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5.19.2010

A neat fish restaurant in Paris: La Marée

Yesterday I tried again what used to be one of the classic fish restaurants in Paris back in the 1960s: La Marée. It's on the angle of rue Daru with the Faubourg St Honoré in an "art nouveau" building, and it has replaced what used to be until 1963 a pharmacy owned by White Russians.

By classic restaurant, I mean a comfortable setting, with wood panelling, almost (wow, the ugly word!) bourgeois but soooo "gemutlich", and with food that was always remarkably "true" - and by that I mean the best ingredients and careful, precise preparation.In short, a whiff of the sea. The last time I went there was some 15 years ago, it was still very good, even though the 1960s had become something of a lost decade. Then it changed hands in 2006, and I was curious to see whether it had maintained its original class...

Well it has! It's now run by a couple of very talented young people: Yves Mutin, the chef, and Stéphanie Bennassar who looks after clients in the dining room (still with the 1960's panels on the walls - but why not, they've become now part of the "classic look of the restaurant). Next time you're in Paris, don't miss out on it!

First Let me tell you where it is: go all the way to the end of Faubourg St Honoré, where it becomes Avenue des Ternes (that's in the 17th Arrondissement). Ah, before I forget, another plus: if you like music, it's right next door to the Salle Pleyel, so you can combine an evening of music and follow up with supper at La Marée. These young people running the place are clever and keep the restaurant open for the very purpose of catering to late music fans - meaning people come in for dinner as late as 11 pm...

The food? I'd give it at least two stars if I were the Michelin Guide (indeed I've been to 2 stars restaurants that didn't deserve them - more on that another time). The classical cuisine was perfect: I had white asparagus with mousseline sauce, flavourful, cooked right (they could be eaten right to the end, yet they were not soggy) and the sauce was light and tasted just right, not too much lemon. My husband had a classic fish soup as entrée, equally good with the usual accompaniment of fried bread, rouille and grated swiss cheese to float on the soup. This was followed by a salmon perfectly done with new potatoes pan-fried in delicate poultry-flavoured butter and an unusual, very "nouvelle" preparation for fish fillets of St Pierre: served in a light purée of fresh peas (it's the season now), the fish was covered with paper-thin slices of raw tomatoes. A striking green-red dish! The wine was satisfying dry and fruity Pouilly Fumé Blondelet 2009 "Domaine Le Bouchot". We closed the meal with a crème brulée, which was ok (probably the only thing that could have been better) and a coffee with "mignardises" (small petits fours and chocolates) that were superlative.

Total cost? A little over €100 for two, which is very reasonable for a well-served meal based on fish fare - always an expensive kind of food - in a pleasant surrounding and well-served (the service is fast).

The address: Restaurant La Marée 258, rue du Faubourg St Honoré
tel: +33 (0)1 43802000
opened every day

PS It's a good idea to call to reserve a table. We went on a week-day and it was really full (we couldn't eat before 10 pm).

5.11.2010

Post-scriptum: The Euro is Saved but it still Hobbles on One Leg!

One whale of a fund is what it took to rescue the Euro: some €750 billion, nearly a $1 trillion, much more than what the American Government set up through the TARP to rescue Wall Street.

A very respectable amount of money - the level most analysts agreed on - and, not unsurprisingly given its size, it worked!

But if you look at the arrangement more closely, you realize that it's not a fund as such but a rescue mechanism: European governments don't expect (they hope) to have to actually put up the money. And, what is more important, they've given the green light to the European Central Bank to start acting as any central bank worth its name should, i.e. buy up bonds directly on the market to stabilize prices.

Seeing the positive reaction of the markets on Monday was a relief. The problem is that it could be short-lived.

Why?

Because the Euro still hobbles along on one leg only. It is still based on the Maastrich Treaty and on unrealistic parameters i.e. pieces of paper, rather than a real pan-European Treasury to prop it up, the way the American Dollar is.

