Some European debt data

Posted on April 29, 2012 by haroldchorneyeconomist

Country           GDP billions euros   public debt              Debt to GDP     Unemployment%

(4th quarter 2011)

Germany         2,567                          2088.47                         81.2 %                5.7%

France              1987                           1717.26                           86.0                    10.0

Italy                   1586.2                       1897.18                          120.1                   9.3

Spain                 1074.9                        734.96                             68.5                  22.4

Netherlands       607.4                         392.5                              65.2                    4.9

Belgium              370.4                         361.7                                98.0                  7.2

Austria                300.9                         217.4                               72.2                  4.2

Greece                  217.8                         356.62                            166.3                21.8

Finland                 190.3                           93.03                            48.6                7.4

Portugal               171.9                           184.29                           107.8               10.2

Ireland                  156.1                          169.26                            108.2               14.7

U.K.                        2477                           1898                                62.8                8.3

 

Source:Eurostat; British Office of National statistics; Wall Street Journal, Bloomberg News market exchange rates.

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Spanish unemployment 24.4 %;U.S. GDP up 2.2%:austerity not working.

Posted on April 27, 2012 by haroldchorneyeconomist

This mornings news is anything but positive. U.S. growth is still positive but it would have been 0.6 % greater had  government cuts not subtracted from the total, leaving U.S. growth in the first quarter still positive but only modestly so. Once again we have evidence that austerity does not promote growth but has exactly the opposite impact when you are trying to recover from an economic slump. Just as I predicted last January and in fact have  been explaining ever since 1983. See my post of January 30, 2012, Austerity and Aggregate Demand, Some harsh facts.  (this blog)  More tragic evidence of how much damage austerity and belt tightening can do comes from the unemployment numbers in Spain where the rate has now reached 24.4 %, truly a depression level, which threatens to become chronic in Spain closely followed by the rate in Greece which is not far behind. 5.6 million Spanish workers are now unemployed. 1.08 million Greeks are similarly unemployed and the Greek rate of unemployment is 21.8 %. The obstinate refusal of the leading figures at the ECB and some of the European leadership to understand how inappropriate austerity is  is extraordinary. Cutting government expenditures in a misguided attempt to balance the books before you are close to low unemployment does not cause private investment to increase. It has just the opposite effect. Bond market speculators are not job creating  entrepreneurs.

Furthermore, cutting back does not cause the real wage to fall to the mythical classical  labour market clearing  equilibrium level for the simple reason that the real wage is the outcome of the nominal wage and the rate of inflation which aside from oil, a cartelized resource, is falling not rising because of the depression.In the meantime the nominal cuts in wages and rising unemployment causes aggregate demand to shrink despite the falling prices as workers fearing for their jobs or actually losing them to cuts spend less. So the policy is doomed to fail and at the same time cause absolutely unnecessary hardship for millions of people

  • A much better more effective alternative to deal with rising debt levels is to create a Eurobond backed by as many countries as possible and making it accessible to member countries in proportion to their relative GDP and rate of unemployment, authorizing the ECB to trade in them and encourage fiscal stimulus that is specifically targeted at job creation.With the likely election of M.Hollande in France there ought to be an opportunity to place these items on the European agenda in the next few months. Once Europe is growing robustly again and the debt to GDP ratio is stabilizing then one can address the concerns of fiscal conservatives.
    (For an interesting technical paper which demonstrates the perversity of a policy of austerity in a currency union in countries with high unemployment and elevated private debt see Reiner Maurer, Why austerity can be self -defeating for member states of a currency union. Pforzheim University, Germany http.//ssrn.com/abstract=1998084) Maurer points out what I and some other Keynesian and post Keynesian economists have argued for many years about the perversity of deficit hysteria. One needs economic growth and interest rates below the rate of growth of the GDP to reduce the ratio of debt to GDP over time. In fact the late Robert Eisner in his excellent and under appreciated work How Real is the Federal Deficit demonstrated how running a high employment deficit-high unemployment deficits are often actually high employment surpluses- was stimulative of positive GDP growth and the stock market over a one to two year lag.)
Posted in austerity, deficit hysteria, deficits and debt, European unemployment, Greek sovereign debt crisis, Spain, Uncategorized, unemployment | Leave a comment

French unemployment rises for 12th consecutive month:austerity a bad bet

Posted on April 26, 2012 by haroldchorneyeconomist

Again no surprise but painful to report nonethess unemployment in France continues to rise for the 12th consecutive month as reported by INSEE. In metropolitan France it is now 9.7 % with the overall national rate even higher at just over 10 %. This is up from 9.4 % a year ago. There are now over 4.25 million people unemployed in France and you can be certain that if further austerity is implemented the odds are great that the rate will rise further.

