitter, I thus read Michael Willis‘ history of events in Algeria until 1996 entitled The Islamist Challenge in Algeria – A Political History. Willis starts out his book, based on his Ph.D. thesis, with a history of political Islam – or Islam used for political means however you prefer – in the region of what is today Algeria. The difference between the traditional Sufi-inspired variety of Islam in the region and the reformist Islam essentially imported from the Gulf and Egypt he highlights is very interesting, especially in light of its urban (reformist) vs rural (traditional) component, if maybe little relevant outside the Maghreb. Following a discussion of (the regionally traditional) Islam as a tool in resistance against the French in the 19th century, he moves on to a discussion of a reformist Islam as a mainly cultural tool of national affirmation in the early 20th century. This movement during the Algerian war of independence is essentially incorporated into the FLN (Front de libération nationale).
Political Islam as an independent movement comes to the forefront once again in the 1980s then when the FLN-regime following the death of President Houari Boumedienne and in light of economic stagnation and rising unemployment was faced with wide-spread societal opposition (also from Feminist and Berber groups). The emergence of political Islam as an actor in political debate in for example the passing of a more restrictive Family Code in 1984, was paralleled by a minority of its adherents attempts at a ultimately defeated violent campaign against the state led by Mustapha Bouyali‘s MAIA (Mouvement algérien islamique armé).
Some of Algeria’s traditional Islamist leaders then went on to found the FIS (Front islamique du salut) to seize upon a thaw of the regime’s authoritarian mode of governance in the wake of massive demonstrations in 1988. In a clear parallel to the movements of the Arab Spring, these demonstrations were not predominantly made up or led by figures representing political Islam yet they were thrown into a leadership position thanks to their discipline and organisation in the face of a disparate if not to say chaotic mass movement.
The Algerian President at the time, Chadli Bendjedid, positioned himself in favour of a further opening of the political system allowing competitive elections first at the local level in 1990 and then nationally in 1991. Willis seems undecided as to his motives, which might have simply been a belief in the need for more democracy, but – this is the cynic in me talking – more likely was a reflection of him trying to establish himself as an independent power broker between the traditional ruling party, the FLN, and the new force in the field, the FIS. Chadli also seems to have underestimated the electoral appeal of the FIS, which not only swept the local elections in 1990, but also the first round of national elections in 1991, almost winning an absolute majority of seats in the first round alone.
An interesting aspect, interspersed in between the local elections dominated by the FIS and the national elections in December 1991, is that the national Assembly introduced a electoral voting reform in the Summer of 1990, with the FLN majority essentially trying to gerrymander itself to victory. The FIS called a general strike against this clearly anti-democratic attempt, yet it failed to mobilize a majority of working Algerians in support of this strike. It did manage to incite important crowds to take part in demonstrations, which became increasingly violent. This, of course, points to another interesting parallel with the Arab Spring, these being the bifurcation of society and especially the attractiveness of political Islam – or alternatively anybody who positions himself against the state as recent events in Egypt and the Tunisian interior have shown – as an alternative for those de facto excluded from the relative prosperity offered to a select few by an over-regulated economic system.
The Algerian military putsches itself into power in early 1991 then, forcing Chadli to resign and installing a civilian President, Mohamed Boudiaf, at the head of a council also including the actual strongman of the new regime, Khaled Nezzar, as its Defense Minister. In an interesting aside for Egypt, Boudiaf, untainted by much what had gone on in the past due to his exile, assumed a much more prominent role in trying to reignite the Algerian economy and incorporating the FIS’ voters back into society’s fold than most had presumed. Adly Mansour has so far shown little signs assuming such a role and in any case Boudiaf might have paid for his (semi-)independence with his life as he was assassinated soon after in uncertain circumstances.
Algeria descended into a civil war of course with anywhere from 60 to 150 thousand victims. Willis’ book – for no fault of his – ends a bit disappointingly early in 1996 and thus tells us little about the end to this slaughter. Yet, his portrayal of its beginnings and the vain attempts to end it early on remain insightful. Maybe the most important lesson for Egypt is that the FIS was essentially beheaded by the Algerian security forces, its leadership in prison or in exile, which served the radicalization of those activists not – yet – in prison. Resistance or insurrectionist groups thus multiplied and were essentially incontrollable by any single entity. Notably, the FIS never had any control over the most important of these groups, the GIA (Groupe islamique armé).