If the European political class had a little courage, it would realize that what needs to be done now is to set up an institutional structure around the mechanism they've agreed on. A structure that would enable a faster response in case of speculative attacks. A structure that in the end, if it were credible enough, would cost a lot less than the €750 billion envisaged by the mechanism they've just agreed on...

Will Europeans have the necessary courage?

What worries me is the grumbling I can hear in the media. A lot of people - respectable economists and conservative politicians - complain that it looks like European Governments have caved in. To save the Euro was ok, they say, but that doesn't mean austerity measures can now be cut back. Of course, they can't. Governments have to learn to balance their budgets, and citizens to tighten their belts. We all agree on that.

But austerity measures shouldn't be pursued at the expense of economic growth. Remember, a healthy economy is what is needed to raise the necessary funds from taxes and eventually balance budgets. But this takes time and time has to be put into the equation. Before raising our arms in despair and calling for more austerity - and run the political risk of general strikes that block the productive machinery, not to mention kill some innocent people as recently happened in Greece - thought should be given to measures that encourage production and raise employment. The International Monetary Fund has learned that lesson after the Asian collapse in the 1990s, and these days it generally tries to accompany its rescue packages with measures to stimulate the economy.

Will our political class follow the IMF example? I hope so. Measures needed to take us out of the Great Recession are just as important as austerity measures, if not more. The only silver lining on a horizon laden with black clouds is that with a weaker Euro, our export industries (including tourism) will fare better.

Let us hope that a weaker Euro will be enough to drag us out of the recession. But it would be nice, wouldn't it, if Euro-zone governments pursued a common economic policy, so that we wouldn't be helplessly tossed about by every speculative attack, like a ship that has lost its sails and compass...

5.09.2010

Propping Up the Euro with an Emergency Fund: A First Step in the Right Direction

A first step, but a (very) small one.

I haven't seen the details of the proposed emergency fund (or mechanism) but rumours are that it would be around €70 billion.

If that is the right figure, it's peanuts! It's just about 10 percent of the TARP launched by the US Treasury to save the American banking system from collapse after Lehman Brothers had defaulted in September 2008. I know that the Greek crisis - around some €130 billion, give or take a dozen - is much, much smaller than Lehman Brothers which was "worth" some $600 billion. But €70 billion is puny if it's supposed to prop up the Euro, considering that Portugal and Spain are certain to be the next target of speculators. And then Ireland, Italy...

In short, a fund is a first step in the right direction...assuming that all Euro-zone finance ministers have understood that the said "direction" is setting up a European-wide Treasury or Ministry of Finances, like the US Treasury.

But has the European political class understood what is at stake? I doubt it. Consider what props up the American Dollar and has kept it going through the worst storms we've seen in History, including the latest one, the Big Recession. The American Dollar has two legs that keep it walking: one is the Federal reserve, the other is the US Treasury. What has the Euro got? One leg only: the European Central Bank. And not a very strong leg either, because it is limited by mandate to focus only on fighting inflation (unlike the Federal reserve which covers much broader questions of economic growth, unemployment etc) So far, we've been lucky with Mr. Trichet, the ECB head, who looks well beyond inflation (in these deflationary times, a singularly irrelevant question) and talks about a "systemic crisis".

Right he is. It is a systemic crisis, because the Euro is lacking a second leg to stand on: there's nothing like the US Treasury. As I've pointed out in my previous blog, the Euro has only got the Maastricht Treaty and a bunch of (now largely irrelevant) parameters. Will adding a small fund to this sorry cocktail make a difference? I seriously doubt it. It's not a question of money, but a question of mechanism. What is needed is a mechanism to tap as much money as is needed. If 70 billion will do the trick, fine. But if more is required, the decision process cannot take weeks the way it has happened for Greece.

It won't work.

What will work? Obviously, setting up a Euro-zone wide financial ministry. Because Europeans are hopelessly nationalistic, it can't be done politically. What can? I'm curious to see what Mr. Barroso and the EU Commission are coming up with. We should know by Monday morning what exactly they've been cooking in Brussels and whether it will work.

