The Greens and the allaince: A forced marriage

The speculations concerning the left-right belongings of miljöpartiet has been vast; not at least in election times where they have been, and still is, in a position where they hold the balance of power and a fortiori the final say on who is to govern the next four years.

In an article in Dagens nyheter not only Folkpartiet (FP) but also Moderaterna (M) opens up for a coalition that includes the greens. The position of the green party is somewhat different this time then earlier elections when talks about joining the right wing coalition has occured. This difference is the emergence of Sverigedemokraterna (SD) and the possibility of them entering the parliament. According to a recent poll SD have a relatively good chance of getting the 4% required to get seats in the parliament.

According to their own sayings none of the present parties occupying the parliament is willing to be in coalition with SD. These statements is most certainly honest ones as SD is another kind of party with more direct extreme right connections then the former populistic Ny Demokrati which was in coalition with the right wing block in the 1994 government. This means not only that their politics is somewhat far of from the other right wing parties, but aloso that the political climate in Sweden is such that a coalition with SD may be perceived as a major political risk for any party – hopefully.

The big question then is, will the green party be willing to join coalition with the right wing block? There are more or less two ways to answer this question - and none of them will of course be able to predict what will happen. First you can look at the politics of the green party. According to Björklund, the leader of FP, MP is a party that has the most affinity with the alliance of the right wing block; a part from their view on nuclear power that is. This is very true but maybe to a simplistic view of Björklund, underestimating the differences in other core areas such as the EMU and the much debated health insurance issues. Even setting these things aside the “free year” policy enacted by the green party was one of the first things abolished by the alliance as they formed government four years ago.

There are of course possibilities to build bridges between the greens and the alliance that isn’t overwhelmingly long. But even though the greens will be a relativily small party even after the election in September it will be in the size of other parties in the alliance. In this sense having the green party joining the alliance it will most certainly have a saying in many issues. Thus, having the greens in a coalition will not only mean letting one more party join in, but most certainly change the way the government will govern in the forthcoming four years.

How many demands the greens will be able to have in a hypothetical agreement with the alliance touches on the other way in which you can answer the question whether or not there will be a coalition of this type. If SD will have such a big impact on the outcome of the election that the green party is in a situation where they need to cooperate, they may relinquish some of the demands they might be able to pull up if they are in a more favourable position. On the other hand, the situation might become so difficult to handle that their will be a cooperation between the blocks locking SD out of action.

To sell a Waterfall

"Don't go chasing waterfalls, please stick to the rivers

and the lakes that you're used to

I know you're gonna have it your way or nothing at all" - TLC

The leader of Centerpartiet, Maud Olofsson said in an article in Dagens Nyheter on August 1 that she wants the government to sell a minority share of the partly state owned energy company Vattenfall. She wants to use the money, SEK 10 billion, to start a new state-owned high technology energy company called Framtidsenergi AB (Future Energy Ltd.) which would have one clear goal to; "together with the private sector invest in future energy solutions and new green jobs in Sweden" She points out that some important areas of investments would be "electric cars (see DJ:ing Economics' post below), the next generations biofuel, new super efficient energy technology, wave energy, intelligent electric grids and more efficient usage of energy in construction, housing and industries"

I have to say that this is a really great idea coming from Centerpartiet. Why is not this idea coming from Peter Eriksson or Maria Wetterstrand of the Green Party? Peter Eriksson did mention selling parts of Vattenfall earlier however.


Why is this such a great idea then?

Firstly, as I wrote in the post about electric cars I truly believe that future growth will depend on new highly technological and environmentally friendly inventions and solutions. Why? Because I believe this is what is going to be demanded more and more and the one being first to supply the demand will have a huge advantage over other countries.

Secondly, this is exactly the role that a government is supposed to take in my opinion. A government is supposed to help create a demand for this type of technology when the markets do not (the ghost of Keynes ones again) because of profits being to far away or because of risk aversion. The horizon for a government is and should be far greater then for a company and that is why it is the role of the government to support new inventions and solutions way before the market do so to help speed up the process.

