There is another European single currency, other than the Euro, but it is not widely known about in Europe because it is used in Africa.

France has long been committed to maintaining a zone of interest in Africa based on its old colonial possessions. One of the mechanisms it uses to maintain ‘dependency’ amongst its former colonies is the CFA franc, the collective name of two currencies used in West Africa that are still managed from Paris, guaranteed by the French treasury and pegged to the euro. CFA is the acronym for Communauté Financière Africaine (African Financial Community). The reason that the issue of CFA Franc has come to wider attention is because the French National Front is committed to abolishing the entire system of “Françafrique”.

Marine LePen visited the former French colony of Chad during the final stages of the presidential first round election campaign and while she was there she pledged to break with her country’s decades-old relationship with Africa known as “Françafrique” and abolish the CFA franc currency policy that binds Paris and its former colonies.

Speaking at the end of her two day visit to Chad Le Pen sought to outline her policies regarding the continent, which has long held an important place in Frenchforeign policy. “It was only in coming here and explaining that I am able to get around the lies of my political adversaries who don’t want Africa to hear me,” the National Front (FN) party candidate said at a news conference in the capital N’Djamena. “I’ve come to condemn the policy of Francafrique that they’ve carried out. I have come to say I will break with this policy,” she said. She also called for an end to the CFA franc. “I understand the complaints of African states which consider as a matter of principle that they must have their own currency and that the CFA franc is a hindrance to their economic development. I completely agree with this vision,” she said.
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The French first round

April 24, 2017

Just over 40% of the French electorate voted for a candidate that wanted to leave the Euro. Macron will almost certainly win the second round but then the sparkling young new president will have to confront France’s deep divisions, try to do something about France’s dire economic position while constrained by the straight jacket of the single currency, and govern without a parliamentary majority. A Macron’s victory will not solve the deep divisions in France. Le Pen and the NF have always targeted the 2020 election as the one the think they can actually win.

The two stage French legislative elections process starts on 10 June 2012, and with the collapse of the mainstream parties of the right and the left the result is likely to be a very polarised assembly.

The maps below show the political situation in the country. The first shows how Le Pen’s support comes from the periphery and the old rust belt. The second chart shows that the further a voter is from Paris the higher the chance that they will vote NF.

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While all eyes are on Brexit and the various critical elections looming in the EU the the tragic and cruel farce continues in Greece.

The publication of the International Monetary Fund’s World Economic Outlook (WEO) on Tuesday revealed worse estimates for the Greek economy compared to the upbeat set of forecasts included in its previous forecasts, which were released early last October.

The Fund now expects the domestic economy to grow at a slower pace of 2.2 percent in 2017 compared to its initial forecast of 2.8 percent, which stood at high-end of the estimates made last year.

The fact that the October forecast was wrong and that the IMF has – once again – over estimated Greek recovery should come as no surprise. Since the beginning of the crisis in 2010 the IMF has consistently been wrong, often wildly, about Greek economic prospects, always claiming that recovery is about to start and then it doesn’t. Here is a graph showing what the IMF forecast to happen to the Greek economy prior to the 1st bail out programme (May 2010) and the second programme (March 2012) compared to the actual performance.
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Researchers Sascha Becker and Thiemo Fetzer, are presenting an interesting paper at the Royal Economic Society’s annual conference at the University of Bristol in April 2017 entitled “Does Migration Cause Extreme Voting?”

The paper makes a persuasive case for the argument that it was the special social shock of the post accession low skilled migration from Eastern that caused the surge in UKIP support and eventually the Brexit vote.
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As a follow up piece to my posting about the dangerously delusional views of Mr Dijsselbloem I would like to point readers to a recent article by Michael Pettis who is one of my favourite economists. Pettis is a professor of finance at the Guanghua School of Management at Peking University in Beijing who has written a great deal about the Chinese economy and about trade imbalances in general (check out his books here).

