Europe’s zombie countries

It was a momentous weekend in Brussels, as the European Union struggled to get to grips with the latest episode in the long financial crisis.

Fascinating to see how close it all came to the wire. At midnight, journalists milling around outside the negotiating room were wondering whether “good-quality farmland in neutral, wealthy countries” would be the best place to stash their money if the Euro collapsed.

When the package was finally announced, they were astounded by its size. “We have numbers, and they are much larger than promised,” wrote the Economist’s Charlemagne at 3 am this morning. “We are in shock and awe territory here.” Markets have been duly impressed (it will be interesting to see if this holds as analysts dig into the fine print).

At best however, the deal is a stopgap . There’s been a consensus for months now that Greece will be unable to avoid an eventual restructuring of its debt (hopefully, a planned default). Many believe the same holds for some, or all, of the other PIGS (Ricardo Cabral for one, or Morgan Stanley’s Paolo Batori for another).

My question for Europe’s finance ministers – will you now get ahead of the curve on the Eurozone’s chronic problems, or are you going to drift towards another crisis?

In the wake of Japan’s lost decade, it became fashionable for the British media to excoriate the Japanese government for failing to deal with its zombie banks (and the zombie companies on their balance sheets that had consigned the financial system to the realms of the living dead).

In 2002, the Economist bemoaned ‘the sadness of Japan‘:

From the Japanese government, there will be strenuous efforts to claim that reform is under way, that problems are being solved, that new measures are being considered. The claims will even be true, in a sense: there are plans aplenty, with stages and pillars and fine aspirations. But in a rather stronger sense they will be false: reforms are not being implemented, problems are not being solved, new measures are likely to make as little progress as the old ones. Japan is in a slow, so far genteel decline.

Perhaps the saddest thing is that there is nothing new about this. The turn in Japan’s fortunes began in 1990 with the crash in its stock and property markets, and then took firm hold in the mid-1990s when banks started to crumble and public borrowing lost its ability to keep the economy growing. As long ago as September 26th 1998, The Economist lamented on its cover about “Japan’s amazing ability to disappoint”.

But doesn’t Europe now have at least one zombie country in its midst- and possibly more (and zombie banks too, exposed to these countries’ debt)? And won’t the Eurozone continue to suffer almost indefinitely if it fails to take decisive action to take these countries through an orderly bankruptcy and get them back on a sustainable track?

(As an addendum, what about the UK? Could it become a zombie too? No. If markets stop funding British government debt, then the end will be swift. The IMF may ease the restructuring, but there’s no Eurozone for the UK to hide in. Relatedly, pre-election thoughts on how a Cameron-led government should deal with Europe, the economic crisis, and a volatile world.)

Economist – blogs make us yawn

Could the Economist be any more patronising?

“I noticed that the doormat was at a slightly crooked angle. I reached down and moved the mat back into its correct place.” Thus began a recent entry on The dullest blog in the world. Although this publication is something of a satire on the internet’s inane blogs, scientists are finding—to their surprise—that useful information can actually be mined from the tedium of the blogosphere.

Especially when, in the very same issue, it hangs the business end of an article on cloud computing around the work of two bloggers:

Amazon’s “Spot Instances” have also led to an animated debate among the cloud cognoscenti about how computing will evolve. Some argue that it will go the way of power and even financial markets, complete with arbitrage, derivatives and hedging. Reuven Cohen, a blogger and co-founder of Enomaly, a maker of software that allows firms to build public clouds, thinks that such things will come quickly as technology improves. In contrast, James Urquhart, a blogger who works for Cisco, argues that there are barriers that could prevent computing from becoming freely tradable. [etc. etc.]

No links, of course – after all the Economist wouldn’t want to risk diverting precious traffic to other websites. But for those of prepared to risk the boredom, you can find Cohen’s blog here, and Urquhart’s is here. Oh and here’s the Dullest Blog in the World.

Urquhart has an especially good piece on the intersection between the cloud and geopolitics – which I thoroughly recommend. Bet it’s had more hits than the average technology post the Economist puts online.

Pity the rich (or genocide awaits)

Like most of you, I spend most of my days weeping at the fate of rich. But I don’t think I’d realised how bad things were, until I came across Gabriel Sherman’s definitive account.

You should probably get your senior executive assistant to read you the whole thing, but if you’re been forced to cull the hired help, the key themes are: (i) Make sure we, the rich, are paid more than anyone else, even if we go bust. (ii) Don’t expect us to foot the bill from the bailout – tax the sheeple instead. (iii) Money isn’t enough – we demand deference and respect.

Here are some of the quotes that made me tear up:

Citigroup exec: “No offense to Middle America, but if someone went to Columbia or Wharton, [even if] their company is a fumbling, mismanaged bank, why should they all of a sudden be paid the same as the guy down the block who delivers restaurant supplies for Sysco out of a huge, shiny truck?”

Bankrupt Wall Street exec: “I think [Obama] doesn’t have an appreciation for how hard it is to build these companies, the blood, sweat, and tears that goes into them. It’s just that he has no passion for it.” 

Bear Stearns senior managing director: “Honestly, you can pick on Wall Street all you want, I don’t think it’s fair. It’s fair to say you ran your companies into the ground, your risk management is flawed-that is perfectly legitimate. You can lay criticism on GM or others. But I don’t think it’s fair to say Wall Street is paid too much.”

Wall Street exec: “Why are [we] being punished for making a lot of money?”

Hedge fund guy: “The government wants me to be a slave!”

Another hedge fund guy: “JPMorgan and all these guys should go on strike—see what happens to the country without Wall Street.”

I’d also highly recommend reading the Economist’s typically incisive analysis. The stakes are high, it warns. Raise taxes on the rich and you’re on a slippery slope towards fascism, genocide and global conflict:


Barack Obama has suggested raising the tax rates on high earners and closing loopholes such as the carried-interest privilege enjoyed by private-equity managers. Such tax changes may suit the public mood. The danger is that popular anger, once released, can fasten on targets beyond the rich; immigrants, say, or foreigners generally. The 1930s Depression led to fascism in Germany and the second world war. Even if such apocalypses are avoided, the anti-rich backlash can [still] go too far. 


So, repeat after me, “They came first for the rich, and I didn’t speak up because I wasn’t rich. Then they came for the Jews…”