• Nov. 15, 2006

    De-constructing the European Union's 'absorptive capacity'

    The tendency in some political discourse now is to say that, because the Constitution that was meant to prepare for enlargement failed to be ratified, this shows that the enlargement process has now hit a roadblock called 'absorptive capacity', with the European polity suffering from a malady called 'enlargement fatigue', and therefore it would be best to call a stop and define the EU's 'final frontiers'.

  • Nov. 13, 2006

    America Votes: What next for the WTO?

    The Doha Round of trade negotiations was suspended in July 2006. Soon thereafter leading trade negotiators hoped that talks could resume -even be completed- in early 2007. This timetable allowed for a short "cooling off" period but, more importantly, envisaged the resumption of negotiations after the U.S. Congressional elections. These elections were thought to be one factor stopping American negotiators from making further concessions on agricultural trade subsidies during 2006. Well, the elections have now come and gone but will we see the resumption and conclusion of the WTO's Doha Round negotiations?

  • Nov. 6, 2006

    Microcredit: Is it limited to village economies?

    This year's Nobel Peace Prize was awarded to a former Professor of Economics, Muhammad Yunus, the inventor of group-lending microcredit in 1976. When the then Professor of Economics at Chittagong University, in Bangladesh, bet on the poor as being bankable individuals by creating the Grameen Bank, in the nearby village of Jobra, he extended tiny loans to poor individuals without collateral out of his own pocket. His motivation was to help such villagers to finance their investment projects, and, eventually, pull them out of poverty. His idea was a successful one, as Grameen replications mushroomed worldwide in the developing world and Eastern Europe, now reaching nearly seven million individuals living under the poverty line. What is exactly Yunus' innovative idea all about, and what made it replicable beyond Bangladeshi villages?

  • Nov. 3, 2006

    Why Eastern Europe is turning anti-liberal?

    Right wing populists in Poland and left wing populists in Slovakia now run the government in alliance with extremist nationalist parties. In Budapest the main opposition party Fidesz calls its supporters to demonstrate in front of Parliament for the resignation of a government on the very day the Parliament had confirmed in a confidence vote the political outcome of the elections of last May. In contrast, in Prague, a minority right wing government that has not gained a confidence vote in Parliament after five months of bickering and mobilizing against the «communist threat» is carrying out a widespread purge of the upper echelons of public administration. Last but not least, the Bulgarian entry into the European Union has been heralded by turning the presidential race into a confrontation between an ex-communist (who claims to like the EU) and a proto-fascist (who says he hates Turks, Gypsies and Jews).Why is it so ?

  • Oct. 26, 2006

    Enough Italy Bashing

    The downgrade of Italy by two credit rating agencies is likely to re-invigorate a theory that has some popularity in the financial markets, namely that Italy could well be the first casualty of an ill-conceived monetary union. The rationale: Italy has suffered from a huge loss of competitiveness, its productivity is at a standstill and its public debt is running out of control. Real life has demonstrated that the country cannot compete with her neighbours on a level playing field, i.e. not without the repeated 'shots in the arm' provided by devaluations. According to this line of reasoning, investors should ultimately impose a higher risk premium and, as debt servicing becomes more costly, their pessimism would turn into a self-fulfilling prophecy: Italians would start dreaming of a 1992-style devaluation as the only way to bail out their flagging economy, at the expense, of course, of their main trading partners.

  • Oct. 6, 2006

    French Budget: Walking the Fine Line

    The 2007 budget should be a decently good vintage for the French economy, given the extraordinary electoral circumstances that will prevail in 2007: Presidential election in May, followed by general elections in June. Against this backdrop, one would have expected the incumbent government to flatter the electorate by injecting some growth boosters by means of budgetary stimulus, leaving to its successor the task to clean up the fiscal mess. My reading of the draft budget as it is now in the hands of the National Assembly is that it is a fair compromise between electoral contingencies and the imperious necessity to rationalize public spending, streamline the tax system, and cut the ballooning public debt. Actually, the public debt should decline already this year, as a percentage of GDP, for the first time since 2001.

