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The Economist: Europe news feed
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Last week’s story on drug use in the former Czechoslovakia incorrectly conflated the velvet revolution and the velvet divorce. The country split into the Czech Republic and Slovakia in 1993, not 1989. Our apologies for the error, which has been corrected online. ...
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What looks obvious to outsiders is not clear to France’s Socialists FRANCE’S opposition Socialist Party should be building up for its best crack at the French presidency in over a decade. The incumbent, Nicolas Sarkozy, is unpopular. Polls find that a majority of the French want the left to return to power. And, in Dominique Strauss-Kahn (pictured), the boss of the IMF in Washington, DC, the Socialists have a potential candidate with a real chance of victory in 2012. One new poll finds that, if a presidential election were to take place today, Mr Strauss-Kahn would beat Mr Sarkozy in a second-round run-off by a crushing 59% to 41%. If only it were that simple. After its summer conference at the Atlantic resort of La Rochelle last weekend, where delegates discussed socialism over platters of fruits de mer, the party is certainly feeling upbeat. It put on a show of unity, with rival grandees posing together for the cameras in studious harmony. Yet Mr Strauss-Kahn, the party’s best potential candidate, may not get the nomination. ...
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Scapegoated abroad and the victims of prejudice at home, eastern Europe’s Roma are the problem no politician wants to solve SLOVAKIA is in shock; France in uproar. The cause of both nations’ turmoil is the Roma (gypsies), or, rather, what is being done to them. This week a gunman in the Slovak capital, Bratislava, killed seven people and injured 14, before shooting himself dead. Six of the victims were a Roma family, killed inside their apartment; they appear to have been deliberately targeted. In France the expulsion of hundreds of Roma immigrants, whom Nicolas Sarkozy’s government says were in the country illegally, has galvanised opposition from the pope, French churches, a UN committee and even several ministers in Mr Sarkozy’s own government. Yet further tough legislation is promised. ...
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The emperor Charlemagne is the wrong father-figure for Europe BEYOND the octagon of Aachen cathedral lies the golden shrine of St Mary, holding ancient relics that are displayed every seven years: the cloak of the Virgin, the swaddling clothes of the infant Jesus, the loincloth of the Saviour on the Cross and the cloth that held the severed head of John the Baptist. Such wonders made Aachen one of the great pilgrimage sites of medieval Europe. In these more sceptical times, it is the other golden casket here that commands the visitor’s attention: the one bearing the remains of Charlemagne. The Frankish warrior-king, crowned as heir of the Roman emperors by Pope Leo III in 800, is still revered locally as a saint. More importantly, he is the icon of Europe’s newer, secular faith: political and economic integration. Since 1950 Aachen has bestowed a yearly Charlemagne prize on the figure deemed to have done most to promote European unity. The winners are mostly a predictable cast of grandees. In 2002 the prize was awarded not to a person but to the euro. And in 2004 the judges conferred the prize on Pope John Paul II; a reversal, perhaps, of Leo’s coronation of Charlemagne. ...
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Angela Merkel agonises over a planned phase-out of Germany’s nuclear capacity WHEN Angela Merkel cares about an issue she does not give a speech. Instead, she hits the road. Lately Germany’s chancellor has travelled to a wind park in Mecklenburg-West Pomerania, a nuclear reactor in Lower Saxony, and an energy-generating house in Hesse. Aiming to draw attention to Germany’s dilemmas in deciding how much and what sort of power to produce and consume in the coming decades, Mrs Merkel will bundle her answers into a comprehensive “energy concept”, to be unveiled at the end of September. This is like coming up with a menu that pleases both carnivores and herbivores. Much of the debate revolves around whether to scrap a plan devised by an earlier government to cease nuclear-power generation by 2022. The decision will affect Mrs Merkel’s political standing and the public finances, as well as Germany’s energy future. With roughly a quarter of generation capacity due to reach retirement age by 2020, decisions made now will shape the energy profile of Europe’s biggest economy for years. There is “a window of opportunity for good changes or for messing up the situation for the next 50 years,” says Olav Hohmeyer, an economist at the University of Flensburg. ...
