Unit 4 Macro: Money, Debt and the New World Order
“All money these days is really a form of debt from somewhere else. We know now in 2012 that our debts cannot be repaid in full.”
Philip Coggan from the Economist was on fine form at the LSE last week when he spoke to a packed audience in the new academic building on the subject of his latest book. When trust in the monetary system breaks down we are in a very difficult place and, in a wonderfully broad historical sweep Philip Coggan offered some revealing insights into what a reformed global monetary system might look like in the years ahead.
read more...»Unit 4 Macro: France loses her AAA credit rating
It is perhaps a moment of more political than economic significance, but on Friday 13th January 2012 Standard and Poors, a leading credit rating agency announced that France was losing her triple A (AAA) credit rating for sovereign debt. It was part of a larger downgrading of government bonds among a sizeable chunk of Euro Zone countries, the argument being that plans to achieve deficit reduction lacked credibility. France was downgraded, S&P also lowered the long-term ratings on Austria, Malta, Slovakia, and Slovenia, by one notch. The rating levels for Cyprus, Italy, Portugal and Spain were dropped two notches.
Here is a brief Channel 4 report on the news and some other links to the story. Only four Euro Zone countries now have an AAA rating. Do you know who they are?
read more...»The Eurozone Crisis Explained (again!)
A superb, relatively simple, explanation of the Eurozone debt crisis with good data on historical compliance to the ‘Stability and Growth Pact’. Plenty data for students to get their teeth into. How significant is the level of government debt?
Unit 4 Macro: Celebrating (?) Ten Years of Euro Notes and Coins
The European Central Bank has just released a special six minute video celebrating the first ten years of the euro banknotes and coins! The new head of the ECB makes an appearance but does the video give enough time and emphasis to the structural problems and fault-lines of the system? And will the video become an interesting historical relic before we elect to use it in the classroom? Anyway…..here is the link
read more...»BBC interactive graphic Eurozone debt who owes what to whom?
A great graphic from the BBC showing how much money is owed by each country to banks in other nations. The arrows point from the debtor to the creditor and are proportional to the money owed as of the end of June 2011. The colours attributed to countries are a rough guide to how much trouble each economy is in.
read more...»Unit 1 Micro: Has the time come for a Tobin Tax?
This week I am setting my AS micro students a question on proposals for a Tobin Tax - partly because it is hugely topical and also as a way of developing their evaluation skills on paper and coming to a reasoned final conclusion. Here are some of the links to suggested reading and some video shorts on this topic:
read more...»World Collapse explained in 3 minutes
A nice summary of the world economy situation…... compressed into three minutes .... click on the You Tube link below
read more...»Greek debt decision tree
I have been looking for resources to use with my A2 students to investigate the Greek debt crisis, and why it is causing such global concern. So first I am really grateful to find the powerpoint that Geoff has posted to the blog this morning, which sets out the scale of the problem there very clearly. I would like to suggest another resource I have just come across which I think complements the powerpoint quite well - especially to help answer the question “What will happen if the Greeks do default?”. Someone at the BBC has devised a decision tree looking at possible outcomes which depend on how the Greek authorities respond to their “Troika” of lenders - the European Union, International Monetary Fund and European Central Bank. The potential outcomes range from a pyrrhic victory in which Greece forces its lenders to write off most of its debts, but bankrupts it’s banks, to global meltdown.
What the decision tree doesn’t include is probablilites for each outcome. That could be the class activity for the week, perhaps.
Unit 4 Macro: Greek Economy at Default’s Door
A2 level economists studying macroeconomics are almost certainly going to be discussing the economics of a Greek government default in the coming days and weeks. Many of the main macro indicators for Greece have been heading in the wrong direction for some time and the country provides a rich opportunity to study the causes and consequences of a fiscal, economic and wider social crisis. I haave put together a slide presentation of ten key macroeconomic charts for Greece. Students and teachers might want to use this (and edit / improve) when discussing events as they occur in the days ahead.
read more...»Unit 2 Macro: Greece on the Brink of Default
AS level economists studying macroeconomics are almost certainly going to be discussing the economics of a Greek government default in the coming days and weeks. Many of the main macro indicators for Greece have been heading in the wrong direction for some time and the country provides a rich opportunity to study the causes and consequences of a fiscal, economic and wider social crisis. I haave put together a slide presentation of ten key macroeconomic charts for Greece. Students and teachers might want to use this (and edit / improve) when discussing events as they occur in the days ahead.
read more...»AQA A2 Economics - European Context
Each of the AQA a2 economics papers contains data response questions where understanding and awareness of the context of the economics of the European Union comes into play. We have a EU Economy in Focus study companion which is published in updated form each year. Details are available here. One area for revision focuses on the analysis diagrams that might be used to support your answers to EU context questions, I have put together a listing of topic areas where a diagrammatic approach might pay dividends - it is not exhaustive of course, merely some suggestions that might be useful. It appears below:
read more...»Focus on Ireland’s Economy
Ireland is an economy suffering an economic, financial and political crisis. Her freedom to operate an independent macroeconomic policy is constrained by her membership of the single European currency and there are many who doubt that Ireland will be able to achieve a sustained recovery without some form of debt default. Our charts below track some of the key macroeconomic indicators for the Irish economy and below them we have gathered together recent blogs on Irish economic issues.
read more...»A2 Macro: Back to Roubini - a Year On!
