Se Habla Espanol

It’s 7am, and the lines have started forming in front of the government unemployment office- Two hours before the doors open. The scene is same at the city’s food banks and churches. No, this scene is not from a sub-Saharan city, but from Madrid, Spain. Spain has become the poster child of the boom to gloom. By the end of today, Spain’s 10 year bonds were going for a record 7% yield.

Not too long ago, Spain was the epitome of economic liberalization. Thanks to the ‘92 Barcelona Olympics, world became familiar with Spanish cuisines, warm weather, beaches, football leagues and of course its cinema (Penelope Cruze, anyone!!).  Spain was the prosperous "Iberian Tiger” the biggest creator of jobs among the Euro nations. The adoption of the single European currency in 1999 pushed Spain into the elite league of successful nations. It became ‘developed’. It was on the same level playing field as its much bigger and economically better counterpart, Germany. Spain's financial system came to resemble the Germans' — using the same currency, enjoying the same low interest rates and opening investment opportunities.

Spain’s economic revolution was based on ‘Sun and Bricks’. The warm weather attracted wealthy Scandinavians and northern Europeans. And thanks to the liberal economic policies, miles of pristine beaches were opened up for construction. What followed was a housing boom that makes the US boom meager. English, Germans and Scandinavians flocked the Spanish beaches. They demanded beach front villas and boy did Spaniards provide them. In 2005/06 Spain started to build more homes then UK, France, Italy and Germany combine. 5 million new jobs were created since the inception of Euro. The nation that uses to have over 20-25% unemployment saw it’s out of work population decrease to 10-11%.

And then came the economic crisis of 2008. Northern Europeans started to withdraw their money from Spain. English were not able to make the payments on their beach front properties. Spaniards who owned 2-3 homes started getting laid off. Money started drying out of the system. Greece’s problem didn’t help either. Investor started to realize that after all Spain, just like Greece, is the ‘Club-Med’ peripheral European nations that didn’t had anything else except warm weather and beaches to offer to the world.

The reality has settled in. Spain’s economy shrunk last year, unemployment is crippling back at 20%, banks have gone bankrupt, Spaniards have started withdrawing money from the Spanish Banks and are moving it to Germany and France. Spanish youths who had moved out of their parents homes, returned back. In Spain they're called the "ni ni” (“nor nor”) generation — they have neither money, nor homes, nor careers. Reflecting the reality of bad times, Real Madrid and Barcelona both lost in the UEFA champion’s league.

In Search Of A Hero

India and Indians are always in ‘corruption state of mind’.

            If we are not involved in corruption, we are agitating against corruption or updating our Facebook status with statement against corruption or some pathetic souls like me who pretend to be a blogger, blog about it. Whichever way or form it may be, we Indians are always fascinated about Corruption.

It’s funny the whole nation is professedly against the notion of corruption and has always been, but the business of corruption always manages to flourish!! In fact if you think about it, corruption could be the largest service sector industry in India.

            Indians by nature have always been ‘Hopeful of their Future and Emotional by Nature’. The two ingredients that politicians have always taken advantage of. It’s true that people are fed-up of corruption, especially by the political elites, and it is also true that we always try to find a ‘hero’ to fight all our ills, corruption included. I guess we are still hung-over from the Gandhi, Nehru and Patel era.  Hence, we always rally behind a person who wants to fight for the Aam Admi (common man), against the ‘system’. We put all our hopes behind his/her efforts and start looking for the glimpse of our great freedom fighters in their shadows. Alas, it only lasts for a few passionate weeks, in some cases months and then life makes a full circle and back to basics.

The Aaj Tak generation, which is always eager for the last minute news and a little tadka (gravy)will flood the social media scene with their heart-touching, national building, and heroic comments. Pictures are posted, ‘likes’ are requested for quotes, pictures and news. Candle light vigils, Signature collection efforts and Rallies are organized. Normal life is disrupted. Depending on the crowd, opposition leaders will get involve; religious leaders will link religious demons to corruption and will cash out on the raining popularity currency.

           And then the harsh reality of corruption and politics settles in and takes control of the situation and as always, life moves on. Hope starts to build again and the waiting game to find a new ‘hero’ begins… 

Iron Lady of Europa

The deepening banking crisis in Spain, weak Irish and Portugal economies and a pivotal June 17 Greek election that could make or break the nation's ties with the euro zone; all this point to the increasing possibility of a Euro break up. Although, the existence of the euro looks bleaker each passing day, I still feel that Euro will survive. And one of the reasons behind my belief is Germany’s financial and political risk attached to the failed Euro.