The danger for Egypt and its new government might thus not be that it cannot effectively get rid – les liquider ou les emprisonner tous (Le Monde)– of the cadres of the Muslim Brotherhood, what instead arguably poses the greatest threat to the country is what happens afterwards. Will the Egyptian military create the very Hydra it claims to be fighting? It is at this point that I side most with Lawrence’s aforementioned piece which argues that it is essentially the military’s behavior from here on out that matters most.
The Islamist Challenge in Algeria provides an interesting insight into the past of political Islam in Algeria, while seemingly offering some pertinent lessons for the countries of the Arab Spring. Rashid al-Ghannushi the Tunisian governmental Ennahda party’s President for one was in Algeria and closely associated with the leadership of the FIS at the time, arguably his more moderate and inclusive leadership, which has allowed Tunisia to remain the best hope for democracy in the region still standing, is also due to the lessons he drew from his Algerian comrades’ experience. Something that Morsi and the Muslim Brotherhood are learning in a disgustingly bloody way now.
Die Berichterstattung der taz über den Militärcoup in Ägypten erschreckt mich schon seit längerem in ihrer Rechtfertigung einer Konterrevolution, die jedwede demokratische Prinzipien missachtet – ungeachtet aller gerechtfertigten Kritik an der Regierungsweise Morsis und der Muslimbrüder. Edith Kresta setzt hier in der heutigen Ausgabe der taz noch einen drauf mit zwei unglaublich tendenziösen Artikeln, welche außerdem ihre Ahnungslosigkeit furchtbar bloßstellen.
Fangen wir beim grundsätzlichen an, der Begriff Säkularismus ist in Tunesien – und gesamten arabischen Raum – leider kaum anwendbar, da er in Bezug auf die im christlichen Europa vorherrschende Vermischung zwischen Staat und Kirche entwickelt wurde. Im Islam ist der Begriff kaum anwendbar, einerseits weil es unter den Nachfolgern Mohammeds keine Trennung zwischen Staat und Religion gab, andererseits aber weil es im Islam im Prinzip überhaupt keine Kirche als solche gibt. Es ist also unklar was Kresta eigentlich meint, wenn sie von „säkularen Parteien“ spricht, islamisch sind diese nämlich auch und sie werden auch den Islam als Religion Tunesiens – laut Artikel 1 sowohl der neuen als auch der alten Verfassung und damit allgemein Konsensus – verteidigen. Sie sehen sicherlich eine schwächere Rolle für die Religion als Quelle der Gesetzgebung als Ennahdha, man sollte diese Unterschiede, die sich vor allem an Symbolpolitiken wie der Scharia als Inspiration oder Fragen der Verschleierung aufhängt, aber nicht als einzig relevante Dichotomie verkaufen wie die Autorin dies tut, das ist Augenwischerei.
Kresta meint weiterhin, daß eine neue Verfassung nicht unbedingt nötig sei, „denn so schlecht, so undemokratisch ist die alte nicht.“ Das unter dieser Verfassung Tunesien seit seiner Unabhängigkeit 1956 diktatorisch regiert wurde ignorieren wir jetzt einfach mal und lassen den Leser selber urteilen.
Neuwahlen seien vonnöten für „eine effektive Befriedung des Landes.“ Inwieweit diese reale gesellschaftliche Probleme, wie das Verlagen von jungen verschleierten Frauen studieren zu dürfen beantworten sollen, geschweige dann den Terrorismus an der Grenze mit Algerien zu bekämpfen erscheint wenig klar.
Soweit Krestas Kommentar auf der ersten Seite. Im Inneren, auf Seite 2 (das von mir gelesen Original in der Papiertaz war um einiges länger), geht es dann weiter. „Nida Tounes“ sei eine „neu gegründete[...] säkulare Partei.“ Säkulare Parteien gibt es wie bereits gesagt im Prinzip nicht und daß „Nida Tounes“ zu großen Teilen aus ehemaligen Anhängern der diktatorialen Regierungspartei RCD besteht, scheint der Autorin entweder nicht erwähnenswert oder nicht bewußt. Es bleibt wohl dem Leser überlassen zu beurteilen, welche dieser beiden Möglichkeiten ein besseres Licht auf sie werfen. Das gleiche gilt übrigens für die große Demonstration für Ennahda, welche am Sonntag standfand, und – es ist schwierig sich hier auf Zahlen zu verlassen – wohl mindestens genauso groß wie die regelmäßigen Anti-Ennahda Demonstrationen war. Kresta tut dies mit einem Zitat einer Gegnerin der Regierung, daß diese Demonstranten vom Land kämen und bezahlt seien, ab.