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UK negative growth no surprise: austerity leads to double dip recession.

Posted on April 26, 2012 by haroldchorneyeconomist

Britain has suffered a double dip recession according to the latest GDP data for the first quarter of 2012. The economy contracted in this quarter 0.2% after having contracted 0.3 % in the fourth quarter of 2011. This is no surprise considering the draconian cuts in government expenditure that  Chancellor George Osborne introduced in his budget and that was passed in Parliament with the support of the governing coalition of Conservatives and Liberal-Democrats. At the time these cuts were introduced a number of economists including myself pointed out that these austerity cuts were the wrong medicine for an economy struggling to recover from the crash and the deep recession that followed. And we were right to do so as the current data show. The chart below shows changes in the GDP, employment and weekly hours worked from Q1 2008 to Q1 2012 courtesy of the British Office of National Statistics.

GDP, employment and hours worked

Despite this clear evidence that the solution to deficits is to promote economic growth through stimulative spending which helps restore confidence to the private sector the Chancellor continues to argue nonsense about how to solve the ”debt crisis” through austerity.

Posted in austerity, classical economics, deficit hysteria, deficits and debt, European debt crisis, Uncategorized | Leave a comment

Alberta polls dead wrong but French poll shows Hollande likely to defeat Sarkozy in second round 54-46 % %

Posted on April 24, 2012 by haroldchorneyeconomist

Election polls or sondages as they are called in Québec are usually devoured by the media hungry for headlines.

Of course, the methodology of polls, whether they were taken from a properly weighted and conducted random sample from the population and published with the appropriate margin of error and also indicating that one time in 20 they can be completely wrong beyond the margin of error are important factors in their credibility. One of our more outspoken prime ministers John Diefenbaker used to make Canadians laugh when he stated that polls were for dogs to urinate on and good for nothing else. But despite these strictures they continue to dominate the media coverage of elections.

Last night in Alberta they turned out to be very wrong as they had been predicting that a new right wing party would sweep into power in our oil rich province of Alberta ending the 41 year dynasty of the Alberta Conservatives. This new right wing formation called Wild Rose(When I grew up in Winnipeg there were beautiful wild rose bushes all along the CPR rail line tracks where I use to play with  my friends. ) appeared to have the backing of key former players in Stephen Harper’s entourage so the media was keen to pronounce on the impending victory. But lo and behold the party fell 10 % points behind the incumbent government who swept back into power with a majority much to the shock of the media. The polls had been wrong and their methodology is suspect.

Nevertheless, there is a new poll out in France with a sample size of 1145 using a quota method sampling on line (Which makes it more unreliable ) that claims a margin of error of 2-3 % points . (The poll is by Opinion way Fiducial for Radio Classique and les Echos and is reported in the French press) It gives Hollande 54 %to Sarkozy’s 46%. Their support is drawn from the other candidates in the first round as follows. Hollande gets the votes of 91 % of Melenchon’s vote of 3.96 million; 36 % of Bayrou’s vote of 3.24 million ;27 % of the 6.4 million who vote for Le Pen, and 19 % of those who abstained last time or deliberately spoiled their ballot. I will also give him 90 % of the Eva Joly votes and 80 % of the small fringe left vote which totals 703,500. If we do the math that works out to an additional 7.9 million votes for Hollande which yields him 18.24 million votes not counting the 19 % of those who didn’t vote last time or spoiled their ballot but plan to vote for Hollande this time.

Sarkozy on the other hand is expected according to the poll to capture 2 % from Melenchon voters, 41 % from Bayrou, 47 % from Le Pen which works out to an additional 5.23 million votes for a total of 14.045 votes. This total would also include 10 % of Joly’s vote. Even if we add to this  all the votes of Dupont-Aignan some 639,000 votes Sarkozy’s score is still just below 15 million at 14.92 million.Sarkozy like Hollande is expected to get the same percentage of the voters who abstained last time but now will vote. Hollande will be the clear winner if the poll is accurate.

But as Alberta shows sometimes the polls are wrong even when the party name is Wild Rose.

