Posted by: iAntares | 2015/01/20

I’m not Charlie (sigh)

Not that I particularly like murderers or islamic terrorism, but let’s call things by their name. Whatever “Charlie Hebdo” did or publish does not excuse in any way the terror used by militant jihadists throughout the world, but this magazine has to adapt to a new and changing world. In the age of the internet, it is simply not possible to publish just anything offensive, in particular if the world’s eyes are looking. But let’s take a more general approach: What to do now?

1. Tackle the real problem: violent jihadism, sponsored by private or governmental entities, spreading the word of murder and crime throughout the world: Western countries should draw a very clear line of what is tolerated and what is not. For instance, salafist Islam should be banned the same way national-socialism is. Imams should be delivered an authorisation by authorities. This should be delivered only if they have a minimum of education, preach in the local language or english, are not instigating violence – in brief: are not salafists.

2. Respect Islam. This is what Charlie Hebdo doesn’t do. Even if westerners have gotten used to their beliefs (if any are left) to be made fun of, this is not the case for a large part of the world. If muslims have a problem with one human being in particular to be represented in a drawing, this should be totally respected. I’m sure there are ways to make cartoons in a more subtle way. The discussion with and critique of Islam should take place, but should leave the level of cheap provocation and insult. There is no “islamic octopus” creeping around at night scaring our children. Islam is full of marvels and treasures.

3. Increase repression. Repression should be much harsher than in the past, but it should also be targeted to jihadists. People who apologise violent jihadism in any way should not be allowed to do any more harm to society. Returners from related militias in Syria or similar should be removed from society in an appropriate way. This is not a time for the faint-hearted: it is the credibility and legitimity of our democratic systems and the rule of law that are at stake.

N.B: I’ve decided to bring this blog back to life, and post more regularly about subjects relating to Switzerland and the world more in general.

Posted by: iAntares | 2013/09/20

Will Germany pay ?

Will Germany pay for Europe after the elections? I do not think so. First, even Germany is not wealthy enough to cover all the shortcomings of the Euro system and the structural flaws by paying ever larger amounts (into the ESM, the ECB, some future hyptothetical bank resolution institution, or whatever it should be). Second, it would be ethically disturbing, that Germans should pay for the shortcomings of the Greek and Italian political systems or the Spanish economy built upon a real estate bubble. Let’s not forget that the reforms of the beginning of the century have left Germany fragile and with bigger economic inequalities. What is more: the scars of reunification are still plain to see. Germany needs and deserves some rest….unless more sacrifices would really save the european house, but they will not, not in the long term.  And therefore, Germany will not pay. Let us say, not much more than today).

Let us not forget who wanted the Euro, and who is asking Germany to be sacrificed for its sake: France. It was the price, Germany had to pay for its unification: give up the Deutschmark and transfer the might of the Bundesbank to the European Central Bank. It is cynical, because the biggest liability to the european union today is France. France and Germany together might pull Europe into calmer waters, but if France persists on its current way – and falls – it is hard to figure out a way out of crisis: the french economy has not been creating jobs for years, and is currently still not creating jobs. It has utterly failed to reform anything in its labour or product market regulation, regardless of the colour of its government. Ever rising taxes discourage innovation, new companies and new jobs. The 35 hour week is great for those workers who have kept their jobs. Industrial policy must be profiting a few big companies, probably, but not the economy at large. Public finances are in a shamble – as elsewhere – but will require some serious reform before any light will be seen at the end of the tunnel. The Euro is slowly destroying the European Idea, and nobody seems to care.

I understand now why France was so much willing to go bombing Syria a short time ago – regardless of the consequences – and divert attention elsewhere . (The US can at least revert to living on printed money instead of going to war… for a while.)