Almost a year ago I headed to the LSE to hear Nouriel Roubini launch a new book “Crisis Economics”. The notes that I took at the time are reprised below and reading through them again, I am struck by just how accurate the Roubini assessment was of where the next phase of the financial and economic crisis would move. Many of the remarks are relavant to students preparing for the OCR F585 paper for June 2011 and also for other A2 macro students wanting some evaluative comments on the international economic crisis.
I have repeated my comments from the May 2010 blog and they appear below. There has been some minor editing and I have supplemented the blog with some charts drawn from the team at Timetric.
read more...»OCR F585 June 2011: Euro Area on the Rocks?
Is the Euro Area on the rocks? Yes according to economist Roger Bootle writing in the Telegraph. He argues that there are four facets to the Euro Area crisis - debt, uncompetitiveness, property price deflation and fragility in the European banking system. These are themes well known to students preparing for the OCR F585 paper in a few weeks time.
“Given the multi-faceted nature of the euro’s problems, this mixture of depression and deflation is extremely dangerous. Because it reduces aggregate demand, fiscal austerity will intensify the downward pressures on house prices and undermine the quality of banks’ assets!”
A2 Macro: Paul Mason’s blogs on the Euro Crisis
For incisive comment on the issues facing the Euro Area, Paul Mason is hard to beat at the moment. Here is a link that tags his recent articles on the Euro Crisis.
ECB breaks rank and raises interest rates
The European Central Bank has become the first of the four major central banks to lift policy interest rates since the start of the global financial crisis. This decision came on the same day as Portugal applying for emergency support in a bail out that might be worth Euro 80 billion. David Blanchflower, a former member of the Monetary Policy Committee has called the move “a big mistake” hinting that Spain - where more than 80% of mortgages are on variable interest rates - is more vulnerably to financial distress than many are prepared to admit.
The ECB is starting to move their policy interest rates towards normal levels - but this tightening of monetary policy starts with the Euro Area suffering 10 per cent unemployment - it takes a hawkish central bank to start increasing the cost of borrowing money when one in ten people in the currency union is out of work and when the Euro has already been appreciating against the US dollar threatening the strength of an export-led recovery for the currency union. The ECB was forced to reverse a rate rise in the autumn of 2008 when the financial crisis took hold. Might they have to do the same sometime this summer?
It seems that the ECB has confirmed that the Euro Area will now experience a two-speed currency union for the next few years with Germany leading a group of fast-growing countries and the debt-ridden periphery (the PIIGS) condemned to grow more slowly and suffer the impact of a period of painful fiscal austerity.
Eurozone interest rate rise explained (BBC news)
Guardian: Portugal bailout analysis: Is Spain next for EU help? - video
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EU Economics - Portugal Reaches for Bail Out
Portugal has requested an emergency bail out from the European Union to address it’s sovereign debt crisis. It becomes the third Euro Area economy to require help from European partners in the wake of bail outs for Ireland and Greece.
The move came after the Portuguese government was forced to pay an interest rate of more than 5% for borrowing money for just one year and in the expectation of the European Central Bank raising policy interest rates in the near future. The Portuguese economy has a major state-sector debt crisis as our Timetric chart below shows. And the economy has been performing poorly for several years with rising unemployment and a steep fall in relative living standards. Already several of Europe’s new economies (including Slovenia and the Czech Republic) have overtaken Portugal in terms of income per capita (PPP adjusted). Portugal’s long-term credit rating was downgraded by Moody’s by one notch to Baa1 earlier on this week.
BBC: EU austerity drive country by country
Independent: Portugal seeks €80bn bailout as third nation falls to eurozone crisis
Guardian: Portugal’s bailout was all but inevitable
Bloomberg: Goldman Sachs Says Portugal Is Last Euro Nation to Seek Bailout
Independent, Sean O’Grady: If Spain fails, it will be too expensive to save
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Tracking the effects of the recession on GDP
An excellent resource for Unit 2 and Unit 4 macroeconomics. Vishnu Padmanabhan from Timetric has this excellent look at the impact of the recession on real GDP growth in OECD countries. Which countries did best and worst in the recession? It turns out that Australia, Poland, Israel and South Korea were the countries least affected by the crisis and all avoided a full-blown recession - experiencing instead a soft landing. Here is Vishnu’s article. Our own growing selection of Timetric charts can be found by scrolling down to the bottom of this blog entry.
