I'm a card-carrying Economist reader, man and boy, been reading it each week for quarter of a century now. It's generally difficult to slip a tram ticket between its views and my own opinions. One's choice of media reinforces one's political and economic outlook, which in turn reinforces one's choice of media.
Yet this week's issue has me monstrously aggrieved. The lumping together of the entire post- Soviet bloc world into one economic catastrophe likely "to break up Europe" has enormous repercussions for Poland's economy. The fundamentals here are sound, yet we are being tarred by our proximity to economies like Latvia's, Hungary's or Ukraine's.
The current issue carries a three-page article and scaremongering leader looking at what the magazine calls the 'ex-communist economies'.
The Economist ends up doing exactly what it warns against: "the lazy but easy lumping of nearly three dozen countries together," which "creates the biggest danger: contagion". In fairness it does try to spotlight the contrasts between the lame and the strong, but the balance is skewed (and that tendentious cartoon on the cover!) I wonder how many forex dealers will bother reading all five pages this weekend before going back to the dealing rooms on Monday to sell sell sell those Polish zlotys and Czech korunas along with Hungarian forints, Latvian lats and Ukrainian hryvnas.
The analysis kicks off with five paragraphs about Latvia (main locally owned bank gone bust, IMF bailout, big cuts in social spending, riots in the streets). Five paragraphs about Latvia, which the magazine admits is "an economic pipsqueak". Then a single paragraph that mentions Latvia together with Hungary (largest debt-to-GDP ratio in the region, economy set to contract by 6%) and Ukraine (chaotically run, corrupt, economy set to contract by 10%).
So six paragraphs into the story and things indeed look bad (how many forex dealers have an attention span this long?) Then a ray of optimism: "Most other countries in the region are faring much better though. Poland - by far the largest economy of the new EU members - is nowhere near collapse... big enough not depend chiefly on exports to the rest of the EU... public finances in fairly good shape... growth will be negligible, or slightly negative, but nobody is forecasting a big decline." [NBP's latest forecast is growth of 0.4% to 1.7%]
Poland, then, seems OK. Czech Republic? "...in good shape too... solid banking system... low debt." Slovakia? "in better shape still". Slovenia "rich and still growing". But this good news comes packaged in just two paragraphs (and in an upbeat piece about Estonia a page later).
The article then dedicates one single paragraph to economies further east like Moldova or Tajikistan, too poor to be affected by financial meltdown because there's precious little to melt down. As long as the horse can pull the cabbage cart to market, the economy will tick over.
So after this far-ranging over view (five paragraphs on the woes of Latvia, one on Latvia, Hungary and Ukraine, two on the stronger economies of Poland, Czech Republic and Slovakia, and one on all points east), we get to the nub of the article. "Outsiders tend to lump the ex-communist world or eastern Europe together as though a shared history of totalitarian captivity was the main determinant of economic fortune, two decades after the evil empire collapsed... the differences between the ex-communist countries are often greater than those that distinguish them from the countries of 'old Europe'. They range from distant, dirt-poor despotic places to countries in the EU that are not just richer than some of the old ones, but have better credit ratings, sounder public finances and stronger public institutions." An essential point, but buried.
The article also mentions the foreign currency mortgage loans that look dodgy given the zloty's recent slide. Let me put this into perspective. Around 800,000 people have one (and Poland's population is 38m). I'm one of the 800,000. My mortgage is denominated in euro. OK, so the zloty's currently 4.65 to the euro. But then it's been 4.85 back in February 2004, so I'm not freaked out. Things have been worse. Besides, banks in Poland have been cautious with their lending. My mortgage payment last summer accounted for less than 6% of our monthly household income. They've risen, but are still in single figures.
Yet this week's issue has me monstrously aggrieved. The lumping together of the entire post- Soviet bloc world into one economic catastrophe likely "to break up Europe" has enormous repercussions for Poland's economy. The fundamentals here are sound, yet we are being tarred by our proximity to economies like Latvia's, Hungary's or Ukraine's.
The current issue carries a three-page article and scaremongering leader looking at what the magazine calls the 'ex-communist economies'.
The Economist ends up doing exactly what it warns against: "the lazy but easy lumping of nearly three dozen countries together," which "creates the biggest danger: contagion". In fairness it does try to spotlight the contrasts between the lame and the strong, but the balance is skewed (and that tendentious cartoon on the cover!) I wonder how many forex dealers will bother reading all five pages this weekend before going back to the dealing rooms on Monday to sell sell sell those Polish zlotys and Czech korunas along with Hungarian forints, Latvian lats and Ukrainian hryvnas.
The analysis kicks off with five paragraphs about Latvia (main locally owned bank gone bust, IMF bailout, big cuts in social spending, riots in the streets). Five paragraphs about Latvia, which the magazine admits is "an economic pipsqueak". Then a single paragraph that mentions Latvia together with Hungary (largest debt-to-GDP ratio in the region, economy set to contract by 6%) and Ukraine (chaotically run, corrupt, economy set to contract by 10%).