Schließlich macht sich Autorin die Meinung der Demonstranten, daß die Regierung den „Terror der Salafisten“ herunterspielen würde, zu eigen. Im Gegensatz hierzu sind viele objektivere Beobachter einhellig der Meinung, daß die Regierung seit einiger Zeit streng gegen ebendiese gewalttätigen Salafistengruppen vorgeht.
Was Kresta anscheinend nicht begreift, bzw. nicht sehen will – ich weiß es nicht – ist, daß die tunesische Gesellschaft unglaublich polarisiert ist zwischen einer gebildeteren, französischsprachigeren, westlicheren Minderheit, welche aber in den westlichen Medien überproportional vertreten ist, und einer Mehrheit an religiöseren, eher arabischsprechenden und vor allem auch ärmeren Menschen, welche Ennahda zu ihrem – demokratischen – Sieg verholfen haben.
Das die Frustration mit der Regierung zunimmt wegen der schreckenserregenden politischen Morde aber auch – und vor allem, zumindest außerhalb von Tunis, – der mangelnden Verbesserung der wirtschaftlichen Lage steht außer Frage. Aber westliche Journalisten dürfen, wenn sie eine reflektierte Berichterstattung aus Ländern wie Tunesien liefern wollen, nicht nur mit den gebildeten, mehrsprachigen Tunesiern reden, die im Prinzip verwestlicht sind, sie müssen sich auch in ärmere Stadtteile und Regionen vorwagen auf die Gefahr hin, daß ihre simplizistischen, fundamental undemokratischen Erklärungsmodelle in sich zusammen brechen. Allein die Tatsache, daß Kresta außer in Bardo mit niemandem gesprochen hat, zeigt insofern auf, daß sie ihre Arbeit nicht wirklich getan hat.
I just read an interesting paper from 2008 about the Euro’s tenth birthday approaching but with the Euro debt crisis not yet omnipresent. Apart from a few – in retrospective – amusing nuggets:
“The attractions of the euro should be actively promoted in the non-participating member states. This task is becoming easier as it becomes ever more clearly a pole of stability in the global system.”
“Ten years [after the introduction of EMU] later we can rejoice in the success of the euro and can comfortably predict that it is here to stay.”
The paper is insightful and holds up quite well in part of its analysis. Two aspects especially struck me as interesting:
First, the authors point to an inherent trade-off between attempts to raise productivity: “The sequencing of policy implementation must be right. The unemployment rate in the eurozone, albeit diminishing, ist sill relatively high at around 7%. This needs to be fixed before any measure to boost productivity is undertaken. Indeed, the process of job creation reduces productivity, so there is no point in trying to achieve two conflicting targets at once.” In Spain, productivity has actually risen at exactly the cost laid out above though, an unemployment rate of 7% would be good news in most of Southern Europe in fact. Yet, productivity – considering continued low inflation in the core and accordingly the limited impact of nominal wage changes for relative unit labor costs in the South – clearly is one of the most important channels through which a sustainable current/capital account rebalancing could occur (one that is not predominately based on the disappearance of domestic demand that is: see here). It is not clear how this circle could be squared then.
“There is clear evidence pointing to the rising divergence in real exchange rates in EMU. At the root of this divergence are differences in the growth of national price levels. These are not only a function of cyclical positions but are also determined by the shape of national institutions, and of labour markets above all. Yet, labour markets do not operate in a vacuum. Their functioning is often conditioned by the fiscal and monetary policy regime under which they operate. In particular, the monetary policy regime change that came about with the inception of EMU has altered national unions’ incentive structures. As an example of this, coordinated labour markets in large countries are under a stronger incentive to restrain wage growth than their equivalents in small countries. This is because domestic inflation in large countries affects average eurozone inflation and therefore the ECB’s conduct of monetary policy. Germany for instance, has been pursuing a wage restraint policy in recent years, which has resulted into a significantly below-average wage growth and impressive real exchange rate depreciation.”
The Instytut Obywatelski has publised the Polish translation of my analysis on the lessons to be learned from Latvia joining the Eurozone. Here is the original English text I had written:
Latvia, just like Poland, is one of the eight countries obliged under the European Treaties to join the Euro. Only last week, its government officially requested entry to the Eurozone, presumably putting an end to a debate that is very much still alive in Poland.