That's for the short term. Over the medium term, I still think that more is needed than an emergency fund. Maastricht has to change: a set of rules that are rigid and immediately disregarded cannot be a serious foundation for a currency. What is needed is a supranational Ministry of Finance responsible to the Finance Ministers of the Euro-member countries.

If that's too much to ask for, forget the Euro. And forget Europe too!

5.07.2010

How to Fix the Euro and Avoid a Double Dip Recession: Change the Maastricht Parameters!

It sounds like what the French call “l’oeuf de Colomb” – Columbus’ egg: the great man was asked how to stand an egg on its head and he simply cracked the bottom to keep it upright.

Here too we need to crack the bottom to keep the Euro upright and avoid sliding again in a deep recession – making it a double dip recession, the kind that is most frightening, because the second dip could be far worse than the first caused by the fall of Lehman Brothers. To those outside the Euro-zone who are gleefully watching the Euro collapse and congratulating themselves for not having joined in (and here I’m thinking of the British in particular), beware! If the Euro-zone area goes into an economic tailspin, it means European markets for British, Chinese, Japanese, American goods etc will dry up. International trade is a two-way street: if you block one end of the street, the traffic stops. So any excessive weakening of the Euro is highly contagious worldwide. I don’t need to go on, I think you get the picture.

What about this business of cracking the bottom of the egg? To paraphrase one of Bill Clinton’s famous slogan: to fix the Euro, fix the Maastricht parameters, stupid!

It seems that so far in this Greek-induced crisis, no one has thought of it. Everybody’s attention has been taken in by proximate causes, first among them, Greek corruption and profligacy. In this respect, many statistics could be quoted but one stands out: 40% of the Greek working population is employed by the Greek State! That’s incredible. Greece has been swept over by a tsunami of clientelism: every politician that has ever been in office has created a string of jobs for his voters. Of course, that game is over now. The Germans have no sympathy for this sort of thing, and in this at least they’re right. On the rest they’re wrong. In particular, in insisting on austerity measures that are so severe that they will push the economy into a long-lasting depression, some say ten years, ultimately making it impossible for the Greek Government to ever pay back its debt. This is not a win-win situation, but a loss-loss situation – or if you prefer to use a more sophisticated term: deflation. The Germans naturally have to share much of the blame for the depth – and probable length – of the Euro crisis. If they had been more cooperative and moved sooner in unison with the French (as they used to do in the past), we wouldn’t have the problem we have now.

More recently – as I indicated in my previous post – the ratings agencies have been pointed out as the villains of the piece. When Standard and Poor’s reduced Greek bonds to junk status a few days ago, there was an outcry in Europe, and a call to create a European ratings agency. It is true that the major ratings agencies – Standard & Poor’s, Moody’s etc – are all American. But that, in itself, is not the problem. Many countries – China, Canada, Japan – have created their own national ratings agency but these have no effect beyond national borders. The only ratings that count are precisely those issued by S&P’s, Moody’s etcc and no other. You can’t change capitalism overnight.

Creating national (or European-wide) agencies is not the answer. What’s wrong with the likes of S&P’s and Moody’s is not their nationality but that they are not independent. They’re in the pay of international finance. The ratings they issue are necessarily biased.

The solution would be to force ratings agencies to come clean about how they do their analyses and why. More transparency is what is needed. More transparency and more control by international agencies such as the International Monetary Fund that are entities independent from private finance. And when a rating is issued on a Euro member country’ sovereign debt, a vetting by the European Central Bank should be required. If the Bank is convinced of the soundness of the rating, then it could be issued. If not, then it should be stopped. But that implies a deep institutional change and it is likely to take time before all the major players concerned (the G20 and others) can come to an agreement on how to control the ratings agencies.

In the meantime, the drama goes on. Now speculators (and I mean hedge funds and other big investors), having cleaned out on Wall Street, are looking for new opportunities for a fast buck. They have turned their attention to sovereign debt. This is only natural. They always search for chinks in the armour: in the case of Wall Street, the chink was sub-prime mortgages embedded in derivatives. In the case of sovereign debt, it was first Dubai and they had to test whether it would be saved by the United Arab Emirates (it was). Now it’s Greece, and they have to test whether it will be saved by the European Union (it will).

