• What's ailing British productivity: Britain's productivity puzzle
  AFTER the winter gloom that enveloped the British economy last year, with GDP dropping in the final quarter, there have been brighter signs of late. Business spirits are rising and the latest monthly figures for the public finances were better than expected. The immediate threat from the euro crisis has become less existential. But even if Britain does dodge a double-dip recession the bigger issue, both for hard-hit households and a government struggling to contain public borrowing and debt, is just how fast the economy can grow in the aftermath of the financial crisis. That hinges on an improvement in productivity, which slumped during the recession and has grown only feebly in the recovery.Whole-economy productivity, whether measured as output per worker or per hour, remains below its level before the recession. The Office for Budget Responsibility, a fiscal watchdog, reckoned late last year that output per hour was more than 6% below the level it would have reached if its pre-recession trend had been sustained. A similar calculation showed that output per worker was 9% lower.That lacklustre record contrasts markedly with that of America whose firms kept productivity growing by slashing employment. It also compares unfavourably with the euro area. And it is considerably worse than occurred after the previous two recessions, in the early 1980s and at ...
• Focus: Borrowing in Asia
  CROSS-BORDER bank lending to Asia’s developing economies has been shrinking recently. European banks in particular have been retrenching as they seek to meet new capital targets. That may prompt many borrowers to turn instead to the capital markets—as they did during the last financial crisis. European bank lending to emerging Asia fell by over a fifth in the year to March 2009. In response, firms in these countries issued a flurry of bonds: over $240 billion in 2009, compared with $122 billion the year before. Asia's growing bond-markets may provide a useful "spare tyre" in a region that still mostly bounces along on bank lending.  
• The Greek crisis: The end of the marathon?
  “I HAVE learnt that marathon is indeed a Greek word.” Thus spoke Olli Rehn, the European monetary affairs commissioner, at the end of a 14-hour negotiating session that produced a second bailout package for Greece this morning. This had been agreed in principle at a European summit in July last year. But political turmoil in Greece, hesitation in the euro zone—and an ever-worsening fiscal hole caused by an ever-deepening recession—made the deal elusive for months. It was concluded before dawn this morning after finance ministers, the European Central Bank and representatives of private creditors squeezed the numbers to produce a package that was deemed both politically acceptable to creditors and provided Greece with something it reckoned to be sustainable. As explained in my earlier post, the negotiators were working within self-imposed constraints. According to the final statement, the deal is expected to bring down Greece’s debt ratio to 120.5% of GDP in 2020, while requiring no more than €130 billion ($173 billion) in additional finance in the coming two years. To square the circle, ministers have applied the file to several aspects. - Private creditors have accepted a haircut of 53.5% of the nominal value of Greek bonds they hold, plus a reduction in the coupon for new bonds, starting at 2% and rising to 4.3% from 2020. This amounts to a loss of net present value of ...
• Germany and Greece: Wolfgang's woes
  WOLFGANG Schäuble is, in many ways, the strongest – perhaps even the last – Europhile in the German government. But open the pages of Greek newspapers and there he is, the German finance minister depicted in Nazi uniform. It is not just the inflammatory Greek press that dislikes him. The Greek president, Karolos Papoulias, lashed out at him last week: “Who is Mr Schäuble to insult Greece? Who are the Dutch? Who are the Finnish?” Mr Schäuble is, first and foremost, the German finance minister. As such his job is to protect the interests of the German tax-payer, from both the demands of his fellow ministers and the begging bowl held out by his European colleagues. As creditor-in-chief, one would expect him to be toughest in imposing conditions on Greece before granting a second bail-out. But the Schäuble problem goes beyond this necessary parsimoniousness. Consistently through the crisis, Mr Schäuble has adopted the hardest positions. First it was a paper circulated by his officials calling for the creation of a budget “commissar” with the power to control the Greek budget. Then it was his open talk a Greek default, and the fact that other European countries were “better prepared” to withstand it. Most recently, he suggested that Greece should postpone its elections so that the technocratic government of Lukas Papademos has more time to implement reforms. Many think Mr ...