The Pettis article I want to draw you attention to is on the Bloomberg site and is entitled “What’s Really Driving the Trade Deficit With China”. Generally his view is that when it comes to explaining trade imbalances there is too much attention paid to currency and exchange rate mechanisms and not enough focus on the underlying internal national imbalances, such as excess savings, that drive trade surpluses.

The entire article is worth a read. This what Pettis has to say about Germany.
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Costas Lapavitsas who is an economics professor at London’s School of Oriental and African Studies, visited Barcelona last week to present his latest work, ‘Eurozone Failure, German Policies and a New Path for Greece’. In this text he advocates Greece leaving the euro, as an instrument for overcoming the country’s crisis. Critical of Alexis Tsipras, Yanis Varoufakis and Syriza (he had been an MP for the party before the third deal with the Troika), Lapavitsas is conscious that his positions regarding the EU and the euro are still in the minority among European progressives. Nonetheless, he believes that “the first step for the Left is to say that the currency union has to end.”

Last week Lapavitsas was interviewed by Oriol Solé Altimira and the text of the interveiew (in Spanish) was published by El Diario. Here is the interview translated into English.
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“I can’t spend all my money on women and drink and then at the end ask for your help,” Mr Dijsselbloem, head of the euro area’s finance ministers, was cited as saying in an interview with German newspaper Frankfurter Allgemeine Zeitung published a few days ago, alluding to the solidarity northern euro countries had shown with southern countries during the region’s crisis. “This principle holds at the personal, local, national and also at the European level.”

Whether the remarks attributed to Mr Dijsselbloem were accurate or not the story has resonance because a lot of people, including people at the top of the EU system, believe the same thing. The common view is that countries are just like people and if they spend too much, develop trade deficits and get into debt they do so because they lack the discipline of the countries that run trade surpluses and which don’t get into debt. When a person spends way too much on their credit card and cannot repay their debts, and they have to borrow money from charitable friends who are more prudent and have some savings, then the lenders have a right to give their friend a bit of lecture about how to mend their ways. The common sense view is that the same sort of thing applies to entire national economies, that if a country gets into debt it’s their own fault and they can’t rely forever on being bailed out by loans from their prudent neighbours, and that they really should save more and spend less.

That’s the common sense view of the debt problems in the eurozone but it is also completely wrong. The reason it is wrong is because national economies and the system of international trade work nothing like personal and household budgeting or the finances of a firm. In fact applying what seems to be common sense lessons from private household finance to national and international economic policy leads to disastrously wrong conclusions. Unfortunately these sorts of comparisons between household and national finances seem like common sense, are easy to understand, easy to communicate and are thus dangerously seductive. The real way national economies and international trade work is actually counter intuitive and requires some careful thought to work out, so the reality is quite hard to communicate, especially in a headline grabbing phrase.
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Making sense of it

November 16, 2016

How did Trump become President? Here are some attempts to unravel this very unusual election.


The BBC stats and maths program More Or Less had some interesting analysis of the US elections results, including the fact that Hilary Clinton received 5 million less votes than Obama.

The More or Less episode is called “US election, stray cats and puzzles”


Bernie Sanders on “CBS This Morning” explains how he thinks Donald Trump won presidency and why he thinks Democrats failed to appeal to the working class in the 2016 election.



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Against pessimism

November 9, 2016

On the Left, and amongst what might be called liberal opinion, there is a prevailing sense of pessimism. Pessimism is the default condition for most progressive commentators. Events like the Brexit vote, the refugee crisis and now Trump’s win can all make it seem as if the world is in a bad way and that things are getting worse.

That view is entirely wrong.

Even a cursory glance at the data shows that not only has the condition of humanity improved vastly in the last couple of centuries but that the improvement is accelerating and that there has actually been huge global social progress in just the last few decades.

Here are five slideshows that demonstrate that astonishing progress in the areas of reducing violence and war, poverty reduction, nutrition and hunger reduction, health improvements and the progress being made in Africa.

The Visual History of Decreasing War and Violence

The Visual History of World Poverty

The Visual History of Hunger and Food Provision

The Visual History of Global Health

Progress in Africa

Click through them and celebrate the great times we live in.

