Eyjafjallajökull – Europe’s slow motion crisis (updated x5)

by | Apr 17, 2010 | Europe and Central Asia, UK

Seeing lots of explosions this morning. Thick dark ash headed... on Twitpic

As the Eyjafjallajökull eruption continues, my sense is that the crisis is beginning to become quite serious (check out radar of Europe’s empty skies). Lots of people have been stranded for a significant period of time now – many in difficult conditions. Some are being told not to expect a flight home for a week or more.

And that’s if the ash cloud clears quickly. At the moment, there are no signs of this happening (for recent info, see Erik Klemetti’s blog). The volcano is still erupting, albeit at a lesser intensity –  but high pressure means that the cloud is not going anywhere. A renewed eruption  is possible, while the bigger neighbouring volcano, Katla, is reported to be showing increased seismic activity.

That could be a very big deal:

The danger is that the small volcano is just the beginning and that it will trigger the far more powerful volcano of Katla, which nestles beneath Myrdalsjoekull.

“That has to be on the table at the moment,” Dave McGarvie, senior lecturer at the Volcano Dynamics Group of the Open University, said. “And it is a much nastier piece of work.”

Icelanders agree. “This could trigger Katla, which is a vicious volcano that could cause both local and global damage,” Pall Einarsson, from the University of Iceland, said.

There is an immediate need to get those stranded abroad home. The FCO finally has an emergency consular hotline up and running (+44 207 008 0000) for British citizens stranded abroad (not on the website as yet, though, as far as I can see), and hopefully other countries are implementing crisis plans as well.

There are also encouraging signs of people helping themselves, with bottom-up resilience being facilitated by social media (also this Dunkirk evacuation – loading now in Calais). On Twitter, the #getmehome tag is worth watching as, of course, are the main tags: #ashtag #ashcloud (also – a good list of Twitter resources here).

But I’d like to see some coordination by and between European governments. It is absolutely absurd that people are having to buy bicycles to be allowed to board a cross-Channel ferry. Soon, we are going to need a much more coordinated evacuation.

Beyond that, I am wondering how healthy European airlines are. Are any facing immediate cash flow problems as they face demands for refunds and are forced to shell out to put stranded travellers in hotels? How long can each one keep going if flights remain grounded? A bailout probably needs to be considered. A stress test of the industry’s stability would be a useful first step.

Finally, it’s worth exploring the longer-run consequences if this develops into a major  Black Swan event. Is there anything that can be done to keep planes flying should there be a chain of eruptions over months or a year or more (maybe not, but it’s worth exploring)? And is there a risk of serious damage to Europe’s fragile economy, or can we be sure regular interruptions to aviation pose no systemic threat?

I can’t help thinking of the European heat wave of 2003. That was one of the continent’s “worst ever peacetime disasters, but we barely noticed it at the time and have forgotten it remarkably quickly.” The volcano is unlikely to cause 35,000 deaths, of course, though the risk to health could worsen depending on the changing composition of the ash.

But the heat wave should remind us how bad we are at responding to a slow motion crisis – and that resilience may be at its lowest ebb when we don’t take a threat seriously enough until it is too late.

In the UK, it doesn’t help that there’s an election on. But Lord Adonis, the Secretary of State for Transport, is not running for office. It would be good to see greater signs that he – or someone else – is being much more decisive about taking charge.

Update: Both KLM and Lufthansa are itching to get flying again (have a look though at these pics of damage to a Finnish airforce jet – also the experience of this Ural Airlines flight is not encouraging):

KLM, the Dutch subsidiary of Air France, said Sunday it wants to resume passenger flights in Europe as soon as possible after it flew a plane through the cloud of volcanic ash covering much of the continent without suffering any damage.

KLM carried out the test flight above Dutch airspace Saturday. It said initial inspections afterward showed no damage or irregularities from the ash in the air that has led to a ban on air travel over much of Europe since Friday.

The airline says it now plans to return seven airplanes without passengers to Amsterdam from Duesseldorf Sunday.

“We hope to receive permission as soon as possible after that to start up our operation and to transport our passengers to their destinations,” said Chief Executive Peter Hartman, who was aboard Saturday’s flight.

Germany’s Lufthansa flew 10 empty planes to Frankfurt from Munich at low altitude on Saturday under so-called visual flight rules, in which pilots don’t have to rely on their instruments.

Update II: Robert Patterson – and in the comments, @aem76us, wonder what longer-term disruption of air traffic might look like…

Update III: I think the media is getting desperate to find a new angle on this story –  and that means having someone to blame. FCO, Department for Transport – if you’re not 100% on top of the situation, they’re coming for you…

Update IV: Sure enough, the Conservative Party has issued an eight-point action plan for beefing up the response to the crisis. John Redwood calls for a cross-Whitehall review of what can be done. And, finally, Brown will chair a Ministerial meeting. I’d say the government allowed itself to get at least 48 hours behind the curve.

