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Thursday, February 26, 2009
“International credit markets are linked, and so a snowballing credit crisis in Eastern Europe and the Baltic countries could cause New York municipal bonds to fall.”Actually, it's less the New York municipal bonds and more the Austrian banking system, which has a collective exposure to the region equivalent to some 70% of GDP. Belgian and Swedish banks are also heavily exposed to the danger of a spike in the number of nonperforming loans.
It's important not to overgeneralize - there are plenty of countries in the CEE and not all of them are facing the same challenges. Moreover, those countries within the EU have access to a different support system than those on the outside. As one Austrian banker pointed out in this FT article:
“What’s been lost in this crisis very often has been the ability of people to differentiate.”But that's exactly the problem with financial contagion - people generalize, leap to conclusions, and make rash decisions. For example, one consequence of this phenomenon is that, rightly or wrongly, the citizens of Central and Eastern Europe appear to be growing increasingly skeptical of the value of the EU free market integration project. It would be too rash to predict a complete halt to the process, or even a splitting of the EU, but the crisis certainly isn't helping.
So it doesn't look like Euromageddon just yet, but Europhiles are going to have work a lot harder over the next short while if they're going to keep the project going. If only there were some encouraging news to hang on to....
(Unless otherwise stated, stats used in this post originate from RGE Monitor)
Monday, February 9, 2009
-Robert Mugabe declares, "Let them eat cake!"
-Ukraine has all but abandoned compliance with the conditions of its $16.5bn IMF standby facility. According to the FT, Ukraine has sent letters to a number of countries (US, Russia, China, EU, Japan) requesting emergency loans to plug a revenue shortfall. Kiev's unwillingness to balance the 2009 budget and cut deficit spending alarmed an IMF delegation last week, who warned of "serious problems" in Ukraine's economy. It is unclear how this visit will affect further disbursements of IMF funds.
-In a VoxEu article, Jeffry Frieden looks at the difficult balancing act policymakers must navigate in building domestic support for international cooperation in response to the worsening economic crisis.
-Ahead of the Treasury Secretary's official announcement tomorrow, the NYT is reporting that Timothy Geithner prevailed over top administration aids calling for stricter conditions in the second banking bailout. Geithner was reportedly concerned that too much government intervention would discourage private investors from participating and increase the cost to taxpayers in the long run.
-Jonah Lehrer at the great science blog The Frontal Cortex asks: why can't Federer beat Nadal? Conventional wisdom is that tennis is a young man's game and 28 is the apex of every great career. As Federer hits that wall (he turns 28 in August), his decline is all but inevitable. But Lehrer points to the post-30 performance of great athletes in sports like basketball or track and field as proof that the body doesn't necessarily decay in our late 20's. So what's unique about tennis? Lehrer echoes my own observation following Federer's post-Aussie tear fest: its mental.
So what happens to tennis stars? Why can Federer no longer defeat Nadal? I'm guessing performance anxiety. I think tennis, perhaps more than any other sport, is a game of self-confidence. Unforced errors are inevitable - the margin for error when hitting a ball that fast with a metal racket is simply too small. The question is how you deal with these mistakes. Players with swagger - say, the Federer of 2006-2007 or the Nadal of now - brush off their errors and come back with an ace. With age, however, comes the nagging tremors of self-doubt. When I watch the Federer of 2009 I see a player who no longer knows he's the best - his face occasionally betrays anxiety and insecurity. The end result is a dangerous form of self-consciousness, as Federer starts thinking too much about his serve, or that backhand whip shot, or his forehand down the line. Why aren't his shots going in? Why is his serve 5 mph slower? Why can't he beat this annoying young Spaniard in the capri pants?
The problem with such reflections is that tennis needs to be played on auto-pilot. Once you start thinking about your shots - and I think Federer is especially self-conscious when playing against Nadal - you lose the necessary fluidity and grace. These deliberate thoughts - the by-product of age-related insecurity - interfere with the trained movements of our muscles, so that we start regressing on the court. When players worry about not hitting a shot in, they're bound to hit it out. Federer doesn't need a new trainer: he needs a shrink.
Tuesday, January 13, 2009
"China is a country of enormous tensions and cleavages beneath the surface.... The question is whether policy actions to date will do enough to stem a socially and politically dangerous slowdown in the economy. Whichever way the Chinese leadership responds, future generations may remember 2009 less for its global economic and financial crisis than for the momentous transformation it will have caused in China."
Dan Drezner also raises a number of excellent points concerning China, as well as several other "known unknowns" from the current financial mess. He thinks we can expect countries like China to begin de-coupling by using their fiscal stimulus plans to target domestic firms and encourage the growth of domestic markets to offset declining demand abroad. That's a roundabout way of suggesting that protectionism in on the rise and the gains in political cooperation that come from economic interdependence are on the decline. I would argue that this situation, along with the macroeconomic imbalances problem, calls for more international cooperation, not less, but is Drezner's prediction more likely?
- Russia and the Ukraine have signed a deal to resume gas flows under the supervision of international authorities. Is Russia's plummeting ruble going to make the country more or less aggressive over its energy supply policies. Or maybe: is Russia's weakening economic situation going to embolden countries like the Ukraine to provoke them even further?
Wednesday, December 31, 2008
Natural gas negotiations between Russia and Ukraine collapsed Wednesday, with Russia preparing to cut gas deliveries tomorrow. This would be the second time in 3 years that Gazprom has cut deliveries to Ukraine over a price dispute, in turn threatening supplies to the EU. Ukraine is the EU's major transit route for gas deliveries, with over 80% of the bloc's external gas supply traveling over its territory.
The latest Russo-Ukrainian gas row is a reminder that despite the current (low) price levels, energy security remains a major issue, particularly to countries with heavy reliance on external supplies. It may also presage a more aggressive Kremlin in 2009, one that seeks to renegotiate gas contracts (particularly with former Soviet republics paying below market prices) with more frequency and adopts a less compromising position.
As Russia's budget comes under greater pressure, the rouble is devalued further (by as much as 10%, as many economists believe is necessary to account for the loss of petro/gas revenues, a cut the Kremlin has resisted with all of its will) and political unrest rises, the Kremlin will struggle to prop up the Russian economy. It will almost certainly turn to its energy leverage to plug the shortfall and boost spending.
Putin's authoritarian consolidation and economic nationalism have relied on a middle class complacency derived from petro/gas riches. The boom years were financed by the commodity bubble. Over this period the Russian government failed to adequately diversify, liberalize and modernize its economy. This made the Kremlin overly reliant on companies like Gazprom for tax revenues (and spending). Due to excessive state intervention and legal uncertainty, particularly when dealing with foreign investors, Russian industry became overly reliant on the Kremlin for finance and favor. What developed was an economy fundamentally underpined by high commodity prices. This house of cards was always vulnerable to a price collapse. Now that its here, the tight societal weave of Putin's Russia is starting to fray. It is unclear whether Putin/Medvedev are prepared to mend it.
Russia's resurgence has as much to do with oil and gas as it does with Putin. The major question for Russia in 2009 is: how does Putin respond?
