Coppola Comment

Eurozone inflation is in the doldrums again. After perking up to 1.7% in April, it slumped back to 1.2% in May. According to Bloomberg , this was "lower than expected". But I wonder who, apart from the ECB, really expected anything else. Core inflation has been well below target for the last five years: (chart from Bloomberg) And although the headine HICP measure increased in 2016-18, this was mostly due to the oil price bouncing back from its 2014-15 slump: (chart from Macrotrends) The wild swings in the energy inflation rate can be clearly seen on this chart from Eurostat: It's perhaps not obvious at this resolution, but the movement in headline HICP is almost entirely due to the energy price. In fact comparing the inflation and oil price charts, it is hard to see much justification for the ECB's claim that it started QE in March 2015 because inflation expectations were becoming "unanchored". Headline HICP briefly dipped below zero

In August 2014, I wrote this post arguing that harsh austerity during the Depression caused Hitler's rise to power. At the time, my argument seemed controversial, at least in Germany. There, it is not the austerity of 1930-32 that is blamed, but the debt-driven hyperinflation of a decade earlier. Germans remain terrified of both inflation and debt to this day. I am certainly not the only person to identify a causative link between austerity and Hitler. Here is Paul Krugman slapping down Eduardo Porter in 2015, for example: Yes, there was a hyperinflation in 1923, which may have helped radicalize German politics. But the proximate factor in Hitler's rise to power was the great deflation of the 1930s, brought on by a disastrous attempt to stay on gold.  Disastrously staying on gold might of course have been due to the recent experience of hyperinflation. In 2014, when Bulgaria was unable to pay insured depositors for six months after a bank failure, the central bank ref

"The Germans won't want tariffs on their car exports to the UK", said my father the other day. I have to agree. No-one likes tariffs, especially when they are used to having none. But it was his next comment that made me pause. My father's idea is that the EU will allow the UK to have tariff-free access to the EU's markets after Brexit in order to placate the powerful German car manufacturing lobby. He's not alone in this view: it has been repeatedly stated by Brexit promoters, both during the Leave campaign and since the vote last June. The obvious rejoinder is that the EU (ex-UK) is 27 countries, not one, and although Germany is powerful it does not call the shots with regard to trade. Although a qualified majority vote is sufficient to allow the UK to leave the EU, a new free trade deal between the UK and the EU post Brexit would require the agreement of all 27 members, and in some cases sub-sovereign agreement too. The recent trade deal between th

In response to my post about the lessons of history , Claudia Dias sent me this clip from The Times, March 31st, 1939: Four months after Kristallnacht , and two weeks after Hitler's annexation of Czechoslovakia, the British government was still repatriating Jewish refugees. This group knew they were being sent back to almost certain death. No wonder they were hysterical. Today, refugees in Greece face deportation to Turkey, and from there probable repatriation to their own countries. If they are denied the opportunity to claim asylum, as appears to be the case for some, this would contravene the Geneva convention on refugees. UNHCR representatives and aid agencies are being refused access to refugees sent back to Turkey. There are reports that refugees threaten to commit suicide rather than be sent back. Desperate people, desperate times. We have learned nothing. Related reading: When the world turns dark

Germany's Finance Minister Wolfgang Schaueble has long been critical of ECB monetary policy,. But now, as Reuters says,  the gloves are off . In a speech at a prizegiving for an ordoliberal economics foundation last Friday, Dr. Schaeuble effectively demanded that the ECB raise interest rates. The justification? Very low interest rates hurt Germany's savers, which are the bedrock of its economy. There is a political dimension to this. Dr. Schaueble's party, the CDU, is losing popularity and desperate for pensioner votes. Dr. Schauble even went so far as to blame ECB monetary policy for the rise of the right-wing eurosceptic AfD: "I said to Mario Draghi...be very proud: you can attribute 50% of the results of a party that seems to be new and successful in Germany to the design of this [monetary] policy," Mr. Schäuble said. This is outrageous. Dr. Schaueble is a politician, not a central banker. His attempt to influence the conduct of ECB monetary policy to ga

