For Starman, RE: financial crisis

Really. I don't know how Europe is weathering the recession. Not that I can't comment, but I've been rather insulated from the inside scoop. It's been a lot of doom and gloom all over the world, but the US's market is heavily consumer based and driven by credit. The EU as a whole is a larger consumer base than the US, but parts (Germany) export more strongly and the money market is not the same. The USD to Euro is holding pretty steady at $1.30-ish over the past months. Unemployment has risen all over the world, but the social services net is wider and stronger in the EU to help citizens get back on their feet (in their same sector or otherwise, remaining healthy, and protecting their pensions), which leads to continued stability through small business loans, consumption, production for exports, etc. Also, they haven't had the enormous banking crises that the US has had. Perhaps due to better regulation, better banking practices, or just the fact that the banking sector is less influencing (while still tied globally and having purchased the same MBS purchases).

So, in my unprofessional personal opinion, I think the EU is fairing better in this recession, but is still feeling it.

Here's a portion of what the European Central Bank said on 27 April 2009

"First, there are profound differences in the financial structures of the euro area and the United States. The United States has a primarily market-based financial system; in contrast, the financial system of the euro area is largely bank-centred. A few numbers illustrate these differences. At the end of 2007, the stock of outstanding bank loans to the private sector amounted to around 145% of GDP in the euro area. The corresponding proportion of bank loans to GDP in the United States is only 63%. This means that the banking sector is more than twice as important in the euro area as it is in the United States. It also means that to be effective, ECB policy must focus first and foremost on the banking sector.

Similarly, direct debt securities account for 81% of GDP in the euro area. The corresponding proportion in the United States is 168%. This means that market-based financing plays a much smaller role in the euro area and is only half as relevant as in the United States. Therefore, the structures of private credit outstanding in the euro area and the United States are almost mirror images: recourse to banks on our side of the Atlantic makes up two-thirds of non-equity external finance. On this side, the equivalent proportion is only around 30%. Against this background, it is natural that the Federal Reserve’s “credit easing” policies mainly target markets for debt securities, whereas our policies of “enhanced credit support” focus on banks.

There are also many profound differences in our respective economic structures, which of course are also reflected in financial structures. For the sake of brevity, I will single out three characteristics of the euro area economy that our policies have to take into account in order to be effective.

The first characteristic is the very important role that small and medium-sized enterprises (SMEs) play for the euro area economy. These SMEs in general cannot tap credit markets directly. Guaranteeing continued access to bank credit is vital for SMEs to be able to finance their activities.

The second characteristic is the role of the housing market in the crisis. In the United States, the housing market is at the epicentre of the crisis. This is not true for the euro area. Nevertheless, the euro area is indirectly affected as banks there hold toxic assets partly backed by mortgage loans originated in the United States. Forcefully addressing the toxic asset problem is a precondition for reviving credit on both sides of the Atlantic. I should add that addressing this problem clearly falls into the realm of fiscal policy, not monetary policy.

The third characteristic is the flexibility of the economy. Goods and services prices and wages are more sluggish in the euro area than in the United States. This sluggishness, on the one hand, has drawbacks as it slows down the adjustment of the euro area economy to adverse shocks. At the same time it offers some protection against very bad outcomes, provided that the policy framework provides a solid anchor for private sector expectations. In the euro area, the institutional framework provides such an anchor through the medium-term stability orientation of fiscal policies and monetary policy geared towards fiscal sustainability and price stability. In this environment, overly activist policies risk destabilising expectations and, thus, being counterproductive.

In technical terms, I would say that acknowledging the existence of structural differences between the euro area and the United States is crucial for understanding the mechanisms behind the policy models and concepts that we use in our decision-making processes. Structural differences imply that the policy response has to be calibrated to the structure of the economy."




And, here's what the French finance minister, Christine Lagarde said on Jon Stewart's "The Daily Show" - we're all in it together, so don a beret and grab a glass of wine. Somehow we'll pull through.

The Daily Show With Jon Stewart	M - Th 11p / 10c
Christine Lagarde
thedailyshow.com
Daily Show Full Episodes Economic Crisis First 100 Days

Why I've been so quiet

Last month of grad school:
Multilevel Economic Governance: paper on deepening my examination of the US-Colombia trade agreement, trade as a whole, FTAs, WTO, waivers, pros and cons
Risk Governance: we have to re-work last semeter's paper = Regulatory Risk, EU Commission and anti-discrimation directives on Member States
Final Capstone Project: we're writing the final script of our documentary (see my Risk paper), Croatia is our case study as they ascend to the EU

Speaking of Croatia, I'm uploading the photos from our trip to Zagreb. Should be up on flickr by end of today.

And then the on-going job hunt. Narrowing in on Geneva. Aiming to shop around the documentary and mapping exercise (business, legal, moral case for diversity management in Europe) to consultancies, NGOs, governments.

Paris is in full spring bloom with hot days followed by cool rains. Oh, and I posted photos from the Paris Marathon on flickr. I never found my girl friend who ran, but there are some pretty interesting shots of the finish, which I hope convey the overwhelming sense of endorphins that was in the air then.

I can't believe I'll have a Master soon. It's mind blowing. My sister and her fiance are coming in June after graduation and we're looking at heading to Cinque Terre again. It's such a beautiful part of the world.

Spring, my friends

It's warmer out and sunny (although not today). I'm walking around more, enjoying the city, falling in love with Paris and all the couples who are in love by the Seine.

I'm also headed to Croatia on Monday for 6 days for my Capstone project. We've got interviews with Ministers, the UNDP, human rights groups, etc. And, will hopefully have some time for some frolic, too. I'm looking 1.5 months of real class work right now and it's scary. Two major papers to write, two memos, final project. And job hunting. And trying to have a personal life. My best friend from when I was fifteen years old is coming to visit in 2 weeks with her husband (with whom we went to school). I haven't seen her since Cape Cod in 1992. It'll be a trip, for sure.

Paris is beautiful right now. I'm trying to soak her up as best as I can, because who knows where I'll be in the autumn. I'm really focusing on Geneve, Paris, Brussels, DC, NYC, and SF. I like cities. If you know of anyone who is hiring -- hook a sister up!

PS. Thanks, Kim, you're too sweet.