Category Archives: Economy

The Brexit Boogie: A vote that shook the world

Is the world headed into another Great Recession even before that shockwaves of the last one have settled down?

When one of the world’s two major financial centers pulls out of its continental base, there’s good cause for concern.

But that’s just one of the issues raised by Thursday’s vote.

Here’s a roundup of rumbles. . .

British buyers remorse?

Even before the dust settled, Brits were flocking online to sign a petition for a do-over.

From Agence France-Presse:

More than two million people have signed a petition calling for a second referendum, after a shock vote to pull Britain out of the EU, an official website showed Saturday.

The website of the parliamentary petition at one point crashed due to the surge of people adding their names to the call for another nationwide poll following Thursday’s historic vote.

“We the undersigned call upon HM Government to implement a rule that if the remain or leave vote is less than 60 percent based (on) a turnout less than 75 percent there should be another referendum,” says the petition.

The blame game begins

Guess who’s catching the heat?

Hint: He’s already resigned his job in disgrace.

From euronews:

Blame for the failure to convince British voters to remain in the European Union lies at the door of David Cameron, European Commissioner Günther Oettinger told Euronews.

The Commissioner for the Digital Economy and Society told Euronews that the decision by the Prime Minister to “order” the Commission to stay “out of the game” was a mistake.

Asked whether Cameron was to blame, Oettinger responded: “ I think so, yes. What he did is not acceptable.”

The Commissioner insisted that Scotland and Northern Ireland, which both voted overwhelmingly for ‘remain’, could only rejoin the European Union as independent nations. He predicted that Scotland would “probably” split from the rest of the United Kingdom.

And fear runs rampant

Shrinks call it Separation Anxiety Disorder, and it’s an ailment running rampant these days, especially in Berlin.

From Sky News:

Germany fears France, Austria, Finland, the Netherlands and Hungary may follow the UK and leave the EU, a government paper says.

The finance ministry strategy paper expresses concern that the UK’s historic vote may trigger a Brexit domino effect across Europe, according to the German newspaper Die Welt.

It recommends that the EU enters into negotiations aimed at making the UK an “associated partner country” for the remaining 27 nations.

As it stands, the UK’s exit may cause Germany’s contribution to the EU’s budget to rise by 3bn euros (£2.44bn) a year, the paper adds.

And there’s good cause to worry, reports Reuters:

Britain’s vote to leave the European Union fired up populist eurosceptic parties across the continent on Friday, giving fresh voice to their calls to leave the bloc or its euro currency.

Right-wing and anti-immigrant parties in the Netherlands, Denmark, Sweden and France demanded referendums on membership of the union, while Italy’s 5-Star movement said it would pursue its own proposal for a vote on the euro.

Geert Wilders, leader of the Dutch anti-immigrant PVV party, said he would make a Dutch referendum on EU membership a central theme of his campaign to become prime minister in next year’s parliamentary election.

“I congratulate the British people for beating the political elite in both London and Brussels and I think we can do the same,” Wilders told Reuters. “We should have a referendum about a ‘Nexit’ as soon as possible.”

After the jump, Boldness in Bratislava, a British downgrade, trillions in losses, the pain in Spain, grief in Greece, troubles in Tokyo, and a Schadenfreude alert. . . Continue reading

Headline of the day II: And the echoes continue

From the Guardian:

FTSE 100 closes 4% lower in global market sell-off as Brexit recession looms – live

World markets have slumped in Europe, America and Asia, as economists predict that Brexit vote will push UK into recession

Headline of the day: It’s a whole new ballgame

The front page banner of the New York Times:

Pound Plunges, Shaking Markets

  • The outcome reflected populist sentiment and is sure to have far-reaching effects on Britain’s place in the world and the future of the E.U.
  • David Cameron says he plans to resign as prime minister of Britain after the country’s decision to leave.
Other than that, Friday’s shaping up to be a slow news day. . .or not.

Chart of the day: The lingering misery in Greece

From the Hellenic Statistical Authority, dramatic evidence that the bailout and its attendant cuts in pay and pensions, have done nothing to help the Greek populace:

BLOG Greece

Climate change poses Caribbean drought threat

Continuing with our Thursday drought theme comes a stark warning a dry times ahead for the Caribbean as climate change intensifies.