(Sorry for all the bleakness, I’m in a terrible state of mind today)

Posted by: iAntares | 2012/05/18

Print money or death

More and more politicians start to acknowledge that the eurozone needs more inflation. I see no other way out of the crisis. Internal imbalances need to be reduced and the only realistic way of doing this is to allow higher inflation in the eurozone and a differentiated adaptation of wages and prices to this inflation. Obviously, “southern” eurozone countries should not rise wages, while Germans should do so.

For Greece, the picture is slightly different, as its public finances are in crisis. It too must reduce imbalances by cutting government spending and get some taxes in. But Greece deserves better than the current treatment, it deserves a light at the end of the tunnel. Greece will not be able to avoid “austerity”, but these efforts must lead to an exit of the crisis, if the situation is not to deteriorate into a political crisis. This light will come from nothing short of debt forgiveness. This will cut off Greece from capital markets, but hopefully it will be back there as fast as Argentina was. This will not be a catastrophic scenario but the beginning of recovery, but previously the primary budget will have to be balanced. That’s why more budget consolidation is still needed.

Greece, like other countries, could also need some economic growth. But it is impossible to get economic growth now from higher government spending. It would have worked, if spending had not been as expansionary during the previous boom years. Now it’s too late to be sorry and all those “anti-austerity” tears won’t help anything. Growth will now only come from structural reform (e.g. what Monti is trying in Italy), i.e.: labour market reform, pension reform and these kinds of things.

Posted by: iAntares | 2012/05/02

Crawling back to Sarkozy

Utter despair about the Euro-crisis led me to imagine that Hollande might find a better way out of deadlock than Sarkozy. Unfortunately the socialist candidate’s program is actually and positively bound for disaster. Reducing the retirement age, failing to reform labour markets, punitive taxes and beefing up the public administration is a perfect recipe to throw France instantly into the same category as Italy or Spain. And it will not be the fault of self-fulfilling irrational market exuberances this time, but the simple consequence of utter government failure.

Forget what I said earlier (you numerous masses of readers), stick to Sarkozy and hope for the best.

France is likely to vote for a socialist president, not something which I normally relish upon. Also Sarkozy is being criticized for his track record as a president, allowing the crisis to take its toll on the french economy. Sarkozy is not to blame for the crisis though, and has probably done what was possible and maybe even more.

Except for one thing: The Euro-crisis is largely home-made and the Merkel-Sarkozy efforts are essentially making it worse. Therefore, Hollande threatening the fragile French-German consensus might actually be the lesser evil. He might put an end to the current dramatic dynamic. The current institutional deadlock (not unusual for the EU and not that bad in normal times) now worsens the depression in Greece (which should have gone default in 2010) and Spain. Reform in Italy is bound to fail if no sign of support from elsewhere in Europe appears. Elsewhere means Germany and the ECB, the only entities which still have room for manoeuvre. Germany is still running a current account surplus. It was this surplus and the financial flows e.g. from Germany to Spain that came with it that decisively contributed to the current crisis in Spain. Germany has to increase domestic spending to soften the structural adjustments in Europe. The ECB has bought the EU time injecting liquidity into the banking system, but this time is running out if nothing else is done. You can look at it from any side, the EU needs more inflation. And the ECB is the tool to act on inflation (i.e. inflation expectations), but might need a revised legal basis for that purpose.

Hollande will not be president of Germany, nor of the ECB, but might have some political levers to act differently on the situation. Will he be the man of that situation ? Risks remain high. If Hollande flees into protectionism as french far left (and far right) populists demand, things will start to become really worse (at least for France), and Hollande needs their support if he wants to win the election.

I have not lost hope that Europe will somehow muddle through, but the stakes are high and rising.

