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Sytuacja wokół Grecji jest następująca. Na 5 maja zapowiedziany jest strajk generalny w Grecji w proteście przeciwko cięciom budżetowym, ponad 60% Greków jest im przeciwna, popularność rządu szybko maleje. 19 maja Grecy muszą wykupić obligacje jak do tego czasu nie dostaną pomocy z MFW lub strefy euro to zbankrutują. Z kolei w Niemczech 57% społeczeństwa jest przeciwne pomocy Grekom, a Niemcy mają swoje wybory 9 maja, więc partia rządząca z pewnością nie podejmie decyzji o pomocy Grekom przed wyborami, a po wyborach tylko wtedy gdy Grecy spełnią drakońskie warunki fiskalne. Kilka banków policzyło, że Grecja musi mieć nadwyżkę pierwotną w budżecie w wysokości 6-10% PKB żeby ustabilizować dług publiczny, to jest niewykonalne.Niemieccy politycy proponują, żeby Grecja wyszła ze strefy euro, albo żeby w ramach pakietu pomocowego doprowadzić do restrukturyzacji zadłużenia Grecji, czyli inwestorzy odzyskają 70-90% zainwestowanych pieniędzy.

Na tym blogu pisałem wielokrotnie, że Grecja musi zbankrutować, że mechanizm rynkowy będzie bardzo skuteczny w dyscyplinowaniu innych krajów, a tak portugalskie związki zawodowe już “zwąchały” że nadchodzą pieniądze z Unii i same rozpoczęły strajki przeciw zamrożeniu pensji.

W przeszłości Europa miała wielkich polityków, z klasą, z wizją, który mogli zainspirować ludzi do myślenia i działania. W tej dekadzie mamy pecha, i w Polsce i w Europie, mamy miałkich nijakich liderów, bez wizji, którzy nie są w stanie stworzyć wizji Europy, którzy nie potrafią podjąć mądrych decyzji, nawet w czasie kryzysu, tylko są zaślepieni słupkami popularności. Na przykład banki amerykańskie już poczyściły bilanse z toksycznych aktywów, a w Europie ciągle tolerujemy fakt, że duża część toksycznych strat jeszcze nie jest ujawniona. Zamiast pozwolić Grecji zbankrutować, co wymusiłoby reformy w innych krajach PIGS, to znowu trwa chocholi taniec, który generuje olbrzymie ryzyka na przyszłość.

Wszystko wskazuje na to, że mamy właśnie pierwszą odsłonę drugiego kryzysu, czyli kryzysu zadłużenia rządów krajów rozwiniętych. Podobnie jak podczas kryzysu finansowego lat 2008-2009 i tym razem Polska powinna wyjść z tego obronną ręką, ponieważ mamy relatywnie niski poziom długu publicznego.

A tymczasem jeden z chińskich banków poinformował, że pozbył się “świńskich obligacji”, czyli papierów rządowych emitowanych przez kraje PIIGS (Portugalię, Włochy, Hiszpanię, Irlandię i Grecję)

Pod koniec pisania tego postu, co trwało 15 minut giełda we Francji już spadała o 3.7%, bo w międzyczasie agencja ratingowa S&P obniżyła rating Portugalii z A+ do A- z perspektywą negatywną, a rating Grecji do poziomu śmieciowego BB+ z poziomu BBB+, co oznacza, że S&P szacuje inwesorzy mog a odzyskać tylko 30% pieniędzy zainwestowanych w greckie obligacje.

Tutaj jest komentarz Paula Krugmana, czas zacząć się bać?

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2010 global forecast

• World GDP will grow at some 2 percent, with a dip in world activity in the second half of the year amid governments withdrawing fiscal stimuli, compared with 1 percent recession in 2009
• Europe will struggle with high debt levels, Greek debt will be downgraded to one notch above junk, UK and France will lose triple-A ratings. Governments’ fiscal austerity  actions will come about the right time to restore confidence in the euro.
• Chinese will keep renminbi undervalued, other Asian countries will follow. European fiscal woes will lead to moderate dollar appreciation in the early part of the year, followed by possibly sharp dollar fall in the second half of the year, which will begin the long dollar journey travelled by the British pound hundred years ago. Dollar drop will take place after Chinese SAFE announces it will stop buying US treasuries and will invest incremental reserves in Asia, Africa and resource rich emerging markets.
• G20 will prove dysfunctional, will do a lot of talking and little action. Most important decisions will be taken during bilateral meetings. European Union will struggle to transform G2 into G3, and will eventually succeed. Belgian EU President, initially perceived as a weak fan of Japanese poetry will prove very effective and his star will shine stronger than that of the Gallic rooster on high heels.