But at what cost! And yet much of the pain could be easily avoided with a single stroke of the (Euro-zone) pen: move the Maastrich parameters from the present 3 percent rule (the ratio of debt to GNP) to something more realistic, say 5 or 6. The exact percentage is something economists could work out, but it should be in line with the capacity of the Euro-zone economies to function and recover from a down turn in the economic cycle. The problem for Greece is that it is asked to function and apply fiscal policies that would be appropriate for the German economic situation. The Greeks have to reign in their debt and adopt austerity measures, no one is arguing they shouldn’t. But the measure shouldn’t be excessive, or else they will kill the productive machinery of the Greek economy. So the deficit/GNP goal set by the Maastrich agreement should not be 3 percent. It is in any case hypocritical to argue that 3 percent is the right figure. It may have been at the time the Euro was established (although that too is arguable) but it no longer is so under present circumstances.

I know I sound like I am arguing about abstract percentages rather than the real world. But there is nothing abstract about the so-called Maastricht parameters. Why? Consider what the Euro is based on. To make the currency work, Eurocrats were faced with a real difficulty. They were able to set up a Central Bank but had to replace with an agreement the fact that there is no overall Euro-zone financial ministry. That’s what the Maastricht parameters are all about: iron-clad guidelines for all Euro-zone members, dictating how far into debt they are allowed to go. Three percent and no more. Of course, since the beginning of the Euro that three percent rule has been repeatedly broken, first by the French and the Germans. Then everybody got into the act, though it was done discreetly. But it was done. In other words, the Greeks weren’t the first to break the rules, even if they did so with greater abandon than anybody else, and for years kept hidden from view how far they had sunk into the red.

The Euro is not (not yet) the currency of a United Europe. The American dollar has a huge advantage: it is protected by a central bank (the Federal Reserve) which has political clout (the US Treasury). The European Central Bank hasn’t got that kind of clout. Why ? Because every Euro-member has jealously guarded its sovereignty over fiscal and financial matters. There is no Euro-zone Treasury or federal financial ministry, like in the US. When an American State goes bankrupt, or nearly so like, say, California, nothing happens to the dollar. When Greece threatens to fail, so does the Euro. The European Central Bank can do nothing about it, except take Greek bonds as collateral even if rated junk, and perhaps buy up Greek bonds as needed. I write “perhaps” because so far it hasn’t said it would do so. Jean-Claude Trichet, the head of the European Central Bank, has recently told the press that so far the matter hadn’t even been considered. And this should come as no surprise. Mopping up Greek bonds from the market is a measure of last resort, something it is rumoured (probably rightly so) that the Germans are opposed to. And of course, somebody has to finance the purchase of bonds by the European Bank. In other words, Euro-zone financial ministers have to agree to it. Fat chance!

So what is the solution? Some have suggested Greece should drop out of the Euro, others that Germany should. Such suggestions make no sense whatsoever. Dropping out of the Euro for any Euro member would mean declaring bankruptcy. Should Greece do so, all the banks across Europe that hold Greek debt would be endangered – and many would fail. Remember, French and German banks hold between them well over €100 billion in Greek debt. Then there’s the rest of Europe (Italy, Spain etc) who also hold Greek bonds.

Such a scenario is obviously unthinkable.

I believe that so far the right policy decisions have been taken and the Euro-zone’s bailout plan for Greece makes sense. What does not make sense is the severity of the austerity measures imposed today on Greece, tomorrow on Portugal, and next Spain.