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A Tale of Two Frances:Marine Le Pen 6.2 % in Paris, 27.5 % in Vaucluse

Posted on April 24, 2012 by haroldchorneyeconomist

When one analyses the first round French presidential election results in detail and examines the vote in the major cities and compares it with the regions some very striking differences emerge which illustrate the divide in French society today. For example, in the city of Paris, the great metropolis of France, the National front is a minor player which receives no more than 7.43 % of the vote even in the arrondisements where the vote of Nicholas Sarkozy is weaker, like for example the thirteenth arrondisement in the south east of Paris around Place d’Italie. But if one leaves the metropolis and heads to the south of France or the high unemployment regions in the north, the National Front vote soars into the 20 plus percentage range like for example Vaucluse in Provence north of Marseille where Marie Le Pen scored 27.5 % of the vote. At that level of support the National front will elect many members of municipal councils, as well as some  seats in the national assembly and its influence will likely increase. It is therefore a worrisome development considering the ultra right origins of the Front and its positions on immigration and immigrants. The fact that it receives considerable support from those from the less well educated members of the working class and more marginal workers needs to be addressed by politicians from the more centrist leaning parties who have advocated policies which have stressed these vulnerable  members of French society. Unemployment in this region  of France has been above 10.4 % since the second quarter of 2009. In the fourth quarter of 2011 it stood at 11.2 %. The Parisien rate is somewhat  lower. In the north Le Pen also got well above 20 % in regions like Pas de Calais where unemployment is 12.7 %  and Somme where unemployment is also elevated.

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France votes:Hollande 28.5 %; Sarkozy 27.1%;Le Pen 18.2%;Mélenchon 11.1%;Bayrou 9.1%;Joly 2.3%

Posted on April 22, 2012 by haroldchorneyeconomist

France the bastion of democracy has voted in the first round of the Presidential elections. As the polls suggested François Hollande of the Parti socialiste has finished just ahead of the President Nicholas Sarkozy of the UMP. In third place with what is a shocking result is Marine Le Pen, the leader of the Front National, the right wing anti-immigrant party who managed to get almost one in five of all the votes cast. In fourth place with a smaller vote than what polls had suggested  at 11.1  % was Jean -Luc Mélenchon whose vote while substantial was somewhat below what he and his coalition had hoped for. The centrist François Bayrou came fifth with 9.1%, enough votes to be a factor in influencing the final second round outcome. The ecologist Eva Joly scored 2.3% of the vote. Both she and Mèlenchon have made it clear that would like their supporters to vote for Hollande in the second round and expressed their strong opposition to the showing of the far right.

The success of the far right under Marine Le Pen is the result of the neglect of high unemployment in France, particularly among youth and the radicalizing impact this has had on French politics. Austerity is a socially dangerous policy if it is practiced in the midst of an economic depression. This must be the lesson drawn from this election. The European leadership should take this to heart as a warning not to be complacent about unemployment and not to embrace austerity as a policy to solve an economic crisis no matter what the bond market actors may say or demand.

We shall see what the second round delivers as Sarkozy and Hollande go head to head. Hollande for the moment is ahead and seems more likely to win but it may well be closer than some believe. Sarkozy has the dilemma of requiring the votes of  those who voted for the National front in the first round. Not a pleasing prospect to say the least.

For him to win assuming that Hollande captures all of the Joly and Melenchon votes and those of the small left parties plus half of Bayrou’s vote Sarkozy will have to win all of those votes cast for the Gaullist Dupont-Aignan and at least 6 million of the votes cast for Le Pen. Assuming that the remaining 400,000 of those votes were cast for Hollande Sarkozy would end up with 17.8 million votes and Hollande with 17.6 million. This assumes the same number of voters and that none of the Hollande or Sarkozy voters switch in the second round. But its rather doubtful that Sarkozy can win so many Bayrou votes if he moves closer to the Le Pen positions in order to capture the necessary votes from that camp. Furthermore some polls suggest that close to one third of the Le Pen vote will either abstain or vote for Hollande. So it would seem that Hollande has an easier task than Sarkozy in capturing the Presidency in the second round.

Latest Results from the Ministry of the Interior

François  Hollande    10,180,284

Nicholas Sarkozy          9,628,693

Marine Le Pen               6,401,945

Jean-Luc Mélenchon     3,957,677

François Bayrou             3,237,686

Eva Joly                             810,795

Nicholas Dupont-Aignan 639,846

Phillipe Poutou                  408,807

Nathalie Artoud                  201,593

Jacques Cheminade              88,370

Total votes cast and counted   35,555,696 out of 45,225,158 eligible voters.

