European Tour

Tag: European Tour

We’re Live from the Lincoln Tunnel

In response to our series of posts documenting the advertising campaigns launched to attract FDI to eastern Europe, we received this trenchant (and profanity-laden) correspondence from our friend, “New Jersey Tommy”:

[What the heck], eastern Poland? [Spending all of that money] on advertisements. Those mad men are ripping off the literally poor taxpayers of eastern Poland.

Waitaminute. Huge coal and natural gas reserves. NOW we all understand what “investing in eastern Poland” means: it means supplying fossil fuel energy to hungry and thirsty western Europe. Badda bing.

In possibly related news from the March 1 Wall Street Journal reports that “Germany debates fracking as energy costs rise.”

And, as if you didn’t know already, the internets move quickly.

Two more reasons…

That creative new strategy to spur FDI almost had me convinced, but I felt I needed perhaps a little more evidence. Maybe… a video? Why, I am glad I asked—there is one.

But still—that’s only one reason. Is there another? But of course, why didn’t I think of that: my father-in-law could ask me, not to mention my psychotherapist (with a father-in-law like that, I might need one).

Still, I wasn’t quite sold… until I saw this barrage of reasons. Obviously, a great many have already invested heavily in Eastern Poland; I suppose I might have already missed my chance.

I suppose I’ll just have to invest in Hungary, where all the important things were invented, and therefore many more important things are clearly going to be invented. (This video follows the great Hungarian tradition of claiming inventions as Hungarian even if they were made abroad, for foreign companies, by Hungarian-born immigrants…)

Riesgo Moral

In our continuing series on how incentives shape behavior, we take a look across the sea to España, where a man tragically sawed off his arm to collect on eight insurance policies.  It seems that insurance fraud is on the rise in the depressed economies of Europe

According to data from the ICEA, which carries out research for insurance and pension providers, there were 54,114 fraudulent claims in 2003; in 2011, there were 130,959.

We, of course, have seen this sort of thing before.  And even before that.

But it turns out that it is not only the depressed economies of Europe that are seeing a rise in fraud.  Right here in the U.S. it appears that there is a rather substantial rise in Social Security Disability Insurance claims.  I had first heard about this on an EconTalk episode featuring David Autor.

Craig “Ironman” Eyermann at the Political Calculations blog has the numbers here and further elaboration here.


“Spain is Doomed, Greece is Toast”

Here’s some more on the situation in Greece.  When I see a blog post titled “The Scariest Chart in Europe Just Got Even Scarier,” I typically think the author is invoking some grand hyperbole.

Perhaps not in this case.

Here’s Derek Thompson at The Atlantic:


Thompson points us to a link that draws this conclusion:  “Spain is doomed and Greece is toast.”  Of course, last year we pointed to Michael Lewis’s similarly dire predictions for Greece, where he observes “the closer you look, the worse it gets.”  He concluded Greece is simply incapable of reform in its current form.

That unemployment bar looks like a big fuse.

A Remarkable Fact

Continuing our string of posts about the EU, here is a remarkable but perhaps unsurprising fact:  Since gaining its independence in 1829, Greece has defaulted on or rescheduled its external debt five times (1826, 1843, 1860, 1893, and 1932).  Greece has been in default roughly half the time period since 1829.

That is culled from the astonishing This Time is Different: Eight Centuries of Financial Folly from Carmen Reinhart and Ken Rogoff.

I’m finally plowing through some of summer reading recommendations.  This particular recommendation was from 2010.

The Future of the Liberal Arts, A Continuing Series

Our recent guest, Brad Bateman from Denison University, has an oped in the Pittsburgh Post Gazette reflecting on a recent conference in Greece, discussing the future of the liberal arts college.

The piece, like much of the news out of Europe these days, will both shock and annoy.

Here’s a taste:

As it is, the government will not itself accredit private colleges or universities, and a law passed in the last decade disqualifies anyone with a degree from a private university from being a college professor. Therefore, for instance, a faculty member at the American College who earned a an undergraduate degree there and then went on to Princeton, Harvard or Oxford for graduate work is not legally able to teach. One of the best colleges in the country has been placed under constant duress in this way.

Why would anyone try to close a highly successful college? Why would anyone want to take educational opportunities away from young people in a struggling economy?

Because Greek public universities and their professors act like a cartel. Making private universities essentially illegal and preventing their graduates from teaching increases enrollment at state universities and benefits the professors who work for them. Both of the main parties buy votes by protecting these professors’ jobs.

Sadly, the future doesn’t appear to be too bright for Greece.   Unless you count watching the economy burn.