Pessimism finds its most acute expression in the form of Green ideology. The Greens claim that the very things that have so improved billions of people’s lives (cheap fossil fuel energy, travel opportunties for ordinary people, mass industrial production and consumption, urban living, industrialised farming) are actually terrible because they are causing some sort of existential environmental crisis.

That is not true.

As just one example here is a link to page of data about forest coverage in Europe, a continent that has hosted for the longest time the very modernising trends the Greens hate. On the bottom right of the page the third diagram is an animated historical map of tree coverage in Europe. If you click it you can see that since 1900 the number of trees in Europe has actually increased significantly. In fact it is modernity and economic development that makes the environment better.

The growth in European forests since 1900


The Mountain to Climb

September 28, 2016

As the Labour Party conferences winds down and the left is confirmed securely in control of the party it is worth taking a moment to consider the task ahead. And it’s a very big task. A new Fabian report, ‘The Mountain to Climb‘, reveals that victory for the Labour party will be more than twice as difficult to achieve as in 2015.

The report looks at the likely effects of scheduled boundary changes and concludes that Labour will need to win 106 seats to secure a majority, reaching deep into middle England. It lists the ‘target’ seats Labour will need to win (prior to boundary changes) and suggests that the ‘victory line’ could be Harlow in England and Kirkcaldy and Cowdenbeath in Scotland.
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Berlin blinks

July 31, 2016


The leaders of the EU know they are skating on thin ice. The eurozone is mired in a deep and prolonged economic stagnation that has caused the worse mass unemployment in the periphery of Europe since the Depression. Of the big economic member states only Germany is doing remotely well (if you consider a growth rate of 1-2% doing well) as the current currency system ensures German manufacturers can continue to export at a discount rate all over the world. The eurozone banking system is in a very fragile state and systemically important parts of it will need to be recapitalised (i.e pumped full of public money) to prevent a disastrous financial crisis. Numerous eurozone countries, including big nations like France, Spain and Italy, are persistently breaking the eurozone fiscal rules on government deficits. The migrant flows into Europe are quite likely to accelerate if Aleppo falls and Assad wins, and the Turkish turn towards authoritarianism intensifies. Across the EU radical populist parties of the left and the right are growing in support, and many of them want a radical rethink of the entire European project. Some even want to dismantle it. The entire European project seems now to be stuck in an impossible place, where it cannot go back to a pre-Euro federation, and it cannot move forwards to a new pan-European democratic polity, so none of its deep structural defects can be rectified. And Brexit, which if mismanaged could easily deliver an economic blow to the weakened europzone economy, has shown there is an exit door.

So things are little fragile. Perhaps its time for some pragmatism from the Ordoliberals in Berlin. And that’s what we seemed to have got in the last week when the German government decided not to push the European Commission to impose a punitive fine on Portugal and Spain for their persistent failure to comply with their budget deficit targets, leading one Eurogroup minister to declare that the euro zone’s Stability Pact is “dead.”
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What is Trump?

July 30, 2016

Six months ago Donald Trump looked like the method the Republican Party was going to choose to commit suicide. Now Trump looks like he might actually win the Presidency. How can we understand Donald Trump? The American writer Michael Lind has been writing a series of interesting articles analysing the Trump phenomena and situating it inside a bigger process of radical realignment that is taking place in US politics.

In an article in Politico Magazine in March this year entitled “Donald Trump the Perfect Populist: Why the GOP front-runner has far broader appeal than his predecessors going back to George Wallace“, Michael Lind tries to situate Trump in the long history of American populism.

“Is Donald Trump the Perfect Populist, one with broader appeal to the right and the center than his predecessors in recent American political history—so much so it could put him in the White House? In Trump, many of the kind of white working-class voters once called Reagan Democrats have found a tribune who represents their views and values more consistently than conservative populists like the Dixiecrat George Wallace, the Old Right paleo-conservative Pat Buchanan or the “theo-conservative” Pat Robertson, all of whom faltered in their bids for the presidency.