You may shoot me with your words,
You may cut me with your eyes,
You may kill me with your hatefulness,
But still, like air, I’ll rise.

(Maya Angelou, Haiku poem quote)

• Tax on bankers’ bonuses will be avoided by creating bank branches in tax heavens. It will also accelerate the unstoppable trend of moving the world financial centre to Asia.
• Food prices will start to rise again.
• Global income disparities will become larger than ever. New multibillion fortunes will be created in emerging markets, while at the same time the number of people living in extreme poverty will rise.
• Bankers will have learnt nothing from the crisis. Zombie-bankers will continue the huge dollar carry trade (short dollar, long commodities and equities), it will work nicely in the first half of 2010, then will collapse with strengthening dollar.
• Central banks will err on the dovish side, printing money and keeping interest rate at zero for longer than necessary. It will feel nice in 2010, but the price will be paid later in terms of high global inflation and volatile output. Alan Greenspan’s Age of Turbulence will be set in motion. In late 2010 Paul “The Hammer” Volker will refuse to shake hands with “Helicopter” Ben Bernanke during high level reception, media will notice.

2010 Polish forecast

• In 2010 growth will accelerate to 2-3% from a notch above 1.5 in 2009. Poles will the most optimistic nation in Europe. At the end of 2010 Poland will embark on the Golden Polish Decade, best the years in the history of Poland.
• Poland will continue to spend on infrastructure creating many jobs and removing number of transportation bottlenecks.
• Ministry of economy will create a special taskforce to improve business regulatory environment, a number regulatory changes will be enacted and Poland will jump (in 2011) in the World Bank Doing Business. It will also improve chances of Civic Platform to win election in 2011 despite emerging new contenders.
• Polish fiscal Policy will continue to remain a drag on Poland’s growth prospects. No major reforms will be undertaken until 2012. Finance ministry will continue its creative budgeting and will try to convince European Commission that Poland’s public debt should be counted without the costs of the pension reform. Commission will remain unconvinced.
• Fiscal deficit will be smaller than planned but will exceed 6 percent of GDP for the second year in the row. Finance minister will call smaller than expected deficit a big success.
• Donald Tusk will make ten more promises that will not be fulfilled.
• Presidential elections will be very exciting, and will set the stage for transformation of the political scene in 2011. New Prime Minister will not be so new.
• National Bank of Poland will start preparations for future foreign exchange market interventions, but no large interventions will take place until 2011, when strong pressure on zloty appreciation will emerge ahead of Poland’s planned ERM2 membership in 2012.
• Future Polish global internet giant will be created by bright Polish students. In 2010 it will barely make ends, but in the coming years it will reach market cap north of 1 trillion renminbi. A number of Polish companies will plan global expansion, and they will achieve great success in the forthcoming years. Many companies will look far east instead of looking west.

Outside-the-box

• Pre-Lehman shadow banking will shrink and will become tightly regulated (hedge funds, non-bank financial intermediaries, SPVs). However the new shadow banking will be born while regulators will continue to look in the yesteryear direction.  Banking (or more broadly financial) services will become a business process added to other retail sales or services processes. Retailers will form their own banks, will offer credit cards and other consumer finance products, will collect deposits and offer financial products which enhance their core product sales. It has already started in South America and in some big hypermarket chains.
• Israel will bomb Iran nuclear sites, unknown unknowns will remain unknown. There will be more terrorist attacks attempts in the aftermath of the Israeli attack.
• New climate summit will conclude with firm commitments to carbon dioxide emission reductions, rich countries will agree to provide more funding. Global carbon trading will emerge and will become a big market in the coming years.

Lighter forecasts

• Number of searches in Google will top 100 billion per month, compared with 80 billion in late 2009. Pizza hut will remain the top search item among food and beverages. Among European politicians Sarkozy and Berlusconi will continue to fight for the most searched name on Google.
• Number of Facebook members will top 500 million, as compared with 350 million in 2009. Average Facebook member will spend one hour per day on Facebook (as compared with 55 minutes in 2009), which will total 500 million Facebook man-hours per day, or more than billion working man-months for entire 2010. If each Facebook member worked instead of playing and his/her monthly wage was 1000 dollars, world GDP could have risen by  more than trillion billion dollars, which is more than the GDP of Korea or Australia (2008 data, nominal dollars)
• China will continue to build its image as the world power. The quest for fastest (trains), tallest (building), largest (banks, corporations), best (schools, takeover deals) will continue. To cement its world second biggest economy status China may establish a “Tsai Lun Prize” for excellence in innovation, literature, culture, and sciences (on maybe more categories). The prize will be 10 million renminbi, i.e. some 20-30 percent higher than the Nobel prize. In the coming decade it will dwarf Nobel prize in terms of reputation. After all paper invention brought more good to humanity than dynamite invention.
• The final of the world football championships in South Africa will be between African and South American teams.
• I will publish my first fiction book in Polish, it will become a bestseller.