Thirdly, this needs to happen now, not tomorrow.

This is why I think it is a good idea to sell a minority share in Vattenfall, because not only does government seem to do a pretty bad job as owners, but the influence that the Swedish government is able to have on Vattenfall's operations outside of Sweden seems very small, considering the company's investment in coal and gas energy in Germany for example.

At least we got good commercials in cinemas right?
http://www.youtube.com/watch?v=ZxrlXio4NRM


On a another note; Lars Ohly is of course against this as well. As he is so many other things. What is his problem? He claims that the current government is privatizing out of pure principle. Well he seems to not want to privatize anything just out principle as well. Principles you refuse to change are bad principles and only make you blind and inflexible. I do not really know which kind of world he wants to live in, but it does not seem to be a very modern one. I would rather see the red-green alliance without the Left Party and I suspect so would the Socialists and The Green Party as well, if it was possible.

A $6.3 billion question: Is the IMF or Anders Borg wrong?

On July 5th Anders Borg presented his revised (from the budget proposition in April) forecast for Swedish economic growth for the years 2010-2014. He presented it at Almedalen, the biggest political event of the year and with just about three months left until elections in September.

The new revised forecast states that "The recovery in the Swedish economy is becoming clearer with improved prospects for growth and a stronger labor market. This strengthens public finances and Sweden's ability to meet increasing economic concerns that comes with the uncertain fiscal situation in the world" (author's translation from http://regeringen.se/sb/d/13357/a/149354).

In the Table 1 below you can see that Borg revises GDP growth for 2010 up from 2,5 % to 3,3 % since the proposition in April. The changes in the forecast for the coming years are not as drastic. Unemployment rate however gets revised across the board. The new forecast predicts the unemployment to be on an average 0,5 % lower (than the April forecast) every year until 2014 where it will stay on 6 %, also notice that the GDP gap is predicted to be close to zero in 2014.

Table 1 (Yellow highlighting by the author) download here

Were this to be true this would all be very good news indeed, the economy does seem to be recovering and you are always inclined to accept good news easier than the bad.
 

However, on July 14th the IMF released their annual Staff Report for Sweden. Their predictions for 2010-2014 can be seen in Table 2 below. The interesting and maybe also disconcerting fact about it is that it, especially for the years 2010-2011 and for the unemployment forecasts, predicts drastically different numbers from that of minister Borg. The biggest different is the GDP forecast for 2011 and the forecast for the unemployment rate for the years 2010-2014. Instead of the 3.8 % growth for 2011 that Borg's new forecast predicts the IMF believes that GDP growth for 2011 will only be 1,9%, that is 1,9 percent lower! The predictions for the unemployment are also considerably gloomier than that of Borg. According to the IMF the unemployment in Sweden will not come down below 9 % this year and will stay well above 7 % until 2014. This is in stark contrast with Anders Borg's statement saying that: "The trend in the labor market is a sign of strength for the Swedish model and a development that needs to be protected" (author's translation from http://regeringen.se/sb/d/13357/a/149354). Anders Borg further claims that the stronger labor market will help to further improve the public finances and make them show a surplus in 2012. Well, you do not need to be very good at math to see that seems very unlikely if it turns out that the IMF are right and not Anders Borg.

IMF, 2010. Country Report 10/220

Now, certainly it is perfectly normal that different organizations and persons have different opinions about something as uncertain as future GDP growth. But a 1,9 % difference is too much to just be a coming from different ways of measuring. Either both the IMF and Anders Borg are mistaken or one of them is really wrong. 1,9 % may not sound like very much, but when you are talking about GDP 1.9% translates to enourmous amounts. A quick calculation gives a good idea of how much we are talking about. The CIA world factbook puts the estimated Swedish GDP for 2009 to 333,5 billion. 1,9 % x $333,5 bn = $6.3 bn. Multiplying that with the current SEK/$ gives you: 6.3 bn * 7.33 =  SEK 46 179 000 000. Now that is a lot of value that would not be created would the IMF's forecast come true!