Trump, in fact, has more appeal to the center than the conservative populists of the last half century. Before Trump’s rise in this year’s Republican primary elections, the best-known populist presidential candidates were Alabama Governor Wallace and tycoon Ross Perot, along with Buchanan. Yet none of these past figures had broad enough appeal to hope to win the White House. Despite his folksy demeanor, Perot was more of a technocrat than a populist and did poorly in traditionally populist areas of the South and Midwest, where Trump is doing well. Wallace was an outspoken white supremacist, while Trump tends to speak in a kind of code, starting with his “birther” campaign against President Obama, and his criticism of illegal immigrants and proposed ban on Muslims may appeal to fringe white nationalists even if it has offended many if not most Latinos. Nor has Trump alienated large sections of the electorate by casting his lot with Old Right isolationism, as Buchanan did, or by adopting the religious right social agenda of Robertson.

Indeed, the best explanation of Trump’s surprising success is that the constituency he has mobilized has existed for decades but the right champion never came along. What conservative apparatchiks hate about Trump—his insufficient conservatism—may be his greatest strength in the general election.

[In the year ] 2000, and Trump, encouraged by his friend Jesse Ventura, then governor of Minnesota, was considering a run for the presidential nomination of Perot’s Reform Party, on the grounds that the Republican Party of George W. Bush and Karl Rove had “moved too far toward the extreme far right.” Trump and Ventura hoped to rescue the Reform Party from the conservative allies of Buchanan, of whom Trump said: “He’s a Hitler lover; I guess he’s an anti-Semite. He doesn’t like the blacks, he doesn’t like the gays.” Trump floated the idea of Oprah Winfrey as his running mate . In his 2000 manifesto The America We Deserve, Trump proposed a platform that included universal employer- based health insurance, gays in the military and a one-time 14.5 percent tax on the rich that would reduce the federal deficit and help eliminate the shortfall in Social Security.”

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IMF admits disastrous love affair with the euro and apologises for the immolation of Greece writes the always interesting Ambrose Evans-Pritchard in the Telegraph

“The International Monetary Fund’s top staff misled their own board, made a series of calamitous misjudgments in Greece, became euphoric cheerleaders for the euro project, ignored warning signs of impending crisis, and collectively failed to grasp an elemental concept of currency theory.

This is the lacerating verdict of the IMF’s top watchdog on the fund’s tangled political role in the eurozone debt crisis, the most damaging episode in the history of the Bretton Woods institutions.

It describes a “culture of complacency”, prone to “superficial and mechanistic” analysis, and traces a shocking breakdown in the governance of the IMF, leaving it unclear who is ultimately in charge of this extremely powerful organisation.

In an astonishing admission, the report said its own investigators were unable to obtain key records or penetrate the activities of secretive “ad-hoc task forces”. Many documents were prepared outside the regular established channels; written documentation on some sensitive matters could not be located.”

Needless top say Yannis Varoufakis has a commentary on the IMF reports entitled “The IMF confesses it immolated Greece on behalf of the Eurogroup”.

The full IMF report can be downloaded here.
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The problems of the eurozone banks have escalated sharply this year, reflected in the collapse of their share prices, and the window of opportunity for another round of publicly funded bank bailouts is closing fast. The most serious banking problem is in Italy but there are also severe problems in Portugal, continuing weakness in Spain and the largest German bank, Deutsche Bank, is in real trouble.

The issue of the banking problems will come to a head this week as the EU-wide European Banking Authority (EBA) releases the results of its annual ‘stress test’ on 51 large eurozone banks. This years round of stress tests will only test 51 banks, compared with 124 in 2014, and they will not be given a pass or fail mark as in the past. Hardly a vote of confidence.

A lot of concern is focussed on the Italian, and world’s oldest surviving, bank, Monte Dei Paschi. Some observers are predicting that unless there is spectacular bail out Monte Dei Paschi could soon be out of business, its shares have lost lost 78% of their value this year, and the fear is that if it falls into insolvency then it could bring down other vulnerable banks and start a chain reaction of bank failures.