I wish all my blog readers a Happy and Prosperous Year. It will a better year than 2009.

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There is no time to be spared, their is no money to be wasted, there is no man or woman to remain idle, we shall all unite to fend off the biggest threat that has faced Europe in the last two thousand years. It is this defining moment in the history of Europe, when national divisions should be removed, when local agendas should be abandoned, when we, Union citizens proud of our great history and culture should rise and declare: no more.

Wars in the past twenty centuries were fought by armies or navy fleets. The grand war of the 21st century is fought by scientists, researches, enginneers, and companies that turn ideas into products sold to billions of consumers. Before, the winning armies had superior weapons, more soldiers, wiser commanders-in-chief. In the 21st century battles are fought by teams of scientists, and the victory requires more creative minds, better ideas, better labs, better ability to commercialize innovation, better ability to market and sell new products and services. Nations that fail to develope these skills will persish, nations that build modern knowledge armies will prosper. One thing, however, has not changed. Similarly to wars of the past, the odds of winning the 21st century research and science war will be higher if our armies are led by great strategic minds, minds that can warm souls, can breed hope and optimism, can reinvigorate our innovative fabric that was with us for centuries. The time for the Union development strategy has come. It is a matter of choice.

….

I am planning to keep my speech in the military style. The key goal of my speech is to convince conference participants, that without effective Union-wide science and research strategy Europe can become a failed state in the next few decades, plagued by aging society, weak public finances, flooded by innovative products from Asia. I am looking for ideas, what should the new EU science and research strategy look like, what steps should be taken to win this knowledge war, do we have commander-in-chief to lead our scientific troops, who could play that role. What are Europe’s most significant achievements in the past that could help build effective research battle strategies and tactics in the future. Please share your ideas.

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It turned out that 2008 outcomes were very far from my expectations. Until mid-2008 majority of my forecasts were “in-the-money” but then the financial crisis shock hit much stronger than anticipated and the world economy bubble popped. I still think that my 2008 forecasts are fundamentally correct and once the credit crisis shock wears out the fundamental processes will produce strong Asia, strong soft and hard commodities.

Forecasting 2009 is very difficult. On the one hand leading indicators suggest that we are about to experience a very severe global recession. US consumer sentiment and Japanese business sentiment are at lowest levels for decades, banks are planning to reduce credit supply even further in 2009, the world monetary policy is approaching the zero bound which leaves only exotic policy options for policy-makers, truly uncharted global waters. On the other hand world governments and central banks have already pumped more than 11 trillion dollars (including guarantees) to reduce the credit crisis impact on the world real economy and at some point in the future, when this money will start moving around the globe the growth recovery and inflation will emerge. So forecasting 2009 is really about timing of the turning point. Some economists see it in 2009 (second half), some in 2010, some expect 5-10 years of global stag-deflation.

Now my black cat (in reality Nelson is grey with black stripes) and my crystal ball are ready, let’s get those forecasts rolling. First global then Poland-specific.

My 2009 forecasts

• Crisis and recession.

All large industrialized countries will be in recession, with US facing the biggest output drop among large economies amid largest past excesses. Hard economic data will be very gloom for the entire 2009, but leading indicators will begin to flash a possibility of mild recovery here and there in 2010. But I do not expect a linear sequencing, there will be premature hopes and continued negative surprises, which will be reflected in major stock exchanges performance. Brace for continued rollercoaster rise, but this time around there will be both, sharp ups and downs. Global inflation will remain very low, dangerously low in some places in 2009, before it shows its ugly face again in 2010, 2011 at the latest.

• Obama xiānsheng (先生,which is Chinese for Mr, Sir)

In line with IMF and Paul Krugman recommendations new US administration will embark on a massive spending plan, worth much more than one trillion dollars. On the international arena we will see a major breakthrough regarding US international initiatives. US will no longer act and the global policeman, or global policy agenda setter. It will become global policy agenda facilitator, bringing new global players together, and most notably China. There will be few dangerous places in the world in 2009, think of Palestine and Jewish-Arab conflict, or India-Pakistan affair. This sets the stage for more intense terrorist activities, which may constrain US president foreign policy options.