The Good Ol Summit Time

As summer marches on, the financial situation in Europe remains unresolved, some economists are arguing that a devaluation and subsequent inflation of the Euro is in order (see Kenneth Griffin and Anil Kashy here and Martin Feldstein here). The Grumpy Economist, University of Chicago’s  John Cochrane, is skeptical and provides a helpful analogy:

Imagine that  your brother in law had been drinking too much for 40 years, perpetually on and off the sauce, never really able to give it up. He went  through a painful 12 step program and rehab, and finally quits the sauce for 10 years. He threw away all the liquor in the house. Then he loses his job. Is “one more big night out to soothe the pain, and then I’ll really really never do it again”  at all a credible plan?  That’s exactly what my normally sensible colleagues (see above) are advocating.

My guess is that most of our readership does not have brother-in-laws who have been drinking too much for 40 years, so I will give you something closer to home.

Summit EUphoria

Back when I was in college I had a friend who tended to fall behind a bit in his classes, something like accumulating large piles of debt.  At some point, of course, the debt would mount and he would reach a crisis situation, forcing him to face some unpleasant facts.  He would then of course have to develop a plan to “restructure” the debt — for instance, does this sound familiar?, getting an extension on a paper, strategically dropping a class, deciding which course he could get by without studying, etc…  And, remarkably, once the plan was in place, he would have some sort of celebration even prior to completing any of the work he had to do.

To my knowledge, he had no way of credibly committing to putting the plan in place. What I mean by that, of course, is that he generally didn’t put the plan in place.

I’m not sure whether he ever graduated, but I do know that he has been a very successful entrepreneur.  I’m not sure exactly what that does for our analogy.

On a not entirely unrelated note, Kevin “Angus” Grier at the Kids Prefer Cheese blog provides some visual insight in the salubrious effects of European summits on financial markets.

It’s summit time!

See Euro Future

Here’s Charlie Calomiris from back in 1999, predicting a bad end to the Euro.

I predict that the euro will be a weak currency (one that will not retain its value against the dollar), and that it will not be a permanent currency. Ultimately, the euro will most likely be remembered neither as a textbook example of the social gains of properly defining the optimal currency area nor as the harbinger of global exchange rate stability, but rather as an illustration of the importance of fiscal discipline for monetary credibility, and as a monetary example of the tragedy of the commons.

European union will likely strengthen the attraction of the dollar as a numeraire and a store of value. Countries outside of Europe will continue to peg their exchange rates to the dollar. And when the European Monetary Union ultimately collapses, it will itself provide a positive shock to the real dollar exchange rate that will hurt countries that have pegged to the dollar. All of this is unfortunate from the standpoint of global macroeconomic stability—an example of how political constraints that limit rational policy and encourage public profligacy make the global economy less stable than it otherwise would be.

I picked that up from Marginal Revolution, where Tyler Cowen points out that economists from Paul Krugman to Milton Friedman were pessimistic on the long-term prospects.

Here’s Freidman:

I think the euro is in its honeymoon phase. I hope it succeeds, but I have very low expectations for it. I think that differences are going to accumulate among the various countries and that non-synchronous shocks are going to affect them. Right now, Ireland is a very different state; it needs a very different monetary policy from that of Spain or Italy. On purely theoretical grounds, it’s hard to believe that it’s going to be a stable system for a long time.

If we look back at recent history, they’ve tried in the past to have rigid exchange rates, and each time it has broken down. 1992, 1993, you had the crises. Before that, Europe had the snake, and then it broke down into something else. So the verdict isn’t in on the euro. It’s only a year old. Give
it time to develop its troubles.

The snake?

At any rate, Cowen’s point is that economists may have whiffed the financial collapse, but they seemed to hit the ball on the Euro.

Is it Time for Efficient Markets?

Estrada in a Nutshell

The Wall Street Journal has a piece on whether it is possible to time the market, or whether one should stay in to make sure they are in when the big, tasty gains come along.  The story goes that investors should stay in the market because the lion’s share of gains accrue on only a few days.  If you missed the ten best days over the past 40 years, for instance, you would miss out on half the total gains during that period (yes, you read that correctly).  With that in mind, you’d better be sure to have your stakes on the table when they spin the wheel.

But, there’s a catch.  What if you managed to be out of the market on the ten worst days?  Well, it turns out that missing the ten worst days would have been even better for your portfolio than being in on the ten best days.  Yowza!

This is pretty interesting and all, but the real reason I bring it up is that the hero of the WSJ piece is my graduate school colleague, Javier Estrada.   Professor Estrada is the head of the Department of Financial Management at the International School of Management at  la Universidad de Navarra (that’s in Pamplona, Spain), a widely published scholar in investment and finance, and the author of a couple of popular finance books. Anyone that finds themselves in Spain should stop in and see him, as he is a genuinely friendly and engaging character.  And I never knew he was so well read.