The big question is of course who is right and who is wrong?

I cannot help to think about who has an election to win in September and who is part of a government whose most important political question is the "Job line" and who has lately been giving them self credit for the soundness of public finances?

I'm just sayin' now.

I owe U, U owe me, We owe the future

I stumbled over a new very pedagogic interactive graphic of world debt, divided on households, government, financial and non financial companies, from the Economist and saw that usdebtclock.org had been updated to include real time numbers on external and public debt for a couple of countries.

They can be found here:
usdebtclock.org 
World debt 


















Ones again it worth the while to point out the importance between the implications of external and internal debt (if you owe other countries money or if you owe your own citizens).

If you are not 100 % sure about these terms here are two good definitions and explanations from wikipedia:

External debt
Internal debt

Electric cars & sustainable growth

The much troubled carmaker GM's new electric car Opel Ampera (Chevrolet Volt in the US and Vauxhall Ampera in the UK) will probably be available somtimes in 2011. This is some of best news I have heard in a long while and apperantly this was one of the reasons that convinced the Obama administration to save the giant company last year. Good job.

I think that the transition from fuel driven vehicles to electric ones is one of the most important if not the most important change that has to happen for real sustainabe growth to be possible.

To begin with, the car industry is one that drives new technology and innovation. Secondly cars is one of the most important consumer good, one that drives economies worldwide both from a real economic aspect and as an indicator of the current economic situation, and since it seems virtually impossible to get something to replace the C in Y=C+I+G+NX a change in the car industry will change future growth, for better or for worse. Last but least a new orientation towards electric cars will mean a huge increase in energy demand and in that industry there exist two roads to take. One possible scenario is that this will mean a surge in cheap fossil fuel or nuclear based electricity or it will help push renewable energy forward. Well, the first scenario would probably add up to almost nothing, because if the electricity does not come from renewable sources electric cars will make little or no difference. The second scenario on the other hand would constitute a real revolution and it would do so by still letting people live their lives the way they want to. Cars mean freedom, and people value their freedom more than ever. The transistion from fuel driven to electric cars will mean that a lot new cars will be bought, a lot of new investments will be made and a lot of demand will be created. People will save to buy cars and governments will hopefully invest in new infrastructure and create incentives for people to make the change and also, countries will trade different models with each other just as they do today. Let us see, consumption, demand, saving, private and public investment and trade; this should equal Y. Growth. And it would be a consumption and a growth we all could live with and which in the best of worlds could spread to more parts of the economy.

I believe (a bit cynical, I know) that the best and most effective way to obtain sustainable growth is not to force people to change their way they live their lives but to make their way of living more sustainable. That should be the goal for technology and innovation. It may sound as a gamble but considering how negotiations in Copenhagen ended last year I think its pretty safe to say that people will not change until they are standing with both their feet on the precipice.

This means that a lot is depending on how governments will act to help people make this vital transistion. And let us just be clear. This, like everything else will always be an economic question and a question of making it easy for people. If people view it as something difficult and time consuming, nothing, or too little to have an impact, will happen.

It is election year in Sweden and I think it is pretty clear that there is one side who seems more commited to this transistion than the other. Still, I do not hear anyone talking about electric cars or the infrastructure needed. There is talk about trains, which is great, but cars affect almost everybody's everyday living in a much bigger way than trains do. If we really want change, we need to help people live better not make them. That never works. Like Keynes pointed out, governments should be there to create and help demand when there is none.

And yes, it is possible.






Pictures taken from: http://ampera.opel.info/photography.html

More info: www.opel-ampera.com

Images of debt

"Paint a perfect picture

Bring to life, a vision in one's mind

The beautiful ones

Always smash the picture

Always, every time" - Prince

The NY Times has published a couple of interesting article accompanied by some very illustrative graphics on Europe's debt situation. The first one is pentagram-looking map showing the PIIGS-countries web of debt and to whom they owe the most. You can see that Greece has a realtively small debt if you compare it to Italy and Spain. The shear size of Italy's and Spain's debt is almost difficult to grasp and when you consider that Italy owes France a sum equivalent to 20 % of french GDP you start to understand the danger of unstable economies with debts of these sizes.