Austerity is required but not to the point of jeopardizing economic recovery. The way out of this dilemma is to fix the Maastricht parameters, introducing sufficient flexibility in them to safeguard recovery. It won’t be easy because it is a political decision. The Euro-zone finance ministers have to get together and agree on a new set of guidelines to govern the debt/GNP ratio (and several other related matters). But they must do something fast, or else speculation against the Euro will continue unabated. If nothing is done, we’ll be heading straight into a Big Recession – perhaps a bigger one than the one we are so painfully climbing out – a recession that will affect not only Europe but the rest of the world too. Remember, because of international trade, any imbalance in the system is instantly globalized. There is no escape.

Do you agree? If I have convinced you, please help me in spreading the word. We need to make our political class aware of the danger. Ms. Merkel has already lost enough time before accepting to bail out Greece, there is no more time to lose.

We MUST change the Maastricht parameters as soon as possible. It may not be easy – anything involving politics never is – but it IS FEASIBLE. It’s a matter of political will.

Send my blog around, make comments, add to it, do whatever you like but spread the word to your friends and everyone you know.It is our only chance to keep speculators at bay and stop them from wrecking havoc and causing untold poverty and suffering.

We’ve got to make the politicians listen to us.Please help out and spread the word! CHANGE MAASTRICHT!

4.30.2010

The real villains in the Euro debacle? The ratings agencies!

The crisis of the Euro is stalked by the ghost of Argentina - the only important industrialized  country that failed in recent memory. That was back in January 2002, when the government announced it would default on $141 billion in public sector debt.  But for the Euro debacle, the real villains are the big credit ratings agencies: Standard & Poor's, Moody's and (possibly) Dun & Bradstreet.

Ok, Greece started the ball rolling with its profligacy and corruption, and Portugal may well pick it up next, to be followed by Spain, Ireland etc. No, not Italy - people who have punned the famous PIIGS, with two II, have got it wrong, they're just the usual bunch of haughty, rain-drenched Northern Europeans who can't stand South Europeans basking in the sun. The correct term is PIGS, with the I for Italy excised. And the on-going wave of speculation attacks on the PIGS is not through yet, and it certainly isn't where Greece is concerned. Because the austerity measures required to solve the problem are bound to be politically unpalatable. As usual, the rich have taken their money out and placed it safely abroad and the poor are left to pick up the pieces. Greek banks have been depleted and their weakness was recently duly noted in the press.

The next act in the Greek drama is highly predictable: the unions will organize mass protests and general strikes, making the whole situation much, much worse. At least one major source of external revenues for Greece will be compromised. Good-bye to income from summer tourists! This is no doubt going to be a very sour and sad summer for Greece.

Ok, Germany is also a culprit. It has procrastinated because of a politically weak Chancellor, Angela Merkel, concerned with a key state election in North Rhine-Westphalia on 9 May that threatens to upset her government coalition. She stopped listening to the popular anti-Greek sentiment in Germany only when it became clear that it was not a matter of bailing out Greece but of saving the Euro. How could she take so long to realize what the stakes were? Perhaps she is instinctively anti-European - and by that I mean not commmitted to the ideal of a United Europe - because she comes from the East (she was born an East German). Most Eastern Europeans are not committed to Europe: for them joining the EU was a business opportunity, a way to finance their agriculture with EU funds and to free themselves from the shackles of Russian (ex-Soviet) influence. They did not join because they believed in Europe. If you have any doubts about that, just look at Poland and how the (now that he's dead, revered) Polish President did everything in his power to delay the signing of the Lisbon treaty and the strengthening of the EU.

But the real villains in the Euro debacle? As I said in my opening, we now know who they are: the ratings agencies! Standard and Poor's two days ago, on April 28, cut its rating of Greek government debt by a full three notches to BB-plus, the first level of speculative status. The outlook is negative, meaning the agency could downgrade Greece again. To justify this rating, S&P's cited the "political, economic, and budgetary challenges that the Greek government faces in its efforts to put the public debt burden onto a sustained downward trajectory." In short, they believe it is impossible for Greece to dig itself out of the hole it's in. Under present conditions, the austerity measures (a) are not enough and (b) if they were enough, they wouldn't  allow the Greek economy to recover so the debts can be paid back. The Greeks are dammed if they do and damned if they don't.