The OECD has just produced their annual review of Going for Growth - a largely supply-side look at policies designed to promote long-term growth in productive potential in the world economy. Details can be found here.
AS Macro Key Term: Relative deflation
The term “relative deflation” is generally used to describe an economy with an inflation rate, which has not necessarily descended into negative territory, but is markedly lower than comparable economies. Over time, a low relative rate of inflation can lead to an improvement in price competitiveness in international markets, assuming that there has not been a compensating change in the exchange rate between two countries.
In our data example shown below we track consumer price inflation in Ireland, Spain and Germany. For most of the period shown, the annual rate of inflation in Germany was substantially lower than two of her partners in the European single currency area - this is an example of relative deflation.
read more...»OCR F585 June 2011: Competitiveness
One important aspect of the OCR F585 stimulus materials for June 2011 is the economics of competitiveness within the single currency zone - the Euro Area. A conventional view is that some of Europe’s peripheral countries (notably the PIIGS) have become uncompetitive because they have allowed their producer prices, consumer prices and relative unit labour costs to rise. This - in the absence of a compensating exchange rate depreciation - has made their manufacturing and service industries relatively more expensive leading to a deterioration in trade balances, slower growth and stagnating living standards.
read more...»OCR F585 June 2011: Data Charts (2)
Here are the second set of updated data charts that I have built into my toolkit for the OCR F585 June 2011 paper. The focus of much of the stimulus material is on the economic difficulties in the Euro Area and this collection of charts reflects this - it looks at the output gap, unemployment and gross government debt for the Euro Area as a whole.
read more...»OCR F585 June 2011: Data Charts
Here are the updated data charts that I have built into my toolkit for the OCR F585 June 2011 paper. The focus of much of the stimulus material is on the economic difficulties in the Euro Area and this first collection of charts reflects this.
read more...»Poor human capital in Portugal
A hat tip to Philippe Legrain for spotting this piece in the Wall Street Journal highlighting the chasm in educational outcomes in Portugal (Western Europe’s poorest nation) contrasted with other EU countries. Only 28% of Portuguese aged 25-64 have completed secondary school vs 85% in Germany and 91% in the Czech Republic. “Portugal must generate enough long-term economic growth to pay off its large debts. An unskilled work force makes that hard.” More here
Timetric: Currency movements against the Euro
A set of Timetric charts following currency movements for non-Euro countries against the Euro
read more...»EU Economics - Video Resources for Teaching
I will keep this blog updated with a selection of video clips relevant to the study of the EU - please check below for some links and embedded videos
read more...»Timetric: Unemployment Rates for Selected Countries
In this Timetric chart blog we look at unemployment rates for a selection of country groups - these automatically updated charts will track what is happening to the standardised jobless rates for clusters of countries starting with one that includes the Euro Area, Germany, USA, UK and Japan. The second chart is the unemployment rates in the so-called PIIGS - Portugal, Italy, Ireland, Greece and Spain
read more...»Ireland - Mass Unemployment and Shrinking GDP
We know that Ireland is in deep economic and financial trouble. Our Timetric chart will keep pace with what is happening to Irish real national output and their unemployment rate (measured as a % of their labour force). And in the links below you can connect to recent blog posts on Ireland - one of the countries inside the Euro Zone that faces a huge sovereign debt crisis that may take years to resolve.
Here is the chart
read more...»EU Economics - Life at the jagged edge of the Euro Zone
Paul Mason continues his journey through some of the countries inside the EU facing an economic crisis. Portugal is in recession, construction has slumped and the government is introducing fiscal austerity measures but they are keenly aware that the sovereign debt crisis is yet to hit the economy with full force. A vivid and colourful report from one of the BBC’s top reporters.
EU Economics: Is 2011 the year the euro will fall?
BBC Newsnight discusses in this video report whether the Euro Area can continue in its current state during 2011. This may well be a make or break year for the single currency and Paul Mason focuses on the problems facing the slow growing, mass unemployed Spanish economy. I liked this phrase “Europe faces a debt problem at it’s periphery and a credibility problem at it’s core”. Sounds like a cracking essay title!
Timetable of the euro-showdown
There is a really good piece here in the Globe and Mail on the difficulties facing the Euro Area - it is a long way from coming close to being an optimal currency zone.
Economics Q&A: Why might Europe’s weaker economies struggle to grow in the next few years?
A starting point to this question is to discuss what “weaker EU countries” might mean. We can use some of the conventional indicators of macro performance to help us namely:
1. Slow or negative economic growth
2. Rising unemployment and falling employment rates
3. Deteriorating public sector finances and higher government debt
4. Relatively high inflation or perhaps an economy experiencing a period of deflation
5. A high deficit in trade in goods and services
Other indicators might be used to identify weaknesses in performance - for example:
1. Relatively low labour productivity
2. A falling share of global trade
3. Rising yields on long term government bond issues
4. Weaknesses in non-price competitiveness