  • Sept. 24, 2006

    Japan: Reformism without Liberalism

    Koizumi 's five and half years in office were marked by significant reforms. Japanese banks were purged of most of their bad loans, the post office savings bank will be privatised as will some other public entities. The reforms follow the liberalization of foreign investment and financial markets which had taken place in the years following Koizumi's election to the premiership. -->There were two components of Koizumi's reform drive. One, symbolized by Takenaka Heizo, who served in several cabinet positions under Koizumi, was inspired by economic liberalism. The other one was more a function of the internal rivalries of the ruling Liberal Democratic Party (LDP) than of the Prime Minister's attachment to a particular ideology. For example the postal savings corporation was part of the funding mechanisms of anti-Koizumi factions. By privatizing it, and by cutting funding for corrupt public works projects, Koizumi hoped to undermine his enemies within the LDP.

  • Sept. 15, 2006

    Democracy and Globalization

    Democratization and globalization are the two most profoundly important developments of our age. Since 1975 there has a quadrupling in the number of democratic countries worldwide. Meanwhile, global trade as a share of global GDP has more than doubled from 8 to 20 per cent, while the share of countries fully open to international capital flows, as measured by the International Monetary Fund, has risen by half, from 25 to 38 per cent. There are exceptions; North Korea remains a hermit kingdom, resisting both democracy and globalization. But such exceptions are increasing few. It is hard to think of a part of the globe that is untouched by these powerful trends. And it is hard to think of an aspect of our lives that is unaffected.

  • Sept. 11, 2006

    Why multiculturalism should not be abandonned

    In an article published in the Observer newspaper recently, a reporter writes of his visit to a local mosque. It was not just any mosque, but one frequented by some of the British Muslims held by the police in the plot to bring down several transatlantic planes. The reporter talks of meeting two TV teams at the mosque. One, from the US, came to try to find out why the UK is a hotbed of Muslim violence; the other team, which was French, was there to report upon the collapse of the British model of integration.

  • Sept. 6, 2006

    Euro-zone: The Revival of Productivity

    One thing has escaped analysts' attention about euro area GDP data so far this year - labour productivity. This key ingredient of economic welfare and catalyst of stock market performance has accelerated significantly. The reason for this oversight, unfortunately, is the poor performance of the European statistical system: very few countries produce timely and reliable data on productivity per worker, not to mention productivity per hour. Don't blame Eurostat for this woeful situation: this small EU Directorate cannot invent data that do not even exist at the national level of several large European economies. However, just because productivity is measured poorly, doesn't mean it should be overlooked. According to our tentative measurements, productivity per worker in the business sector, which grew on average by 0.7% from 1999 to 2005 on OECD estimates, reached 2.0% (annualised rate) in the first half of this year, peaking at 2.4% in the second quarter.

  • July 21, 2006

    Taxing the added value is not a good idea

    In his seasonal greetings to the press French president Jacques Chirac proposed to widen the tax base for employers' contributions to social security from wages to value added. The idea of cutting employers' payroll contributions to foster employment is not distinctively French. Instead the idea of financing it by widening the tax base from wages to value added certainly is: In general, governments tend to finance reductions in employers' social security contributions through the general tax system. This is the case of the German coalition government that plans to finance a reduction in employers' contributions to unemployment insurance from 6.5% to 4.5% through receipts from the general tax system.

  • June 30, 2006

    Where now for EU corporate income taxes?

    Tax rates on company profits in developed countries have fallen significantly over the last two decades. An important reason for this has been the rise in the share of economic activity undertaken within multinational corporations. From the perspective of national governments setting tax rates and tax structures, multinational firms differ from purely domestic companies in one fundamental respect: their activities are mobile between countries.

  • June 28, 2006

    Taxing profit is arbitrary and complex: let’s reduce the complexity

    All governments seek to tax profit earned by companies. But they face at least two problems in doing so. Conventional wisdom says that governments have to compete with each other to attract scarce investment by multinational companies, and that such competition must inevitably lead to lower (and eventually zero) corporate tax rates. -->Evidence on whether this is really happening is mixed and corporation tax revenues have been buoyant in the last 10 years. So reports of the death of corporation tax are premature, to say the least. Yet governments do face a rather different problem in taxing company profit: where is profit located? This might have seemed an easy enough question to answer before our economies became globalised - and it still may seem fairly easy for many companies. But it is far from obvious for the large multinational companies which pay most corporation tax.

  • June 6, 2006

    ALCA versus ALBA

    The decision by Bolivia to nationalize its natural gas and petroleum industries is going to result in heavy losses for Brazil, but it also shows that populism and contract breaches continue to be an "easy way out" for Latin America to justify its refusal to introduce much needed reforms. Nations in the region tend to periodically succumb to the temptation of using their vast natural resources to reach political objectives.

