Sunday, November 28, 2010

The French during the IIWW

An interesting NYT review of a new book on "AND THE SHOW WENT ON. Cultural Life in Nazi-Occupied Paris" by Alan Riding, documenting how French artists had no problem with accomodating the Nazis during the occupation.

As the author says "writers and artists simply carried on as if nothing had happened. German musicians visited Paris, French musicians toured Germany, and French artists too, Derain and Vlaminck among others. Picasso’s record was fairly contemptible throughout, though he got away with it afterward".

And "back in Paris, theaters and nightclubs did a roaring trade, eager to amuse the large contingent of German soldiers. The list of writers and artists who did their bit for cultural fraternization is a roster of French culture and popular entertainment at the time, from Jean Cocteau and Jean Giraudoux to Edith Piaf, Maurice Chevalier and Django Reinhardt. The ardor with which some actively collaborated is almost less chilling than the sheer cynicism and amorality of many more. "
Just compare this with the fate of Central Europeans, primarily Polish artists and intellegentsia, who were shot on principle (See me previous blog entry of the book "Bloodlands"). As Czeslaw Milosz wrote in "The Captive Mind" - "What does Western Europe know about suffering?"

Five favorite books on the euro by Barry Eichengreen

Here is the website with Barry Eichengreen's commentary on each of the books. Worth reading, especially from such a good American, who actually believes (unlike most of his American colleagues) that the euro was a good idea.

I agree with him that "Europe will be forged in crises":

"I’d say that each time that Europe has reached a crisis and had to decide whether to go forward or go back, it goes forward toward deeper integration. Angela Merkel’s personal preferences notwithstanding, I think there will be strong pressure on her to do likewise. Jean Monnet, the father of European integration, once said something to this effect: ‘Europe will be forged in crises.’"

I have tried to explain it two days ago to an incredulous EC bueraucrat, who found it hard to believe that the current crisis was a good thing for Europe, both short-term (depreciating the euro and other EU currencies, such as the Polish zloty) and long-term (strenghtening the euro infrastructure, something that would not have happened without the crisis).

I also concur that the euro zone will not break up:

"The commission forced me to sit down and think hard about scenarios. The conclusion I reached was that countries with serious financial problems, like Greece, and, equally, countries fearing that they would have to pay for those financial problems, like Germany, would both be extremely reluctant to abandon the euro. Doing so would be equivalent to abandoning the whole European project, which, for political reasons, I regard as bordering on the inconceivable.

Also, if a crisis country abandoned the euro in order to reintroduce its own national currency with the goal of restoring its competitiveness, it would be creating more problems for itself than it solved. The more I contemplated scenarios of possible exits from the euro, the more I concluded it wouldn’t happen.

Finally, on a somewhat different topic, I also very much agree with this:

"Americans, especially, are inclined to be critical of Europe’s long holidays, inflexible labour markets, and so on. The Hall and Soskice book is an articulate statement of the view that there are different ways of cracking the same nut. There are different ways of organising market economies – different constellations of social and economic institutions that, in combination, can be equally efficient. Europe has very significant strengths in precision manufacturing. It has apprenticeship training programs and employment stability that facilitate the acquisition of skills on the job. It has patient banks to fund the operations of firms investing in their workers. It’s not obvious that this constellation of institutions is inferior, from the point of view of growth and competitiveness, to that of the United States. Ten years ago, the so-called experts would have been unanimous that the US had a leg-up on Germany in terms of innovation and export competitiveness. Now, to put an understated gloss on the point, this is no longer obvious"

Friday, November 26, 2010

Poland's first report on tax expenditures

Yesterday, the Polish Ministry of Finance published its first, comprehensive tax expenditure report, which estimated that various tax privileges across PIT, CIT, VAT, excise and local taxes cost the Polish taxpayer about PLN 60 billion or 4.9% of GDP a year, a staggering sum.

This is a very good report and is worth reading. One can only hope now that the report will not only raise the profile of the public debate on tax expenditures, but also lead to concrete actions aimed at eliminating the most egregious tax expenditures, which fail to meet any economic and social objectives, and are also grossly regressive, benefiting the richest households only. Eliminating tax expenditures would also help mitigate the need for further tax hikes.

I mention the report also because I have contributed to it (on behalf of the World Bank), which the MoF's deputy minister kindly acknowledged in his foreword. I have also helped co-organize an international conference held on Nov 25, which provided the venue for the launch of the report.

Tuesday, November 23, 2010

My quotes in the Warsaw Business Journal's article on privatization

I gave an interview to the Warsaw Business Journal, which is featured in the article on privatization in Poland entitled "Good as gold"

Monday, November 22, 2010

Why nothing changed in regulating US banks

A nice article by John Cassidy in the New York Review of Books on why nothing has changed after the crisis in the US financial sector. Worth reading. A couple of interesting quotes below:

"The other losers in this game were those who had cash stashed in a savings account or money market mutual fund. “What we have right now is a situation where every saver in the country is, essentially, paying a huge tax to bail out the banking system,” noted Raghuram Rajan, the University of Chicago economist who, back in 2005, had issued a fateful warning about the dangers of a financial blowup. “We are all getting screwed on our money market accounts—getting 0.25 percent—and the banks are making a huge spread on nearly every asset they hold, because they are financing them at pretty close to zero rates.”

"From an economic viewpoint, the most serious problem with the rescue programs was not that they further enriched the loathed bankers but that they exacerbated some serious incentive problems at the heart of the financial system. By extending trillions of dollars in loans, capital injections, and debt guarantees to troubled firms, the US government and its counterparts overseas had greatly extended the public safety net for banks and other financial entities. Left unchecked, this expansion will surely lead to more blowups, followed by even bigger bailouts".

"Taken overall, the reform effort amounts to tinkering with the existing system rather than fundamentally reforming it."

"A significant but undetermined amount of derivatives trading is exempt from the new regulations, and the issuance and trading of naked credit default swaps—bets that a certain company or country will go bankrupt—remain perfectly legal."

Monday, November 15, 2010

In Vienna on "The Coming Golden Age of New Europe"

Am going to Vienna on Thursday to deliver a speech at the 3rd GROW EAST CONGRESS “Restarting Growth in Central Europe and South-Eastern Europe” November 18, 2010, Wiener Konzerthaus. More info here:

Friday, November 5, 2010

The (in)visible hand of the world of finance in the world of politics

I like to explain to my students that the world of finance has an invisible stronghold on the world of politics. Check out then the below text from the Globalist on Larry Summers, who was paid millions just before joining Obama's economic team in the White House. Can this explain why he was against temporarily nationalizing American banks during the crisis? I wonder what new job he is going to get now... Goldman Sachs anyone?

"In 2008, the year before he joined the Obama Administration, Mr. Summers made more than $5 million in compensation from the D.E. Shaw hedge fund and received more than $2.7 million in speaking fees from Wall Street companies that received bailout money.

Now, at that pay level, there were always legitimate concerns about this being "pre-pensation" rather than compensation for actual services.

It was as if to say with a wad of dollars: "Once you're at 1600 Penn, we know you'll keep a watchful eye out for the interests not just of the firm or hedge funds, but the big players in the financial industry more generally.”

And that, in his two-year stint in the White House, he certainly did."