The sun is shining, the daffodils are flowering. Blossom is on the trees. The dark days of winter are behind us: in front of us lies a bright, glowing spring. Black zeros reap golden rewards, it seems. What is all this about? German industrial production has suddenly bounced back from recent falls, rising by 3.3% month-on-month in January 2016. The German statistical agency DEStatis reports that there are particularly strong performances in construction, capital and consumer goods production: In January 2016, production in industry excluding energy and construction was up by 3.2%. Within industry, the production of capital goods increased by 5.3% and the production of consumer goods by 3.7%. The production of intermediate goods showed an increase of 0.4%. Energy production was up by 0.1% in January 2016 and the production in construction increased by 7.0%. According to Dominic Bryant of BNP Paribas ( quoted in the FT ), Germany is "booming". And in the same FT piece, Pa

At Forbes, I have posted the latest episode in the long-running saga of the failure of Hypo Alpe Adria: The story of the  failed Austrian bank  Hypo Alpe Adria (HAA), and its transformation into the world’s worst “bad bank” – the  insolvent HETA  – resembles a Hollywood blockbuster. Complete with a cast of thousands, colorful principal characters, an extraordinary range of special (legal) effects and a reach far beyond its national borders, the HETA saga is long, staggeringly expensive, mind-numbingly complex and at times unintentionally hilarious. HETA’s liabilities are mostly guaranteed by the government of the province of Carinthia. Under its flamboyant far-right governor Joerg Haider, Carinthia provided deficiency guarantees for over 11bn EUR of bonds and subordinated debt issued by HAA. These would be triggered when HETA is wound up, forcing HETA’s losses on to Carinthia and – by extension – on to the Austrian sovereign. But Carinthia’s current government – now bereft of Haide

My latest post at Forbes takes a close look at Germany's much-praised Sparkassen and their odd relationship with other German banks. It's not quite as it seems.... The German Sparkassen (public savings banks) are widely praised for their stability and their service to German savers and small businesses. They survived the 2008 crisis largely unscathed; the few failures were handled within the network, and depositors were compensated from a fully-funded deposit insurance scheme, with no public funds involved.   Other countries, especially those with more concentrated banking systems, look enviously at the Sparkassen. In October 2015, the Demos thinktank  produced a report  arguing that the UK should create a similar network of not-for-profit banks. But are the Sparkassen really such paragons? Read the rest of the post here . 

In my last post, I warned about "siren voices" calling for tighter monetary policy while the Eurozone economy is stuck in a toxic equilibrium of low growth, zero inflation and intractably high unemployment. Specifically, the so-called "German Council of Economic Experts (GCEE)" has called for the ECB to reduce or unwind QE: ...the European Central Bank should slow down the expansion of its balance sheet or even phase it out earlier than announced. Of course, the GCEE is only concerned with Germany. Perhaps, given that their focus is entirely national, they are justified in expressing concern about the continuation of monetary stimulus if the German economy doesn't need it? Well, no, they aren't. The ECB's concern is the Eurozone as a whole, not one particular bit of it. If the Eurozone's overall economic performance justifies QE, then the ECB should do QE, and if that means Germans have to tolerate higher inflation and lower interest on thei

The Group of 30 central bankers and economists has produced a new report, "Fundamentals of central banking: lessons from the crisis". It traces the history of central banking theory and practice, including the economic thought that underlies it. And it draws from it some important lessons about the causes of the 2008 crisis and the reasons for the very long, slow recovery. I've discussed the main themes of the report here (Forbes). But in this post, I want to focus on a particular piece of economic history. This chart leapt out at me from the report: Note that this chart starts only two years after the Weimar hyperinflation, hence Germany's elevated inflation rate at the start. This is important, as we shall see. What struck me is how similar the profiles of the two countries are during the Depression. Both experienced Fisherian debt deflation - annualised CPI fall at peak was 10% for both countries. And both had very high levels of unemployment. German unem

Guest post by Tom Streithorst Vladimir Illych Lenin may well be the most destructive political theorist of the 20 th century.  His glorification of a conspiratorial party as agent of a glorious future legitimised mass murder from Bolshevik Russia to Nazi Germany to Cambodia's Khmer Rouge .  Nonetheless, he did invent an analytical tool political scientists and economists should use more often: “Kto Kovo”, or “who beats whom”.  In examining any policy, Lenin suggests the first question to ask is who gains and who suffers. Neoclassical economics pretends that we search for an optimum solution that serves the economy as a whole. In truth, all change creates winners and losers.  The most obvious example is currency appreciation.  If the dollar is strong and its value rises against the euro, then American tourists enjoy nicer vacations, able to eat and drink more luxuriously for less money, but American exporters pay the price.  The cost of their goods in euro rises, so