The former Soviet republic paid a heavy economic price for its steadfast pursuit of adherence to the Maastricht criteria during the course of the financial crisis, namely for its strict adherence to the Lat’s peg to the Euro and radically bringing down inflation rates in 2009. Olli Rehn, Commissioner for Economic and Monetary Affairs and the Euro praised Latvia as a „success story“ (link) in his immediate response to the request, an assessment that will strike as ironic those familiar with the still difficult economic situation of the country.
The economic suffering of Latia, induced by this – politically and to some extent – self-imposed stringent adherence to the Maastricht criteria and paltry reaction to it, has been nothing but astonishing. Following a boom in the lead-up to the financial crisis marked by very strong growth figures, the government’s dedication to bring down inflation rates, which had been at 15% in 2008, contributed to a harsh recession peaking at negative 17.5% growth rates in 2009. In parallel, Latvia significantly reduced its annual budget deficit from -9.8% in 2009 to a measly -1.2% in 2012. It also adhered to its peg to the Euro at all times – even if it required a temporary EU-IMF bailout, it has since paid back, from 2008 to 2011 to achieve this.
Latvia thus refused itself the export-growth-inducing and debt-reducing benefits of higher inflation rates and a cheaper valued currency that, say, the United Kingdom currently engages in. It did so essentially exclusively in order to be able to apply for Euro membership as soon as possible.
The costs of this macroeconomics course, this „success story“, were harsh. Not only does GDP per capita still stand below its pre-crisis peak of 2007, unemployment also remains stubbornly high at 14% – even if it is admittedly down from its high point of 21% in 2009-2010. Latvia’s persistent population loss due to the emigration of its educated and young in the pre-crisis years also increased dramatically starting in 2009. While this brain-drain helps to reduce the unemployment rate, it also leaves the country with a formidable demographic problem, at the same time that those who do leave are the ones that could arguably contribute the most in high-productivity sectors.
Apart from this heavy past economic cost exacted on the country, Latvia’s expected strong, catching-up induced, GDP growth will in all likelihood make the ECB’s jointly-set Eurozone interest rate inadequate in the future. This had been a problem in the pre-crisis years due the Lat’s peg already, it is expected to become a problem once again in the near future, especially in light of the sclerotic growth rates elsewhere in Europe. Another potential danger for Latia is that the Baltic state with its asymmetrically high growth rates will be a prime-target for the development of „Spanish“ macroeconomic imbalances, a danger only amplified by developments in Cyprus and the accompanying flows of Russian moneys away from the island and into Latvia.
One may be tempted to wonder why the large majority of Latvia’s political leadership strongly supported – and supports – EMU membership then. Even societally there was limited backlash only against harsh austerity measures even when support for membership admittedly stands at a mere 33% of the population today and has been decreasing steadily. The answer to this question arguably lies with the peculiar economic and political situation of Latvia.
The country, first of all, is in fact a small, open economy mostly interconnected with EU member states – relatively – little affected by the Euro crisis, most notably it has virtually no trade exposure to any of the – Southern and Western – periphery states. In addition and quite ironically, its drastic loss of 24% of GDP in 2008-2009 could actually have been attenuated if the country had been a member of the Euro at the time, as that recession was to a large extent based on a sudden liquidity freeze that the ECB could have helped the country overcome. Latvia on its own could have only addressed it via a massive injection of liquidity – monetary expansion thus – that would have effectively ended its peg to the euro. Joining the Euro will then not result in the same austere economic difficulties parts of Southern Europe are being forced to go through currently. The Latvian budget is stable and sound, its general government debt at 42% is comfortably below the Maastricht criterium, and of course the country is back on the growth track ever since 2011.
Another peculiarty of Latvia is its limited size and emigration-prone young population. The country has in fact had a negative net migration rate throughout the 21st century. This moderate outflow which had edged upwards during the boom years exploded once the crisis really hit. At least some of the – relative – labor market successes must thus be put into the context of Latvians simply packing things up and leaving. This kind of adjustment is hardly feasible for bigger countries of course.
Finally, politically Latvia is dominated by a stark linguistic divide between Latvian and Russian native speakers as well as historic fears of Russia. The majority – Russian-speaker – party in parliament is thus shunned by a coalition of Latvian-speaker parties even with the Prime Minister Valdis Dombrovskis’ party having been trounced in elections in 2011. Deeper integration into the EU is as much a political question as an economic one for Latvia then.
It is questionable then to what extent lessons for Poland may be drawn from the seemingly rather peculiar outlier that Latvia is. Not only does Poland call a far bigger economy its own, it also barely suffered during the 2008 financial crisis and its aftermath even while its unemployment moderately has been rising since.