So six paragraphs into the story and things indeed look bad (how many forex dealers have an attention span this long?) Then a ray of optimism: "Most other countries in the region are faring much better though. Poland - by far the largest economy of the new EU members - is nowhere near collapse... big enough not depend chiefly on exports to the rest of the EU... public finances in fairly good shape... growth will be negligible, or slightly negative, but nobody is forecasting a big decline." [NBP's latest forecast is growth of 0.4% to 1.7%]
Poland, then, seems OK. Czech Republic? "...in good shape too... solid banking system... low debt." Slovakia? "in better shape still". Slovenia "rich and still growing". But this good news comes packaged in just two paragraphs (and in an upbeat piece about Estonia a page later).
The article then dedicates one single paragraph to economies further east like Moldova or Tajikistan, too poor to be affected by financial meltdown because there's precious little to melt down. As long as the horse can pull the cabbage cart to market, the economy will tick over.
So after this far-ranging over view (five paragraphs on the woes of Latvia, one on Latvia, Hungary and Ukraine, two on the stronger economies of Poland, Czech Republic and Slovakia, and one on all points east), we get to the nub of the article. "Outsiders tend to lump the ex-communist world or eastern Europe together as though a shared history of totalitarian captivity was the main determinant of economic fortune, two decades after the evil empire collapsed... the differences between the ex-communist countries are often greater than those that distinguish them from the countries of 'old Europe'. They range from distant, dirt-poor despotic places to countries in the EU that are not just richer than some of the old ones, but have better credit ratings, sounder public finances and stronger public institutions." An essential point, but buried.
The article also mentions the foreign currency mortgage loans that look dodgy given the zloty's recent slide. Let me put this into perspective. Around 800,000 people have one (and Poland's population is 38m). I'm one of the 800,000. My mortgage is denominated in euro. OK, so the zloty's currently 4.65 to the euro. But then it's been 4.85 back in February 2004, so I'm not freaked out. Things have been worse. Besides, banks in Poland have been cautious with their lending. My mortgage payment last summer accounted for less than 6% of our monthly household income. They've risen, but are still in single figures.
Things have been worse
More worrying is this week's economics focus article Domino Theory, looking at emerging market contagion. The shrill voices of the ratings agencies (they who classed sub-prime securitised investment vehicles as AAA+) and the banks' analysts (they who provided their bosses with data that drove the banking sector over the cliff) should listened to with more than a hint of scepticism. The best way of gauging an economy's strength or weakness is to talk to scores of business people on a regular basis (as I do) and hear from them about the state of trade. Things are indeed tough, and are going to get tougher, but no one - no one - is talking about 'collapse' or 'default' or 'depression' or any of these bad, bad things that are being talked about in the context of this part of the world in London or New York.
Related post: The BBC up to exactly the same thing
This time last year:
The end of the line - coal train destination
Off my patch - a walk through Sadyba
Michael,
ReplyDeleteI agree with you - most of today's chaos is a game of crooks who can't even point Poland on a map.
And don't even think someone working on the trading floor in London or Frankfurt goes that far in reading. They are not motivated to read more than headlines, they motivation is to open ore close positions - the faster the better.
Working in a global real estate consultancy I often have opportunity to talk to my London colleagues - their lack of education and unability to think and understand the world in a broader perspective is both horrifying and pitiful.
There is an interesting blog written by Robert Gwiazdowski on
robertgwiazdowski.blogbank.pl
worth a reading.
All the best,
TO BE FAIR TO THE ECONOMIST THEY ASK THE EATERN EUROPEAN GOVERNMENTS TO STOP PANICKING AND TO BITE THEIR LIPS. SOME OF THE PROBLEMS WITH THE XLOTY IS THE CONSTANT BITCHING BETWEEN PRIME MINISTER AND PRESIDENT OVER JOINING THE EURO AND WHEN. IF MARKETS SEE SUCH A DISFUNCTIONAL RELATIONSHIP BETWEEN HEAD OF STATES THEN THEY POUNCE. TUSKS COMMENTS ABOUT STARTING TO SELL EURO IF THE MARKETS WERE TO TAKE PLN 5 FOR THE EURO ALSO SEEMS ILL ADVISED.
ReplyDeleteWHAT THIS CRISIS HAS SHOWN IN POLAND IS THAT DESPITE BEING A DEMOCRACY FOR 20 YEARS THE POLITICAL ELITE OF POLAND RANK ACT MORE LIKE A BANANA REPUBLIC THAN A MATURE EUROPEAN DEMOCRACY. UNTIL SENSIBLE PEOPLE WITH SUCCESFUL CAREERS BEHIND THEM START ENGAGING IN POLITICS THIS IS NOT LIKELY TO CHANGE AND POLAND WILL CONTNUE TO BE RUN LIKE LAMBETH COUNCIL
It is easy to criticise lumping ¨Eastern Europe¨ together, but those ¨Eastern European¨ governments are defining themselves as such.
ReplyDeleteThe Hungarian PM Gyurcsany called a meeting of nine PMs of ¨Eastern Europe¨ at the Brussels summit at the weekend, effectively admitting that there is at least some justification for grouping the countries together.
On a less serious and totally subjective note, I have found that an Eastern European country can be defined as one where men and woman of varying ages all proudly boast ¨our women are the most beautiful in the world.¨