Just imagine how much the U.S owes China.

The other disturbing thing which the map points out is that almost a third of Portugal's debt is owed to Spain, a very strong connection, which would make contagion alot worse if Portugal starts to experience something to similar to Greece. And if Spain's $1,1 trillion (!) starts to be questioned?

Source: Bill Marsh/NYTimes

The second graphic I recommend everybody to take a look at is this interactive debt map. It shows the development of national debt in the EU and also the EU-countries' relative size according to their GDP and finally the different interest rate spreads from Germany, where Sweden is the only one being able to borrow to the same cost as the germans. The most striking thing is that you clearly see that in 2000, before Greece was allowed to enter the Euro, it already had the same debt to GDP ratio it has today. Almost all the other countries held it under the limits set by the Growth and Stability Pact. The start to today's problems maybe?

Once again, the EU's lack of control and monitoring is really disconcerting.

Paul Krugman is right/wrong

"Whatever which way they go (right/wrong)
Whatever which way they go (right/wrong)
Whatever which way they go
They know they gonna owe
They soul to the road they choose
It don't matter if you win or loose
You still gotta pay them dues" -DMX

Greece certainly got to pay them dues.

I just read the article in El País that Paul Krugman wrote in the NY Times april 29th. In this article (which goes under the headline “The Euro Trap”) he is ones again bashing the “euro-mess”. Now, I am not saying that I know better than a Nobel Prize winner, I am just saying he is wrong. And when I say he is wrong I mean that he is wrong to keep blaming the euro as a currency for Europe’s current problems.

Krugman’s argument lies in that by entering the monetary, and by doing so giving up the monetary weapon of being able to adjust the exchange rate, the countries entered a trap. Well, by putting that way it sounds as if Krugman thinks countries was lured into entering the monetary union and then suddenly when crisis hit went like “Oh god, we can’t devalue our currency?!”.

To me the problem does not lie in having a common currency and giving up the ability to adjust the exchange rate. The problem is rather that the countries now being questioned by the markets, the best example of course being Greece, but also Portugal, Spain and in a lesser extent Ireland and Italy have not behaved according to what you could expect and the EU has not monitored sufficiently the development of its member countries.
   

Let us be honest, this would not have happened had Greece not lied and covered up their real deficit. Greece would not even have been allowed to enter the euro had their real statistics been known. The EU did the stupid thing to be ingenuous enough not to let Eurostat do a back up check on Greece’s statistics. In the best of worlds you would be able to trust Greece, but we all know this is not the best of worlds.

And now there are riots in Greece and their unions are protesting against the conditions that EU and the IMF has put on the 110 billion euros they are making available? Please, if you have a corrupt system that tinkers with official national accounts, you let people retire at 63 and give them very generous pensions (with borrowed money), you enter the Euro and take advantage of the good terms in the bond market it gives you and then you do nothing to reform your economy, to battle corruption or to raise productivity and then you are surprised that when the markets discover this they do NOT want to keep lending to you?
    

Equally surprising is that Spain seems surprised that their construction boom did not last and that basing almost all your growth on cheap and un qualified labor will lead to a fall in productivity.

I have a hard time seeing that this is happening because the Euro is a trap. It is happening because of european governments being populist and not making the decisions and chages that their respective countries really needs. The monetary union is not a federal state, it does not share a common fiscal system and I think that, although that is what you keep hearing the euro needs these days, it never will. The member states are too different and a common fiscal system would not be able to be that common anyway.

What the euro needs is more control and monitoring and governments willing to swallow their pride and do the hard work.
   

Will the euro last? Yes. Or to sound more like an economist; it depends (on the above).