From the United Nations News Center:

Climate change is expected to increase the intensity and frequency of droughts in the Caribbean, so countries in the region must enhance their capabilities to deal with this and other extreme weather-related challenges to ensure food security and hunger eradication, the United Nations Food and Agriculture Organization (FAO) has said in a new report.

The report, Drought Characteristics and Management in the Caribbean, found that the Caribbean region faces significant challenges in terms of drought, FAO said.

“Drought ranks as the single most common cause of severe food shortages in developing countries, so this is a key issue for Caribbean food security,” said Deep Ford, FAO Regional Coordinator in the Caribbean.

The Caribbean region already experiences drought-like events every year, with low water availability often impacting on agriculture and water resources, and a significant number of bush fires, FAO noted.

The region also experiences intense dry seasons, particularly in years when El Niño climate events are present. FAO said that the impacts of this are usually offset by the next wet season, but wet seasons often end early and dry seasons last longer, with the result that annual rainfall is less than expected.

The Caribbean region accounts for seven of the world’s top 36 water-stressed countries, while one of them – Barbados – is in the top 10, according to FAO.

Impacts of drought on agriculture and food security

With droughts becoming more seasonal in nature in the Caribbean region, agriculture is the most likely sector to be impacted, with serious economic and social consequences, FAO emphasized.

This is particularly important because most of Caribbean agriculture is rainfed. With irrigation use becoming more widespread in the region, countries’ fresh-water supply will become an increasingly important resource, FAO said.

Small-scale, family farmers, are particularly vulnerable to drought – low rainfall threatens rainfed crops and low water levels result in increased production costs due to increased irrigation.

Extensive droughts also cause increased vulnerability in livestock as grazing areas change in nutritional value, with more low quality, drought tolerant species dominating during such dry spells. In addition, the potential for livestock disease outbreaks also increases, FAO said.

There’s more, after the jump. . . Continue reading

European politics in turmoil; is a Danexit next?

Europe is facing its own surge of populism, most notably in Thursday’s vote of the Brexit, the proposed U.K. divorce fro m the European Union.

But is the Brexit the only divorce under consideration?

The answer would be a clear “no.”

From CCTV America:

Denmark moves closer to referendum on EU opt-outs

Program notes:

If Britain votes to leave the European Union, could others follow? It’s a question troubling leaders in Brussels because the U.K. isn’t the only country facing a rise in Euroscepticism. In Denmark, some are calling for a vote within twelve months. CCTV’s Guy Henderson reports from Copenhagen.

Turmoil in Spain as a populist party surges

This time it’s a populist surge from left, in which a new political party based in an Occupy-like movement, is poised to take the dominant role in the formation of a new government.

More on the Podemos movement [previously] surge from euronews:

Spain’s acting conservative Prime Minister Mariano Rajoy has warned that the far-left Unidos Podemos (“United We Can”) alliance could win this weekend’s general elections that may well shake up the country’s political system.

The anti-austerity group has boosted its support by striking a deal with the United Left, once part of the communist party.

According to opinion polls Podemos is consolidating its position as the country’s second biggest political force, just three points behind the ruling conservatives.

“We are very close to defeating the Popular Party in the elections. We are very close. And they are very worried about it for what it means,” Podemos leader Pablo Iglesias told a gathering of supporters.

But Podemos isn’t the only threat to the established order in the Iberian kingdom.

An independence movement in Spain’s most industrialized province has also threatened the status quo, to the extent that a member of the national government’s cabinet is facing his own legal troubles.

From Deutsche Welle:

Spain’s interior minister is facing calls to quit four days before general elections. A leaked tape showed him discussing with an anti-fraud official how to discredit Catalonia’s pro-independence parties.

In the conversation – published online by Publico – Jorge Fernandez Diaz and the head of Catalonia’s anti-fraud office Daniel de Alfonso discuss possible investigations that could be launched against pro-independence politicians in the region.

Alfonso allegedly lays out several leads for possible offences committed by various pro-independence politicians or their relatives, adding that they are all “weak.”