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Why are the Czechs more lenient on narcotic use than the Slovaks? FOR many Czechs, CzechTek, an outdoor rave where revellers danced for days, often on a cocktail of speed, ecstasy and methamphetamine, was once a highlight of the summer. Authorities concerned about drug use found it less attractive. Five years ago 80 people were hurt when police used water cannon and tear gas on a crowd of 5,000 ravers. Jiri Paroubek, the prime minister, described them as “obsessed people with anarchist proclivities…who provoke massive violent demonstrations, fuelled by alcohol and drugs, against peaceful society”. So it came as a surprise when Czech politicians liberalised the country’s drug laws. Since January 1st techno fans (and other users) have faced nothing worse than a fine if caught with an amount the law considers intended for personal use. ...
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Spain’s prime minister faces a minor insurrection within his own party IT IS a brave act of defiance. It is also a sign that Jose Luis Rodriguez Zapatero, Spain’s prime minister, is losing the iron grip he once held on his Socialist Party. A row has erupted over Mr Zapatero’s attempt to impose a candidate to lead the party into elections for the Madrid region’s parliament next May. Mr Zapatero’s candidate for the post, one of Spain’s 17 powerful regional premierships, is Trinidad Jimenez (pictured), Spain’s health minister. She is opposed by Tomas Gomez, the pugnacious leader of the Socialists’ Madrid branch, who wants to stand himself. Rather than bow to his boss’s demands, as expected, Mr Gomez has forced a party vote, which will be held in October. ...
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The capital city gets a controversial facelift ITS charms are many, but architecture is not usually seen as one of them. Rebuilt after an earthquake in 1963 wiped out most of the city, Skopje, the capital of the ex-Yugoslav republic of Macedonia, was for years characterised by ugly concrete blocks and strange empty spaces. But earlier this year Nikola Gruevski's conservative government produced a video that revealed the full ambition of “Skopje 2014”, its plan for a radical reinvention of the city centre. It was hard to take the scheme seriously. Fifteen grand buildings, including a new foreign ministry and a constitutional court, were to be built from scratch. Older structures, such as the parliament, were to be tarted up with domes and other accoutrements. In the city's main square, the government would erect a giant statue of Alexander the Great. ...
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After decades of searching, evidence of oil is found off the coast of Greenland WHEN Cairn Energy, a British petrochemicals company, this week announced the first firm indication of worthwhile oil deposits off Greenland’s coast, inhabitants of Nuuk, the island’s gritty capital, greeted the news with their customary equanimity. “That’s nice,” said a housewife less interested in the implications of a possible oil bonanza than in negotiating her country’s sole pedestrian crossing in the sleeting rain. Several hundred miles north in Baffin Bay, Greenpeace eco-warriors seeking to halt offshore oil exploration in the Arctic faced down a Danish warship. The government hotly contests Greenpeace’s claim that, because oil degrades far more slowly in freezing waters, a Mexican Gulf-style oil spill would mean calamity for the fragile environment. “Our safety standards are the highest in the world,” says Henrik Stendal, chief geologist at the Government Bureau of Minerals and Petroleum. ...
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An optimistic attempt to impose order on Italy’s roads ANARCHY, ignorance of the law or just a belief that rules are optional: Italian behaviour in traffic is a colourful, and worrying, mosaic. Government ministers with seat belts left unbuckled; police cars that ignore red lights; parking on pedestrian crossings; mobile phones glued to drivers’ ears; and widespread speeding on every road from country lanes to autostrade—such is the anarchy of the road in Italy. Five times as many people are injured on Italian roads as on French ones and, although the number has fallen in recent years, road deaths in Italy are still far higher than in many other large European countries. A new highway code offers hope that Italians will improve their behaviour behind the wheel. Parts of the code await ministerial decrees, some of which will be issued over the next six months. But important sections covering road safety have already entered into force. One deals with pedestrian crossings, where injuries and deaths are common, thanks in part to the failure of town councils to ensure that road markings are clear and crossings well lit. Yet although the new code promises a “more rigorous right of way” for pedestrians, instructing drivers to stop at crossings when a pedestrian is about to cross, this will be difficult to enforce in a country where the car has always come first. ...