Update V: Watching the latest Eurocontrol press conference and many journalists seem to be coming to the conclusion that governments should be blamed for exaggerating the threat from the ash cloud. Airlines are also pushing this line. Here’s a statement from Olivier Jankovec of Airports Council Europe:

With 313 airports paralysed at the moment, the impact is already worst than 9/11. More than 6.8 million passengers have been affected so far and European airports have lost close to €136 million. Many thousands of passengers are still stuck at airports because of this situation. While safety remains a non-negotiable priority, it is not incompatible with our legitimate request to reconsider the present restrictions.”

Absolutely clear, that governments are losing – or have lost – control of the narrative now…

Betting the House – Gresham talk

by | Mar 3, 2010 | Economics and development, UK

Thomas Gresham

Yesterday, I was at the wonderful Gresham College for a seminar on housing – I posted some highlights earlier. But here’s a lightly edited version of my talk.

It explores the risks posed by the UK’s partially deflated housing bubble and sets out some radical options for reform (elucidated in more detail in the Long Finance paper from the talk is drawn).

And for those of you don’t know Gresham, I recommend Michael Mainelli’s brief history…

Sir Thomas Gresham (1519 to 1579) traded cloth and linens between England and the Low Countries at a time when Cambridge and Oxford had a duopolistic hold on higher education in England. A Cambridge man himself (Caius College), if Gresham’s skippers had visited an Oxbridge College they would, at best, have had the door of a college opened to them and then been laughed at in Latin for their ignorance.

If you’re going to backstab some one properly, do it from the front. Sir Thomas died of apoplexy in 1579 bequeathing one moiety of the Royal Exchange to the Corporation of London and the other moiety to the Mercers’ Company, charging them with the nomination of seven Professors to lecture in Astronomy, Divinity, Geometry, Law, Music, Physic and Rhetoric. He required the lectures to be in Latin and, horror horribilis, English. In effect, Sir Thomas, who pursued monopolies himself, used his will of 1575 anti-monopolistically to crack the Oxbridge oligopoly by bribing seven professors to give lectures to the public, in English.

Gresham College is about ‘new learning’. Sir Thomas felt strongly that the ‘new learning’ should be available to those who worked – merchants, tradesmen and ships’ navigators – rather than solely gentlemen scholars. In the 17th century, the Royal Society was founded to explore “natural philosophy”, new learning through experimentation. So, it is no surprise that the Royal Society was founded and housed at Gresham College for half a century (1660 to 1710) and numbered among its associates Gresham Professors Petty, Boyle and Evelyn.

On housing – Gordon Brown, Mervyn King, asleep at the wheel

by | Mar 3, 2010 | Economics and development, UK

I gave a talk at Gresham College yesterday, drawing on my paper for the Long Finance Foundation on risk and resilience in the UK housing market.

Also on the panel was Channel 4’s Economics correspondent, Faisal Islam. He had a couple of great quotes. This from Gordon Brown’s first budget speech in 1997 (click through to admire the retro styling of the last 1990s Treasury website):

For most people the acquisition of a house is the biggest single investment they will make. Homeowners rightly expect their investment to be protected by sensible policies pursued by Government.

I am determined that as a country we never return to the instability, speculation, and negative equity that characterised the housing market in the 1980s and 1990s. Volatility is damaging both to the housing market and to the economy as a whole.

So stability will be central to our policy to help homeowners. And we must be prepared to take the action necessary to secure it. I will not allow house prices to get out of control and put at risk the sustainability of the recovery.

When Brown spoke, the average house cost £75k  – about £10k above the early 1990s nadir. A long long boom was just beginning. Prices would peak in February 2008 at an average of… £232k!!!

In other words, Brown promised not to let house prices spiral out of control and then allowed them to treble, during a period when household disposable income increased by only 30% or so.

The second quote is a more recent one – from Mervyn King, the Governor of the Bank of England. Last month, Faisal asked King whether the current re-inflation of the housing bubble was sustainable. Prices are currently only around 7% below their peak and seem overvalued by every measure.  Only cheap money – pumped into the markets by the government – and very low interest rates is keeping the market afloat.

Isn’t the market going to deflate very rapidly once government funding is withdrawn? King’s response:

No one can forecast asset prices, so I don’t think you can predict that asset prices will fall back. I don’t see why that should in and of itself lead to a change in asset prices, because we all know this problem is there and that’s already reflected in to current asset prices.

As Faisal points out, this shows confidence in the efficient market hypothesis that is breathtaking given a global financial crisis that was driven by an asset price bubble. In King’s fantasy world, buyers know that there will be much less credit available in the future – so this concern is already included in current market prices.

King’s insouciance – and Brown’s negligence – both beggar belief.

Head of FSA resigns

by | Feb 9, 2010 | UK

Shock news that Hector Sants, chief executive of the FSA, has resigned. Though, I am sure the two events are not causally related – let me again plug my paper, published last week by the Long Finance Foundation, on risk in the UK mortgage market, which was was highly critical of the FSA’s response to the housing bubble.