How credible is this piece of reasoning? Not very. It is, as often the case in this type of economic prediction, a perfect example of failure in DYNAMIC thinking. What do I mean by that?

Two things.

First, remember that predictions are always based on a reasoning of the following type: if you've got this, then you're going to get that. But you've got to make sure you don't overlook something in the situation you're looking at. Economists with their nice mathematical models make that sort of mistake all too often, because the models are only as good as their premises - never better. Miss out on one element? Then what you've got is nothing more than a classic case of TITO: Thrash In/Thrash Out. And all the complex and intellectually satisfying econometrics and mathematical modelling that has gone into it cannot change the result.

Second, a prediction is necessarily forward-looking. Time is of the essence, you have to factor it in. To be successful and credible, a prediction has to take correctly into account all the dynamics of the situation: things are a certain way today, they're going to be different tomorrow. Everything moves, nothing stays the same.This movement is sometimes imperceptible, but it's there. And this movement, more likely than not, is highly complex: it depends on a series of other moves in other related (and not so related) areas. You have to throw your mental net very wide to understand how a situation might evolve. You also need to have a lot of imagination. A mathematical model can't give you that, it's a mental straitjacket. That's why so few predictions made by economists are right - in fact, most of them are systematically wrong. It's a peculiar failure in dynamic thinking, and a very common one.

Why should credit ratings agencies who are filled with people trained in economic analysis be exempt of this failure? Of course, they're not. Ratings agencies are just as fallible as the whole economic profession. In this particular case, what is wrong with S&P's reasoning?

Simple. They've overlooked two fundamental facts, one economic and the other political.

The economic: once the Euro goes down, exports are helped. Not only German exports, but Greek exports too - including vacations in Greece that become more attractive for $$$holders. So that's your first dynamic factor that is overlooked.

The political: Greek bonds cannot be treated as vulgar corporate bonds. What does it mean, downgrading Greek government bonds to junk status? How can sovereign debt - a government's promise to redeem its debt - be equated with business debt? This is political nonsense. No global business - not even the biggest American corporation or bank - can save itself when its paper is rated junk. We've all seen what happened to Lehman Brothers. And if more big banks did not fail in the current crisis, it's because they were lucky enough to be bailed out by governments. Is the Greek government going to be left out in the cold? Obviously not. The whole of Europe is behind it - actually  the whole world, since the International Monetary Fund has joined the European Central Bank and the Commission  in the bailout of Greece.

But do governments always band together to save a brother in trouble? Here we return to the ghost of Argentina I mentioned in the beginning. It's all very simple. Argentina - politically - is not Greece. Argentina never had the kind of instant, institutionalized political support that Greece has, and I mean EU backing. It is in the interest of every Euro-zone member to shore up the Euro - actually it's in the interest of the whole world. Otherwise international trade will go to the dogs. Should the Euro crash, you could buy a spanking new BMW for $10,000! Unthinkable.

So what was Standard and Poor's thinking of when it downgraded Greece - and next moved to downgrade Portugal? Rumours are that the other agencies are about to follow. Are they serious?

It is beginning to look like the credit ratings agencies are either very stupid (i.e. unable to engage into dynamic thinking), or very corrupt. I know, I wrote corrupt. That's a  strong word and  I can't prove it. But it is a fact that the ratings agencies are paid for their analyses. A ratings agency has to make a living like everybody else! And where is the butter on their bread coming from? The corporate world. Wall Street. Anybody who's issuing bonds needs to be rated, or else the bonds won't sell. There'll be no market for them. Hence the basic role of the ratings agencies. So if you follow the quid prodest rule, you can easily see who's behind the ratings agencies and their apparently thoughtless degrading of sovereign debt...

Who?

The speculators, of course!

There's much talk about regulating the banks and hedge funds. All fine and good. But what about the ratings agencies? That's where the trouble starts and something needs to be done about it.

Regulate the ratings agencies! Now!

Any ideas how to do that? I've got some, but I'd love to hear yours...
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