According to the latest Deutsche Bundesbank report, Germany’s GDP grew at a comparatively strong rate of 0.5% and its unemployment is the lowest since last 20 years. This is when the whole European neighborhood is trying to survive each day. With over $1.4T (trillion) worth of goods and services exported, Germany remained the world’s second largest exporter behind China (but of course). And this is possible because of a ‘weak’ euro.

Thanks to the Euro zone crisis, euro has lost its value which has made Germany's export cheaper and therefore competitive. The demand of the German Bunds is so high that the yields have touched an all-time low for the most of Bundebank’s offerings. If Germany had Deutsch Marc, it would have been so much over valued because of the Euro crisis that there was no way Germany would have achieved the high level of exports, which in turn would have increased the unemployment rate and depressed the overall economy.

Since the beginning of the Euro crisis (2009/10), European leaders have scheduled almost a dozen ‘emergency talks’. The result of the last round of emergency talks was a ‘strict limit’ on the budgets of the 17 Euro using countries. Any country that broke the rules would suffer automatic penalties. Interesting thing about this meeting was not the actual outcome, but acceptance of majority of German demands.

Although there are some doubts with regards to the policies of ECB, EU and individual Euro states, one thing is very clear Germany has taken the driver’s seat in Europe (to France’s dislike!!). Surprisingly, for the first time in 60 years, Germany is the clear leader in Europe.

Till now the Iron lady of Europe- Chancellor Angela Merkel, is just doing enough so that the peripheral countries will survive, but if it came to the existence of Euro, I am sure she will go all out to save the Euro because it will be in Germany’s financial and political interest.

The Great War of Europe just ended, and Germany has won.

Experiments with Lies

What started as an innocent prank in childhood days turned out to be socially & morally hated trait…Lying. I am sure most of us have mastered the art of lying and there shouldn’t be any shame in accepting that truth because to err is human.

From the day we are born, we are told not to tell a lie, never support a liar, truth is the virtue of a good human being, etc etc. Our psyche is filled with these words, even before we know what the difference between a lie and a truth is? Mahatma Gandhi is our model for truth until we’re much older and start testing the boundaries of truth & lies.

An economist lies in every child’s heart. They start valuing the return on risk. The risk of naïve excuses, in mature term- lies. As a child we start giving excuses to play a little longer, spend time with friends after school, stay out of trouble or to avoid hurting someone’s feelings. In short, to get out of doing what we don’t want to do, we take the route of naïve excuses, the little white-lies or should I say Good lies, since nobody is hurt. Well physically at least. I came across a great word, Fabulist- A person who lies or invents. It has so much more panache than liar, don’t you think?

Of course I want everyone, including Ashvy to speak the truth. Our dearest and mischievous of all the God’s, Lord Krishna has been documented as a serial liar, of course for the good of others. We all have (and still do) experimented with lies and most of us turned out to be good human beings. (I dare not point out anyone, I say ‘most’ because I never generalize a statement by saying ‘all’) But where does the naïve excuses end and fabulist begin?

Bandh- The (Civil Disobedience) Political Protest

                    Bandh- The Civil Disobedience  Political Protest

            

I remember growing up in India, me and my friends use to enjoy the ‘bandhs’ (closing) since the schools were off and it was a full-on fun day. Never knew what it meant, except that we always wanted more of it. I also remember participating in one of the bandh rallies holding the placard, didn’t knew what it said though.

Bandh, is a powerful means of civil disobedience. Alas, the ‘civil’ part of the bandh got lost somewhere in recent times. It has become a political tool. It’s funny how the rule of law works in India, because it is unlawful to organize bandhs in India based on the 1998 Supreme Court verdict and elected leaders are opening flouting the law. Well, that’s India’s judicial system- it’s for the aam admi not for the people with power. Everything else aside just think about the economic impact, think about all the day laborers who loose there daily earning because of the break-down in the normal life.

Personally speaking, I think the bandhs are a way of showing the political strength of a leader. The more successful the bandh, the more they can demand from their counterparts when the time comes to jump the ship during the political turmoil. And I am sure an average educated Indian thinks the same way; hence the Bharat bandh from yesterday wasn’t as successful (if ever there was a way to measure it).

The bharat bandh called upon by the opposing parties on May 31^st, was because of governing Congress party’s decision to hike the petrol prices by 10%. BJP, Janta Dal, Shiv Sena and other parties were ‘upset’ because they felt for the aam admi. Well, that’s ironic because not too long ago, the BJP/Shiv Sena led government in Maharastra, increased the bus fares of BEST by 40-50%- The life line of over 4 million Mumbaikars.