• Inflation: Life on the Phillips curve
  VIA Modeled Behavior, I see that Arnold Kling has written a post which reads:Mainstream macro in the 1970s (which a lot of people seem to have gone back to) held that there was a NAIRU, meaning the non-accelerating inflation rate of unemployment. If unemployment was above that, inflation would fall. If it was below that, inflation would increase. So, policy should shoot for the NAIRU.These days, unemployment is 8.3 percent, and inflation is increasing. Just sayin’.Just sayin'...what, exactly? Don't imply, man, argue! Follow the point through to its conclusion and see if it actually holds together! Since Mr Kling didn't, I'll do it for him.The NAIRU, as Mr Kling notes, is the non-accelerating inflation rate of unemployment. It corresponds to maximum structural employment; the economy can't sustain a higher level of employment than this without structural reform of some kind. Why is it called the non-accelerating inflation rate? Well, were the government to try to raise employment above that level, fiscally or monetarily, inflation would accelerate. Stimulus would raise demand for goods and services, which would lead to higher prices. Individual firms might respond to higher prices with increased production, by using higher wages to attract employees from other firms, but since there is no surplus labour at the economy-wide level, overall production can't undergo a sustainble ...
• Looking closely at Dodd-Frank: This is only an outline
  Jonathan Macey of Yale Law School explains why the Dodd-Frank bill might not have prevented the financial crisis, but will create jobs for regulators and lawyers
• Greece and the euro: Flaming February
  UK Only Article:  standard article Issue:  A way out of the woods Fly Title:  Greece and the euro Rubric:  The game of brinkmanship continues to the very end Location:  ATHENS Main image:  20120218_EUP001_1.jpg THE pattern has become familiar: a late-night austerity vote in the Greek parliament, a riot in the square outside. This time, the violence went further, as gangs of hooded youths set ablaze almost 50 buildings in the city’s historic centre. Several Athenian landmarks, including a 19th century mansion, now a popular cinema, were gutted. Shops selling luxury goods were looted. The smell of tear gas and soot lingered for days. Greeks have grown used to street protests after consecutive years of economic decline, but they were still shocked by the damage on the night of February 12th. Criminals, not leftists, were to blame, some victims claimed. George Stergiakis, another cinema owner, said his property was firebombed ...
• Buttonwood: The oil barons have a ball
  UK Only Article:  standard article Issue:  A way out of the woods Fly Title:  Buttonwood Rubric:  Natural resources are not really a curse at all DALLAS is in confident mood. The city, one of the fastest-growing metropolitan areas in America, is investing around $11 billion in improving its road, rail and air links. The Perot Museum of Nature & Science is being built downtown along with a new park that will cover the Woodall Rodgers expressway. It clearly helps the local economy that Texas is abundant in both oil and shale gas, even if the price of the latter is rather lower than producers would like. But is betting on energy a good idea? After all, the state went though a nasty bust in the mid-1980s when the oil price collapsed. In this sectionBeyond the edge »The oil barons have a ball Unsettling Time for action From alpha to smart beta Quitting while they’re behind The rule of more Latin lessons ReprintsRelated topicsOrganisation for Economic Cooperation and Development Democratic Republic of Congo United States Texas The ...
• German services: Protected and inefficient
  UK Only Article:  standard article Issue:  A way out of the woods Fly Title:  German services Rubric:  Germany urges reform for others, but not for itself. What a pity Location:  BERLIN WHEN Mario Monti became Italy’s prime minister, German pharmacists fretted. Not for what he would do in Italy but because, as Europe’s competition tsar, he tried to liberalise professional services such as law, medicine and pharmacy. Mr Monti is now prising open Italy’s closed professions—and thinks Europe’s biggest economy should do the same. There is “still lots of room for a liberalisation of services” in Germany, he said recently. Germany is not often told to reform. Its big manufacturers, trade surpluses and robust jobs market make it the envy of Europe. France’s Nicolas Sarkozy promises to make his country more like Germany. It is resented for its strength, but rarely chided for weakness. Yet Germany’s manufacturing juggernaut sits alongside puny services. In 2000-07, value added in market services ...
• Business this week
  UK Only Article:  standard article Issue:  A way out of the woods As the process of finalising a second bail-out for Greece continued to grind on, official data recorded a contraction in the euro zone’s economy for the first time since mid-2009. Belgium, Greece, Italy, the Netherlands and Portugal are now all in recession, defined as two consecutive quarters of negative growth. See article Moody’s blues In this sectionPolitics this week »Business this week KAL's cartoon ReprintsRelated topicsRecessions and depressions Portugal Apple iPad Italy World Bank Moody’s cut the credit ratings of Italy, Portugal and Spain, and also put Austria, Britain and France on negative outlook, a warning that their triple-A ratings could be downgraded by the agency. Moody’s said that although Britain was not in the euro zone the crisis was “exerting negative pressure” on its economy, and that the government may thus find it a “challenge” to reduce Britain’s heavy public debt. See article In an unexpected move the Bank of Japan increased its bond-buying programme by ¥10 trillion ($130 billion) in an effort to boost Japan’s struggling economy. After years of deflation the central bank ...