Europeans love to believe that they control their destiny. A huge ship of steel and (almost) watertight compartments cannot sink. And a common currency resisting wind and weather is a matter of will. Unfortunately, arctic ice cubes and economic reality have their own agenda.

heading forward

As Martin Wolf of the FT recently reminded us (once more), the Euro-crisis is not a sovereign debt crisis but a balance of payments crisis. Policymakers seem to be insulated from that trivial insight. It is difficult to see clearly, because governments debt is so much in the focus. Scratching the surface reveals the underlying banking crisis. As stated before on this blog, undercapitalised banks giving too much credit and generating financial bubbles and crises are the fundamental root of many of today’s problems. But a well working economy – like Germany’s – can overcome that. What cannot be overcome though, is the lack of competitiveness of countries such as Spain, Portugal, Greece, maybe even Italy. Had these countries currencies of their own, these would lose value now. Under fixed exchange rates, central banks would agree to devalue these currencies. Under the Euro, no such thing is possible. What is needed is an “internal devaluation”, i.e. prices of goods and wages must be reduced with respect to more competitive countries. This is very bad and sour news, but the alternative is far worse: a break-up of the Euro. Bizarrely, policymakers are more ready to accept a greek exit from the Euro than an internal devaluation by Greece. But countries like Estonia have done it, Portugal is trying. The way to achieve this is to tolerate some more inflation in the Eurozone than usual and letting prices and wages of competitive countries (like Germany) increase while prices and wages in less competitive countries remain constant. I see no other way to avoid a breakup of the Euro (=chaotic disaster).

[I’m a big proponent of fiscal rules (such as the “golden rule” or “Schuldenbremsen”, but these will not be of any help in the current situation. At any rate, the Stability and Growth pact should be scrapped, because it creates incentives towards fiscal irresponsibility. It should be replaced by a rule that does not allow a 3% deficit in good times that makes it then impossible to avoid a larger deficit in bad times. But now is a time of distress and larger deficits are needed ! Short term budget cuts will not help. What is needed is a long term commitment to sound fiscal balances while short term deficits are allowed. Of course, Europe is so much in trouble, that it’s hard to see put this principle in practice now, fiscal policy is not an effective instrument anymore. A good fiscal rule would have helped, if introduced ten years ago: the financial crisis would have been more manageable by governments with lower debt ratios.]

The bad fiscal situation shows how important it is to revert to other instruments: monetary policy. The ECB is right to put pressure on governments to take effective measures before it continues to provide direct liquidity (and funding) to them. Buying government debt indiscriminately would create as much moral hazard as the ludicrous idea of eurobonds (and make things worse with time). But if  countries engage in structural reform (including budgetary consolidation) and, most importantly, in internal devaluations, then the ECB should help by making that sour pill as sweet as possible.

Posted by: iAntares | 2011/06/16

Financial Stability

In the public and even among experts, the problem of banks that are “too big to fail” and general financial sector stability tend to get mixed up. Too big to fail banks tend to aggravate financial sector instability in that public money gets tapped to cover private losses. Removing the moral hazard that leads “too big to fail” banks to incur inconsiderate risks or making banks smaller does not affect general financial stability much. What changes is who pays for what. Dealing with too big to fail does not make theses banks more stable (and reduce risk premia) because the risk is just borne differently: taxpayers risk less, not shareholders.

Of course removing incentives towards excessive risk taking is good for financial stability in general, but the main driver of instability is not an implicit state guarantee but human nature: it’s bubbling by nature, as Hyman Minsky demonstrated in abstract terms and can be observed every day at the stockmarket. The only way to make bubbles less threatening is to reduce money creation.

One other big error of our times is to consider money creation as a consequence of central banks and their monetary policy. What counts is total credit that flows out of the banking sector and financial markets. If private debt soars while wealth and GDP or growth prospects do not, financial meltdown is only a matter of time. Money creation by central banks recently has only compensated (to some extent) the crumbling of private credit and is not essential to that purpose. Controlling it using a e.g. a gold standard would not be enough to avoid a credit explosion.

In order to reduce dangerous indebtedness the only solution is to reduce the ability of banks to create credit, e.g. by demanding higher liquidity reserves in times of hybris. Interest rate policy is an other instrument, but it is already a tool to reach other policy objectives (inflation, unemployment).