The revelations come before Sunday’s elections, with Diaz’s conservative Popular Party (PP) expected to win, though without the absolute majority it needs. The elections are the second in six months, after polls in December resulted in a hung parliament. The parties failed to agree on a coalition government, forcing fresh elections.

Police unions and several opponents of the PP have demanded his resignation. Pedro Sanchez, head of the Socialist party, accused him of “using the state apparatus to fight against his political rivals and not to fight against corruption within his own party.”

An Italy populist takes the helm in Rome

Italy’s 5 Stars movement embodies a Center-Right populism, and party member Virginia Raggi became the first woman to be elected mayor of the Eternal City.

More from euronews:

Virginia Raggi, aged 37, is the newly elected Mayor of Rome. She is from the anti-establishment 5 Stars Movement, which was founded in 2009 by the comedian, Beppe Grillo.

On Sunday, with 67,15% of the votes, she beat her rival, Roberto Giachetti from the centre-left Democratic Party. This is the same party as the Italian Prime Minister, Matteo Renzi.

With a debt of around 13 billion euros, the Italian capital is in a very bad state and risks becoming bankrupt. If Raggi succeeds, her party could become the main opposition in the legislative election planned for 2018. If not, the 5 Stars Movement could lose its popularity.

IMF sounds an early U.S. economic warning signal

It’s not that things are really bad yet, says IMF chief Christine Lagarde, abut that storm clouds are visible on the horizon.

From her statement [emphasis added]:

At the outset, I would like to emphasize we think that the U.S. economy is in good shape, despite some setbacks in very recent months. Unemployment is well below 5 percent, in the past year an average of 200,000 new jobs were created every month, and household incomes are rising at a healthy clip.

Having said this, today we will look beyond the important recent achievements and look forward to what will be needed to ensure strong, sustained and balanced growth in the years ahead. I would highlight in particular “four forces” that pose a challenge to future growth.

What are those four forces? Declining labor force participation, falling productivity growth, polarization in the distribution of income and wealth, and high levels of poverty in the U.S. Let me elaborate.

First, labor force participation is declining.

  • The U.S. population is aging and, as a result, a smaller share of the population will be active in the labor force in the coming years.
  • The workforce makes up the backbone of the U.S. economy. Mitigating the effects of population aging on labor supply and demand should therefore be a priority – both here in the U.S. but also in many of the advanced economies.

Second, productivity growth has also declined.

  • It has fallen from 1.7 percent in the decade prior to 2007 to 0.4 percent in the past five years.
  • Much of the gains in average per capita incomes in the 20 years before the financial crisis were from gains in productivity, innovation, and efficiency.
  • The fall in productivity growth seems, at least in part, to be linked to falling dynamism both in the U.S. labor markets and in the formation of new and productive enterprises.

Third, the distribution of income and wealth has steadily become more and more polarized. This is a double edged sword.

  • On the one hand, since 2000 around one quarter of a percent of the population has moved from earning close to the median income to earning 1.5 or more times the median. This is a good thing and has raised living standards for those families.
  • On the other hand, though, more than 3 percent of the population has moved into the group that earns less than half of the median income. For that group, economic insecurity and flat real incomes have resulted in either a stagnation or decline in living standards.
  • Our calculations suggest that since 1999, this polarization of the income distribution has knocked around 3½ percent off of badly needed consumer demand. That is around one year’s consumption over a period of 15 years.

Fourth, the share of the population living in poverty is at very high levels.

  • The latest data shows almost 15 percent of Americans—or 46.7 million people—living in poverty.1 Poverty is even higher for certain minority groups; for single parent (and particularly female-headed) households; for children; and for those with disabilities.
  • With such a large share of the population living below the poverty line, this undoubtedly is an important macroeconomic issue.
  • Not only does poverty create significant social strains, it also eats into labor force participation, and undermines the ability to invest in education and improve health outcomes. By holding back economic and social mobility, it creates an inter-generational persistence of poverty.

All in all, our assessment is that, if left unchecked, these four forces—participation, productivity, polarization, and poverty—will corrode the underpinnings of growth (both potential and actual) and hold back gains in U.S. living standards.