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More violent clashes in Quebec between student demonstrators and police over proposed tuition fees increase

Posted on April 21, 2012 by haroldchorneyeconomist

Both yesterday and today there have been further violent clashes between demonstrators opposed to the fee increases and the police in Montreal. Malicious property damage , personal injury to both protestors  and police and innocent bystanders have resulted. One has to condemn violence by protestors. It is uncceptable and only damages the cause of the students in public opinion. Students have every right to peacefully assemble and make their dissenting views known without being attacked. But they must do it peacefully. Agent provocateurs and violent extremists need to be excluded.

At the same time it is long overdue for the provincial government to sit down and talk to students through their representatives and negotiate a compromise. A number of prominent intellectuals, professors and former trade unionists have called on the government to suspend their proposal to increase fees for a period of time during which calm negotiations can occur and further necessary study and debate about the future of post secondary education and the means to finance it can take place. This is a good idea that deserves support from all sides.

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Canadian inflation falls to 1.9 % below the 2 % target rate of the Bank of Canada: raising interest rates would be a big mistake

Posted on April 21, 2012 by haroldchorneyeconomist

Statistics Canada has announced that the inflation rate for March fell to 1.9 %. This is exactly opposite to what a number of conventional economists including those who hold influential positions at the Bank thought would be the case. The Bank of Canada Governor recently made aggressive noises in the direction of raising interest rates in future interest rate settings on account of what now turns out to be very mythical inflationary pressure. The fact is the Canadian economy is slowing down and the pace of recovery while still positive shows absolutely no sign of provoking inflation. Whatever inflationary pressures exist lie in the oil sector and to a certain extent in foodstuffs that are speculated on in the futures markets. In neither of these cases would raising interest rates be a sensible policy response.

Chart 2: The 12-month change in the CPI and the CPI excluding food and energy

Both charts courtesy of Statistics Canada

Chart 3: Slower increases in six of the eight major components

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French election heats up: Hollande and Sarkozy neck and neck with Mélenchon in third Le Pen close behind

Posted on April 15, 2012 by haroldchorneyeconomist

The French Presidential election taking place amidst the turmoil and deprivation unleashed by the crash and failed austerity approach of the European leadership is turning into a very interesting contest. It would seem with only a week to go before the first round that Nicholas Sarkozy, the UMP candidate is likely to be beaten in the second round  May 6th by the French socialist party candidate , François Hollande by a margin of  about 54 to 46 %, if one is to believe the most recent polls.

But the results of round one promise to be very interesting as the surging strength of the likely third place finisher Jean -Luc Mélenchon who represents a union of left parties including the former communist party and several small  far left parties has created a major stir in the campaign. Mélenchon with united support of the radical  left and those left of the centre left Socialist party is scoring as high as 17% in some polls. This would be an astonishing recovery for these parties from their abysmal showing in the 2007 election. To their credit they have run a spirited anti-austerity campaign with mass rallies that have attracted as many as  100,000 people to a rally in Marseilles. M.Melenchon who is a former socialist party minister has rejected the policies of austerity and is advocating a heavy tax on those who earn more than 300,000 euros a year as well as an emphasis on major public spending to stimulate the economy. If as expected he shows well in the first round his policy stances may stiffen the resolve of the socialist party and candidate François Hollande to proceed with an anti- austerity program.

Up to now he has largely spoken only in general terms about this and at the same time has complained about the debt load that he argues Nicholas Sarkozy has imposed on France, thereby sending mixed messages about his intentions once in power.

Nicholas Sarkozy who is at 27 % in the polls for his part continues to distance himself from the austerity emphasis of Chancellor Merkel and is calling for the European Central Bank to forget its obsession with inflation and instead concentrate on promoting economic growth. Despite this sensible stance he remains unpopular among a wide swath of the French electorate and his progressive edge on monetary policy is weakened by his record of cuts to pensions and his apparent tilting in favour of anti-immigrant sentiment. For her part, Marine LePen  of the FN continues to attract anti-immigrant far right support including unfortunately according to polls 25 % of those voters 18 to 24 roughly the same percentage of that vote held by Hollande who is at around 28-30 % in the overall polls. The polls suggest she will win about 15-16 % of the vote in the first round.

Other candidates include the Greens, led by Eva Joly at 3% in the polls, a progressive  centrist independent François Bayrou and good speaker who is unfortunately a fiscal conservative but placing employment issues at the centre of his campaign who polls between 9 and 11% and one centre right  Guaullist candidate Nicolas Dupont -Aignan who is a charismatic speaker and opposes ”euro domination” at 1 %and three other far left candidates who poll very small percentages.

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