  • May 30, 2006

    WTO: the true cost of a non agreement

    For many commentators, the puzzling issue is no longer " how to save the Doha Development Round ", but " should we save the Round ? ". The departure of Rob Portman, the apparently irreconcilable positions, as well as the increasing concerns with regards to the usefulness of these negotiations, fuel a growing pessimism. Two options can be contemplated at this stage, after having missed the April deadline. The first option is to take advantage of the pressure associated with the forthcoming elections in Brazil, the U.S. or France, in order to conclude in emergency; the alternative is to miss this target, and to start a new process on the basis of new premises; the latter option would hardly put at risk a buoyant world trade. There is however a risk associated to such postponement recently suggested by Oxfam. There is a high probability of getting stuck in the sand, the delegations entering into a trench warfare where every lost centimetre is perceived as a major defeat.

  • May 16, 2006

    The end of a European integration process

    From the 1992 inception of the Single Market Program, to the introduction of the euro, to the enlargement to 25 member countries in May 2004, the process of European integration appeared to defy gravity. Bumps like the early 1990s currency crises did not halt it, but spurred it to leap onwards to the next step. Up to late May 2005, all this bolstered the confidence of those who, when designing the Single Market in the 1980s, could not imagine that the Iron Curtain would soon collapse and viewed a single European currency as a distant theoretically unavoidable but practically difficult endeavor. Many dreams had come true, and there was no Plan B, when the French and Dutch electorate rejected the Treaty establishing a Constitution for Europe.

  • May 15, 2006

    Energy Supply and Energy Security: a Mexican Perspective

    Oil prices have almost doubled in the past two years. After having breached the 75 dollar a barrel threshold for brief periods the market seems ready to test a price of 80 dollars for WTI, while global demand continues to grow. Future prices on the NYMEX are currently above 70 dollars until December of 2012. Yesterday the far dated quotes reached a new record. Refining margins have remained high and the average retail price of gasoline in the US should be higher this summer than last year. Prices are reflecting multiple constraints and imbalances along all of the supply chain. Capacity increases will be limited for at least the next three years, both in the upstream and in the downstream. More important, the oil service sector as well as construction and engineering companies are not able to meet their costumers' requirements. The resulting cost inflation is contributing to a shift of oil industry supply curves.

  • May 6, 2006

    High-skilled migrants: welcome to Europe!

    Germany's new immigration law of 2004 was in part designed to attract high-skilled immigrants. But during 2005, less than 1000 high-skilled immigrants came to Germany under the timid provisions of that law. France is currently discussing an immigration bill that also contains provisions for high-skilled immigration. However, the special provisions regarding «compétences et talents» don't seem to be a particularly courageous step forward either. Why are France and Germany finding it so difficult to effectively participate in the global competition for talent?

  • May 4, 2006

    Is the IMF still useful?

    IMF reform has been on the policy agenda for as long as most of us can remember. Since the breakdown in the early 1970s of the Bretton Woods System that the IMF had been created to oversee, observers have questioned whether the Fund still has a mission and tools appropriate to the task. For the older among us, recalling these earlier discussions, it seems like the IMF is always in search of a new job description. -->IMF reform has been on the policy agenda for as long as most of us can remember. Since the breakdown in the early 1970s of the Bretton Woods System that the IMF had been created to oversee, observers have questioned whether the Fund still has a mission and tools appropriate to the task. For the older among us, recalling these earlier discussions, it seems like the IMF is always in search of a new job description.

  • April 8, 2006

    Stock Market Consolidation: A New Game, But Who Sets the Rules?

    Financial markets have a bad habit of moving too fast. Many on the marketplace had become used to think that the European monetary union (EMU) meant the creation of an integrated European capital market alongside the progressive disappearance of fragmented, national markets. This left plenty of room for difficult policy questions: should securities regulation be kept separated from prudential supervision, as in the US or France, or brought under the same roof, as in the UK or Germany? Should the system be based on the coordination of national authorities, as now in the so-called Lamfalussy process and its intricate architecture of Europe-wide committees, or should a new European agency be created? Should the approach cover the whole EU and its 25 (soon 27) member states, or be limited to the Eurozone or the continent to bypass a possible British veto? But one thing seemed sure: the relevant scope of the next steps would be of pan-European scale.