IMF's Fiscal Monitor November 2010

The IMF has come up with another useful "Fiscal Monitor". There is a wealth of interesting data, including on financial sector and carbon tax. Worth reading, including the accompanying slides.

Why it pays to be combine Wall Street with politics

Rajan's book on "Fault Lines", which I have just been reading, reminded me of Robert Rubin, former US Secretary of Treasury, earlier the CEO of Goldman Sachs and later the Chairman of Citibank. In December 2008, the Wall Street Jounal had a tasty story of how Robert Rubin helped run Citibank into the ground and later be bailed out by the US taxpayer while in the process being paid US$115 million for "his services". Just read the quotes from the article below, which I leave without any comment:

"The virtue of this arrangement for Mr. Rubin has become manifest during the current panic. While Mr. Rubin has acknowledged that he promoted the disastrous idea of exposing the bank to greater risk to boost profitability, his "no line responsibilities" job description now allows him to blame the line managers for the consequences of his ideas.

Citigroup shareholders have suffered losses of more than 70% since Mr. Rubin joined the firm. To this day, he appears unable to say what exactly he did for the $115 million that he took out of Citi. "I think I've been a very constructive part of the Citigroup environment," he recently told the Journal, in defense of his tenure. Try selling that line at your next annual performance review, especially when asking for an eight-figure salary.

What is clear is that Mr. Rubin encouraged changes that led Citi to the brink of collapse. Which brings us to his best (only?) argument to shareholders. Mr. Rubin was reportedly critical to securing the latest federal bailout of Citi -- $20 billion in preferred shares plus taxpayers taking on most of the risk in a $306 billion portfolio of dodgy assets. This is on top of the $25 billion in Citi preferred shares that taxpayers bought in October. Giving Mr. Rubin the benefit of the doubt that he is the fixer who delivered the federal cash, this could make his paycheck appear more reasonable to many shareholders."

Or perhaps Mr. Rubin will be a victim of his own Beltway success. The U.S. government, with a 7.8% stake, is now a major Citi shareholder. The activist investors known as American taxpayers might just decide that they have no more dollars to spend on "constructive parts of the environment" with "no line responsibilities."

Presentation on "The Coming Golden Age of New Europe" in Istanbul and Vienna

On December 10, I delivered a lecture on "The Coming Golden Age of New Europe" at the Management Faculty of ITU in Istanbul, the Turkish equivalent of the American MIT. The lecture slides are here

On November 25, I delivered a similar lecture at the 3rd GROW EAST CONGRESS "Restarting Growth in Central Europe and South-Eastern Europe" held at the Wiener Konzerthaus in Vienna, Austria. More info: http://www.groweast.at/.

Wirtschaftsblatt, the leading Austrian business daily, published an interview with me on "Osteuropa ist besser als die BRIC-Länder" (Eastern Europe is better than BRICs). The article in German is here.

Why Americans have it easy and why they should be more humble

The Economist has an interesting debate on whether "the language we speak shapes how we think". The conclusion seems to be that this is indeed the case, at least to some extent.

If so, English-speakers have it so much easier to succeed in today's world since it monopolized by English and--perhaps even more importantly--by the English-language, Anglo-Saxon media (The Economist, Financial Times, WSJ, NYT plus all the movies, music etc etc).

English-speakers, mostly Americans, have shaped the world and the global debate in their own linquistic, cultural and philosophical terms. This gives them an unprecedented advantage over other nations, whose citizens need to not only learn to speak English as well as native speakers do, but additionally they also need to change the way they think to be understood properly in the new language.

The bottom line is that I understand the frustration of the French, who struggle to "express themselves" in so many ways. Americans, in turn, should acknowledge that some of their global achievements are not due to their inherent "genius", but simply to that fact that the world is stacked in their favor, including in linguistic ways.

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"

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.