Bandhs are nothing but an ‘official’ way of destroying public and private properties. It’s an open secret that political parties hire goons and other activities to become a part of the bandhs to make it ‘successful’ because an an aam admi and his family are indoors, off street, off work, off school waiting for the next ‘normal’ day to go back to living life, again.

                              

The sacred cow- Oil subsidies

Usually the front page news of Times of India is always about Indian film industry or cricket or some wardrobe malfunction of an actress. But since yesterday fuel price increase has captured most of the headlines. I realized that this is going to be the hot topic on Facebook as well. Friends and families in India started blaming the government and its corrupt policies. Although, I do agree with people’s outrage, economist in me told me that this is the right macro-economic step for a nation that is buried under subsidies.

 One of the tragedies of democratic politics is that when the politicians try to do the right thing that makes sense in macro-economic terms that decision might not always flow through the general public as a logical one.  Thanks to their shady past and prior corrupt and not-so-smart public policies. We are all aware of their strong “what’s in it for me” mentality. Hence, the current decision by the UPA government to increase the prices of petrol in India by 10% (Rs7.50) might come out as another blunder by the corrupt government.

Economically speaking, given the fiscal deficit that India is facing (and growing by the day) there needed to be some action taken on the amount of subsidies government is spending on the fuel. India imports 73% of its fuel needs, in other words out of 3.3 million barrel of daily consumption, India imports 2.2 million. In 2011 India imported $95B worth of petroleum products and exported $30B, a net deficit of $65B. India is facing a subsidy bill of $40B (Rs174,000 crore) for 2011. That’s almost 2% of India’s GDP, in subsidies alone. So, it does make sense for the government to bring the oil prices in level with the global crude oil prices. After all we do live in the globalized world.

But can we really think in pure vanilla-economic terms when we are talking about public policy in India? No...if we were thinking economically, so to speak, why not then reduce the defense spending which is touching 5% of the GDP and diverts some cash to this sector. Heck, bring corruption in control and India will save around 10% of its GDP, conservatively speaking. I know that’s not going to happen, so let’s think some logical steps, why not privatize the oil sector? It’s not like government babus are doing any good running the companies, plus look at the successes of the telecom sector and the airline sector (lately it’s been facing some issues, but it’s only because of their debt exposure).

I do believe that India needs to get rid of its subsidy burden (plus, subsidies breeds corruption), but not at the expense of the aam admi. Government should focus on other areas to save money and focus on the subsidies when global crude oil prices are lower.

Up In The Air

So, it’s still up in the air…

I highly doubt that something would come out of the G8 meeting, well G7 actually since Vladimir Putin was too busy to attend. As such it’s my belief that organizations like G8, G20, G2, G3, APEC, ASEAN and others only function when the times are good. In bad times, just like the present one, everyone is for themselves. Welcome to the G-Zero world. Ian Bremmer of Eurasia group coined the term G-Zero, where in the influence of US in the foreign policy will decline thanks to its internal issues of unemployment and fragile economy and the developing nations are not rich or mature enough to take the added responsibility of maintaining the world order. Not that I like the unipolar world lead by any one country but given the two choices I will definitely want US to lead the political and economic world. Only because US is a mature democracy and secondly, I think world leaders, both elected and selected, behave when big daddy is in the room.

Coming to the current issue on hand, even after German Chancellor Angela Merkel’s statement before the G8 summit on Greece, I still believe that Greece will always be a part of Euro; it might declare bankruptcy but will remain part of Euro. No, I can’t provide any guarantee for my statement. The first lesson I learned in my ‘Intro to International Relations’ class was There is no Morality or Surety in Polity. The only reason Greece has still survived is not because of any love from IMF or EU but because even if Greece goes bankrupt they will still be on the hook for billions of euros. Not to mention the diplomatic loss of breaking up the Eurozone. On Greece’s part, as I had suggested before, they should start taking advantage of what they already have and leverage off it. One is Greek yogurt and the second is the fabulous weather. I know yogurt idea sounds funny, but it can help a nation emerge from the deep crisis (I sent an email to Fareed Zakaria about this idea…no reply yet!!). Greece should also take advantage of the warm weather and launch tourism on a massive scale.

Plato’s republic of 10.5 million earns around $27,000 per year. I am sure if they all come together they can pay off the debt of $250B within this decade and draw a new future for the next generation.

Amen to that