Make banks safe (and everyone else safe from banks) cannot be achieved without reducing their ability to create credit out of nothing, and therefore target reserve and /or capital requirements.

Posted by: iAntares | 2011/04/01

A few thoughts about Libya

I have been (re-)tweeting a lot about the libyan revolution. By principle I believe it is wrong to wage wars for “humanitarian” reasons. It is better to give the example and let dictators convince by their own failurers. Political and military objectives should be clear and led by national interest, as far as they agree with moral principles. I also strongly oppose violent revolutions. Evolution is better than revolution. A society that is able to cope with a changing environment will prevail: reform must be permanent. A revolution on the other hand is the consequence of a failed society, and does hardly ever change anything for the good.

For the West, the Arab World remains a huge challenge for the future. Relations are rendered difficult by Iraq, Afghanistan or the conflict around Israel-Palestine. A stabilisation of arab regimes is a vital interest for the West, but dictatorships are never stable on the long run. Neither are armed revolutions. The “Arab spring” holds the keys for a better future. We must *help* (not more) those who want to establish free societies ruled by law and accepting peaceful ways of sorting out internal conflicts, with everybody having a right to speak. Pluralistic (and perhaps democratic) institutions can be a way of achieving that. What is happening now in the Arab World is of vital importance for a better, more peaceful future.

The best choice may have been a steady pressure on values within society. A government that considers itself legitimate will slowly always live up to values held high within its society. The process may take time, but eventually reform becomes inevitable. This is happening in many arab countries right now. Dictators need not be toppled too quickly, but must be brought to change political institutions. This is the quickest and most effective way to bring about change.

So what about Libya ? It clearly is a failed society. And Gadafi is not even a dictator, but a thug without any consideration for other people; so much has become very clear by now. But Gadafi is also old, the regime is ending one way or the other (cf. Castro). Gadafi’s successors would have been forced to create some kind of legitimacy around themselves in order to establish themselves as rulers, having previously been nobodies. This would have increased the probability of change. It did not happen this way and we have a war. The West is entagled in it, but unable to act decisively in the short term under current rules. The libyan republicans have been very brave in their struggle so far and deserve great respect – and maybe more.

I do not know what is best or how it will end. Obviously the West can not accept Gadafi any longer without losing a tremendous amount of credibility in the Middle East, already strained by the idiocies of Iraq and Afghanistan. East Libya cannot be surrendered anymore. The Libyan army consists mostly of foreign mercenaries. Libya is not Afghanistan or Iraq: the terrain is favourable, the population, including elites, is supportive, the regime is pure bankruptcy. It would probably have been best to keep out and keep pressure on the moral credibility of the regime (remember: water washes away the harshest rocks with time). But now that the West is in, I suppose the best thing to do is to end it decisively, living up to the UN mandate of “protecting civilians” from a useless war (i.e. from the regime in Tripoli), the cost of failure would be too high for everybody (except Gadafi’s ego).

Posted by: iAntares | 2011/03/31

Solar thermic plant in Switzerland

Hi, this is my first post on this blog. I start backing up on a tweet about solar thermic plants in Switzerland.

I had said that in order to replace a nuclear plant with a solar thermic plant, that requires a collector area of around 12 square kilometers (3x4km) in California and around 20 square kilometers (5x4km) in Valais, Switzerland. The calculated area for Valais is actually 22.8km^2.

I have used the following hypotheses: The annual DNI in kW/m^2 in Barstow, California is 2725, the place of the SEGS solar plant. In a good location of Valais the DNI could reach 1600.  The efficiency of one component of SEGS is 20%, which I have used in the calculation. That leads to an output of 544 kW/m^2 in Cal. and 320 in Valais.   22.8 square kilometers then yield 7,3GW which corresponds to the output of the nuclear plant in Gösgen, Switzerland.