Last week saw two out of three of the members of the institutional triad known as the Troika — the ECB and the IMF — lend their support to a taxpayer funded bailout of Italy’s banking system. So, too, did the biggest U.S. bank by assets, JP Morgan Chase. This was followed quickly by a similar call by New York-based Goldman Sachs, the finance house that has been at the centre of every major part of the banking crisis for the last ten years, the company that engineered the falsification of the Greek government accounts in order to facilitate its massive borrowing prior to the 2010 crisis, and the company which seems to operate a revolving door for so many top EU bureaucrats.
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After the turmoil of the 1970s, when the combination of the collapse of the international system for managing exchange rates and the oil price shock of 1974 combined to produce rising unemployment and high inflation, the global economy seemed to enter a far more tranquil period. This period of relative tranquillity and reasonably steady growth became known as ‘The Great Moderation’. Economists and politicians came to believe that they had solved the old cycle of boom and bust, mostly through what became known as the neo-liberal package: liberalisation of trade and finance, deregulation, and increased labour ‘flexibility’ through the weakening of trade unions.

The Great Moderation came to an abrupt end in 2008 when the largest financial crisis since the Great Depression erupted. But nevertheless the last quarter of the 20th century and first decade and half of the 21st delivered some truly stunning increases in the material well being of the human race. In particular it has allowed billions of people to escape acute poverty, and live longer, healthier and richer lives.

However the benefits of the Great Moderation were not evenly distributed. The populations of the emerging economies, particularly in Asia, benefited hugely, and the richest elites of the West saw their wealth grow significantly, but the increase in incomes for most working people in the west was far less spectacular. Then came 2008 and again it was the working people of the west that carried most of the costs of the crisis in the form of the longest period of income stagnation in modern economic history.

As the graph below clearly shows the big winners from the growth, globalisation and trade expansion of the last 30 years has been the people of Asia and the wealthiest 5% of the population in the western liberal democracies. Most of the people in the liberal democracies have seen their incomes largely stagnate.

At the same time western social democracy finds itself largely immobilised. In the eurozone the institutional design of the single currency system actually works to systematically and drastically reduce the space for social democratic action, and bereft of purpose the traditional parties of the centre left have fragmented and declined. In the UK the New Labour project, which actually delivered the most sustained period of progressive social democratic government policy since WWII, was built on the premise of continuing growth and was completely disorientated by the sudden arrival of economic stagnation. New Labour was also an intentionally top down project and never really worked to transform cultural and political discourse, or galvanise enthusiastic and active political support for social democratic values, so when its material base was destroyed in 2008 it suddenly evaporated politically.

Given the circumstances the rise of populist parties of the left and the right (mostly the right) in the western liberal democracies is hardly surprising.

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The pain in Spain

July 19, 2016

  The EU has threatened Spain and Portugal Tuesday with huge fines for failing over many years years to reduce government budget deficits that exceed the limits stipulated by the eurozone treaties and regulations. This is the first time Brussels has formally announced proposals to use its disciplinary powers over member states’ budgets to fine […]

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The European Court of Justice may have rescued Italy’s banks

July 19, 2016

  Italy has been trying, with no success, to get the ECB and European banking authorities to allow it to rescue its banks with a bail out package that may be as big as €40 billion of public money. Unlike banks in most other European countries, Italy’s got sick the old fashioned way by lending […]

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The Great Hargeisa Goat Bubble

July 13, 2016
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Understanding the jargon of Brexit

July 13, 2016

This chart explains the various zones, pacts and treaties aound which the Brexit negotiations will pivot. Click it to see a larger version.

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The wider implications of the Italian banking crisis

July 12, 2016

  The Italian banking system is in trouble and there are big economic and poltical implications for the eurozone. Italian banks are facing the same sort of problems that’ some American banks faced in 2008. They made a lot of loans to people who aren’t paying them back — a situation that’s been made worse […]

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