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The Economist: Finance and economics news feed
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Theories about why some rich-world economies are doing better than America’s don’t stand up AMERICA is used to making the economic weather. It has the world’s largest economy, its most influential central bank and it issues the main global reserve currency. In recent months, however, some rich-world economies (notably Germany’s) have basked in the sunshine even as the clouds gathered over America. On August 27th America’s second-quarter GDP growth was revised down to an annualised 1.6%. That looked moribund compared with the 9% rate confirmed in Germany a few days earlier. America’s jobless rate was 9.5% in July (figures for August were released on September 3rd, after The Economist went to press). But in Germany the unemployment rate is lower even than before the downturn. Other rich countries, including Britain and Australia, have enjoyed sprightlier recent GDP growth and lower unemployment than America. ...
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China restricts exports of some obscure but important commodities BEHIND the rise of resource-poor countries like Japan, South Korea and China into industrial giants has been the readiness of other countries to sell them critical commodities, albeit sometimes at excruciating cost. An unfolding collision around a group of elements known as “rare earths” is seen by some as a test of China’s willingness to reciprocate. Rare earths have become increasingly important in manufacturing sophisticated products including flat-screen monitors, electric-car batteries, wind turbines and aerospace alloys. Over the summer prices for cerium (used in glass), lanthanum (petrol refining), yttrium (displays) and a bunch of other –iums have zoomed upward (see chart) as China, which accounts for almost all of the world’s production, squeezes supply. In July it announced the latest in a series of annual export reductions, this time by 40% to precisely 30,258 tonnes. That is 15,000-20,000 tonnes less than consumption by non-Chinese producers, says Judith Chegwidden of Roskill Information Services, a consultancy. ...
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A once-revered buy-out firm is going under. Who’s next? FOR years people have been predicting the demise of private equity. Now they have a proper tombstone to point at. On August 31st Candover, once one of Britain’s leading private-equity firms, announced that it would unwind its assets and return money to shareholders and investors. The 30-year-old firm is the biggest buy-out victim of the crisis so far. Bad investments during the boom helped undo Candover. Several companies in its portfolio have struggled under their debts over the past two years, including Ferretti, a luxury-yacht maker. In June Candover relinquished control of Gala Coral, a gambling company, to creditors. It has had to write down several other investments. ...
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An alluring trade in “supergreenhouse” gas emissions is coming under scrutiny ONE of the curiosities of carbon markets is that they do not just trade in carbon. Other greenhouse gases can be given a value, too—sometimes a very high one. Claims that these prices promote scammery are now prompting some searching questions. The gas at the centre of the controversy is HFC-23, a greenhouse gas which, on a weight-for-weight basis, is 14,800 times better at trapping heat than carbon dioxide. HFC-23 is produced as a by-product of the manufacture of HCFC-22, an ozone-destroying refrigerant. HCFC-22 is banned in developed countries, but developing countries can keep making it until 2030. ...
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The IMF offers indebted governments some reassurance ONE consequence of the deepest recession since the Depression has been the biggest peacetime build-up of public debt the rich world has ever seen. Some reckon that the debt position of many rich countries is now unsustainable. It is a measure of just how nervous people have become about the mountain of debt that the IMF—not usually known for taking doveish views—concluded in two papers released on September 1st that there is too much pessimism about public finances. The IMF argues that despite historically high debt-to-GDP ratios, many countries still have room for fiscal manoeuvre. Typically, the debate on the point at which a country’s debt burden spirals out of control has tried to identify a single debt-to-GDP threshold, above which things are no longer sustainable. The fund’s economists argue that a universal debt limit does not make sense. ...
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Investors should pay more attention to dividends DIVIDENDS do not get the respect they deserve. Over the long run they provide the bulk of equity investors’ returns. Work by Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School* found that over the period from 1900 to 2005, the real return from global equities averaged 5%. The mean dividend yield over that period was 4.5%. Despite this, stockmarkets devote a lot more time to forecasting and analysing profits than they do to thinking about payouts. Profits can be easily manipulated and come in a bewildering variety of forms (operating, reported, post-tax, pre-exceptional, etc). Dividends are (mostly) paid in cash and so are hard to fake. ...
