Monthly Archives: June 2016

Brexit and the Future of Europe

George Soros has these piece in Project Syndicate.

The EU’s response to Brexit could well prove to be another pitfall. European leaders, eager to deter other member states from following suit, may be in no mood to offer the UK terms – particularly concerning access to Europe’s single market – that would soften the pain of leaving. With the EU accounting for half of British trade turnover, the impact on exporters could be devastating (despite a more competitive exchange rate). And, with financial institutions relocating their operations and staff to eurozone hubs in the coming years, the City of London (and London’s housing market) will not be spared the pain.

But the implications for Europe could be far worse. Tensions among member states have reached a breaking point, not only over refugees, but also as a result of exceptional strains between creditor and debtor countries within the eurozone. At the same time, weakened leaders in France and Germany are now squarely focused on domestic problems. In Italy, a 10% fall in the stock market following the Brexit vote clearly signals the country’s vulnerability to a full-blown banking crisis – which could well bring the populist Five Star Movement, which has just won the mayoralty in Rome, to power as early as next year.

None of this bodes well for a serious program of eurozone reform, which would have to include a genuine banking union, a limited fiscal union, and much stronger mechanisms of democratic accountability. And time is not on Europe’s side, as external pressures from the likes of Turkey and Russia – both of which are exploiting the discord to their advantage – compound Europe’s internal political strife.

That is where we are today. All of Europe, including Britain, would suffer from the loss of the common market and the loss of common values that the EU was designed to protect. Yet the EU truly has broken down and ceased to satisfy its citizens’ needs and aspirations. It is heading for a disorderly disintegration that will leave Europe worse off than where it would have been had the EU not been brought into existence.

But we must not give up. Admittedly, the EU is a flawed construction. After Brexit, all of us who believe in the values and principles that the EU was designed to uphold must band together to save it by thoroughly reconstructing it. I am convinced that as the consequences of Brexit unfold in the weeks and months ahead, more and more people will join us.


We should have constituted a Regional Monetary Policy Committee instead…

Mostly Economics

I don’t know but on monetary policy front, we tend to pick either out of date ideas or rejected ones (not the same). The whole idea is to just copy some idea happening elsewhere without giving it much thought. It was fine if inflation targeting was adopted before  2008 but we have adopted it now when most inflation targeting countries are just following it superficially at best.

Even when we have adopted inflation targeting, we continue to target exchange rate markets. Exchange rates is one of the first things central  banks give up on targeting inflation. Infact it was troubles with exchange rate monitoring which led central banks to look for alternatives which started with money supply and now interest rates. Read any central bank which (used to) practice IT and they tell you the same – we did away with exchange rate management.

But post adopting so called modern/ avant garde IT framework…

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RBI Policy Review

To me the rate should remain same.

  1. Inflation is inching up(5.39% in April, the latest figure). This push the real rate at 1.1% for 6.5%. This warrants wait.
  2. According to the latest number the growth(though people can have issue with calculations) is robust. At 7.9%, India is fastest growing major economy. So better watch out rather then risk heating up.
  3. Oil Prices are also inching up, from the lows of $30 it is going to $50. So the risk of upside is higher now.
  4. From the present reviews, the liquidity is already there. Lowering the rate should rather be delayed.
  5. The latest data from US is not very encouraging in terms of job. So there is a good chance that FOMC will not be very inspired to raise the rate on 16 June.
  6. Only MET dept news on above normal is   encouraging, apart from that this blog believe that status quo should be mentained.

Q4 growth: More questions thn clarifications

Q4 growth has surprised most analyst, it has jumped to 7.9%. It is positive development given analyst were expecting 7.6%. But bigger unease is about the contribution of descrepencies, which is like 51%. So if we remove it, the growth fall to 3.9%.

Good news is consumer spending is increasing. And given 7th pay commision, OROP, and good moonsoon predicted, it should only improve. But can it be called roboust growth? Experts are not unanimously convinced. The investment has not picked up. and if takes another 2 years for Industry to be convinced about India, then they are staring at 2019 elections. And elections like anywhere, are fun in India.

Independence of ECB

The cult of independence of Central Banker is not new. Central Banker over the world have worked hard for this independence. Whether FED or RBI we do hear how govt is trying to control the chairman/governor. The independence and the prominence attached to the person holding the chair is so overblown, that recently a report stating Dr Rajan refusing to continue for second term, has set panic among the Forex trader.

But asking more specific question-Independence from whom.

Government !!!!!!!!!!!!!

Peculiar case is of European Central Bank (ECB). It is not Central Banker to specific country. Not it get public support like its American or Indian counterparts can get. Yanis Varoufakis, former finance minister of Greece, present his analysis in Project-Syndicate. His analysis is colored by the events, he presided over as finance minister of Greece, but he does drives the point home that ECB  is vulnerable to creditors( read Germany). and there is so much ECB can do.

Prof. Eichengreen, points out that possibly Euro can never take the place of Dollar, because it is a currency without state. and too many committee are to be consulted for any decision.