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Monetary and fiscal stimulus make a potent, if uneasy, combination THE Federal Reserve Bank of Kansas City’s annual conference in Jackson Hole, Wyoming, is the big event of the year for central bankers. But defining monetary policy is far harder than it used to be. In recent years central bankers have lurched ever closer to the realm of fiscal policy, mainly by buying government debt with freshly printed money. They can justify such “quantitative easing” (QE) on monetary grounds since they have already lowered short-term interest rates to, or close to, zero. But they also worry it is a slippery slope from QE to monetising government deficits and thence, inevitably, to inflation. When Phillip Swagel, then an official with the US Treasury, was asked why he attended the conference in 2008, he shrugged: “Fiscal policy, monetary policy—what’s the difference?” For central bankers this is an unsettling thought. Their mistrust of fiscal policy was nicely captured in a paper presented at this year’s Jackson Hole conference by Eric Leeper of Indiana University*. As central bankers have become more independent, they have increasingly based their policies on rigorous economic analysis. By contrast fiscal policy is deeply politicised, with haphazard methods and few, if any, defined goals. ...
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Germany’s biggest bank is trying to make investment banking boring. The latest in our series of profiles of financial institutions after the crisis JOSEF ACKERMANN, the head of Deutsche Bank, combines a silky manner with blunt words. When the German government set up a bail-out fund to stabilise the country’s banking system, he said he would be “ashamed” to use it. When Europe and the IMF bailed out Greece, Mr Ackermann said he doubted it would pay back the loans. And when regulators and economists say that big banks should be broken up, with “casino” investment banks split off from “utility” retail banks, Mr Ackermann retorts that “smaller banks will not make us safer.” Mr Ackermann speaks with the authority of a man who steered his bank through the crisis more deftly than most. Deutsche did not escape unscathed. In 2008, a year in which it had confidently forecast a record profit of more than €8 billion ($11.7 billion), it posted a net loss of almost €4 billion because of a huge hit to its investment bank (see chart). Yet it emerged from the crisis as the leading member of an exclusive club of large banks—others include Barclays and Credit Suisse—that did not have to take direct injections of public funds (although all, of course, benefited from a wide range of other government props to the system). ...
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Developing countries in Latin America and Asia can borrow for longer PERU is not an obvious investment darling. For much of its existence, the country has been in a state of default. As recently as 1990 the inflation rate was 7,500%. Yet in the past few years Peru has persuaded creditors to lend it money for ever-longer periods in its own currency. It issued its first 20-year local-currency bond in 2006; its debut 30-year bonds followed a year later. Earlier this year Peru was able to issue 300m soles ($105.2m) of 32-year local-currency bonds. Investors in these bonds are compensated for the risk of inflation by yields of just 6.9%, a once unthinkable prospect. Peru is not alone. Anxious to wean themselves off flighty foreign funding after the crises of the 1990s, many emerging-market governments sought to build up local-currency bond issuance. Extending the maturity of bonds is the next step. In 2007 around 40% of Peru’s local-currency debt was short-term (ie, maturing in less than a year). That had fallen to 30% by 2009, according to the Bank for International Settlements. In Mexico average maturities have gone from 1.5 years in 2000 to seven years a decade later, says Gerardo Rodriguez, who heads the country’s debt office. ...
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The latest of our profiles of financial firms after the crisis looks at BTG Pactual, Brazil’s investment-banking powerhouse IN RECENT years investment banks were supposedly hijacked by boffins who used their nuclear-physics doctorates to devastating effect. Yet the industry has long been slave to a different tribe of scientists: the bulge-bracket Darwinists. They reckon only giant global firms can survive. Until last year, Pactual, a Brazilian outfit, had conformed to their doctrine. In 2006 it sold out to a big foreign firm, UBS, for $3.1 billion, making its partners some of Brazil’s richest men. But then in 2009 the Swiss bank, reeling from losses, unexpectedly sold Pactual back to BTG, a local investment fund co-founded by Andre Esteves, one of the bank’s former top brass, for $2.5 billion. Today the renamed BTG Pactual is owned again by its partners and led by Mr Esteves who has a 25-30% stake. ...
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