• Protectionism

With global growth faltering politicians in many countries will embark on protectionist path (import tariff on cars in Russia, broad import tariffs in Ukraine, import tariffs on steel in India already imposed in 2008). This will be very dangerous and can lead to a prolonged global recession. Combating protectionism will require major international diplomatic effort and understanding that free trade is one of the most important global public goods.

• New Bretton Woods / New G??

2009 will possibly become a milestone in forming new global governance structure, although the process will be long and last years if not a full decade. IMF will not be endorsed as a global stability supervisor unless major governance changes take place and BRIC countries receive more voting power. It is also unsustainable to have all head offices (IMF and World Bank) in Washington. With videoconferencing broadly available there is now room to relocate IMF/WB head offices to Europe and Asia. Such a move could indeed increase the odds of transforming outdated Bretton Woods governance model into a new one, that reflects 21^st century power structure. Consequently the old G7/G8 group should be replaced by new G8, with European Union having one seat. First informal meetings in such company may already take place in 2009.

• Dollar

In 2009 dollar will begin its long term journey, once travelled by the British pound in early 20^th century.

• Climate change

2008 was a relatively good year, with relatively few climate disasters (UPDATE: according to Munich Re report 2008 was a terrible year regarding natural catastrophes, taking away some 220,000 lives, despite the fall in overall number of disasters by 22 percent to 750). However there is strong rising long-term trend of climate disasters, and if 2009 is just an average year we will see much more adverse climate than in 2008. This will speed up climate change politics, with US joining EU efforts to reduce greenhouse gasses emissions. Carbon emission rights trading will become the next big market and despite global investment recession, investments in renewable energy will go up and then will soar in 2010 with returning high energy prices.

• Commodity prices and Russia

2009 will be a recession year so commodity prices will remain low, reducing investment in traditional energy (oil in particular). With global energy demand recovering in 2010 this capacity constraints will begin to bite and oil prices will rise, possibly sharply. I think that this rise will take place in 2010, if recession is longer than in 2011. In such scenario Russia will continue to experience capital flight in 2009 and one cannot rule out that it will lose most of its 450bn currency reserves and will need IMF help again (or a loan from China?). 1998 déjà vu.

• European Union / Euroland

Scary times. With Germany shrinking as much as 3 percent in some scenarios European Union and Euroland will face a once in a lifetime test, a survival test when it comes to European solidarity.  While Iceland, Denmark and even UK sends smoke signals to join using shortcuts, the real question is how European politicians will behave when truly hard times come, when deep recession and unemployment bite. We have already seen Berlusconi “buy Italian” campaign. 2009 will witness Mr Populist vs. Mr Economist, 12-round, heavyweight fight.

• Poland’s strategy

By now ruling politicians understood that economic misery will last longer than one year and that 2010 may be more difficult than 2009. Prime Minister Tusk will run for president in 2010, so economic gloom may severely inhibit his chances to replace Kaczynski at country top post. It bodes well for government anti-crisis activity, as always when political incentives are right then economic and reform miracles can happen. So expect rapid implementation of government anti-crisis plan, with a lot of help offered for firms which will be deprived from access to bank credit. However, with fiscal picture rapidly deteriorating  Poland will likely delay its decision to join ERM2.

• Poland’s growth outlook

My central forecast is 2- growth in 2009, and 1+ growth in 2010, conditional on government acting quickly and decisively. Exports and investments will decline in 2009, and private consumption will slow, despite tax cuts. Consequently government spending will have to go up, geare towards building hard and knowledge infrastructure, very needed and long overdue investment in the country future. If done well may keep Tusk as prime candidate for president, if done badly may cost him political future.

• Poland’s politics in 2009

While European Parliament elections in 2009 (4-7 June) will be a political non-event in Poland, I see a large likelihood that some important political processes will begin in 2009 and accelerate in 2010 before presidential elections. Firstly, the young generation (people who started their adult professional life after 1989) will have a stronger voice in Polish politics. Will they form their own party and score well in 2010 (president elections) and 2011 (parliament elections), it is still a tough call. But three things indicate that it can happen: (1) economic gloom and doom in 2010 will make people unhappy about the ruling party; (2) Obama way of winning, using internet and social networking shows that young, open minded, globally-minded generation can and should replace older layer, which is busy fighting yesterday wars that nobody understands.  Thirdly look at the following questions. Why after 20 years of reforms Poland is a laggard in global competiveness ranking, it fell last year from 68th to 76th place. Why after 20 years of reforms we still do have decent roads and railway tracks? Why Poland scientific output places us next to Albania at times when knowledge and innovation determine country future standard of living. Why at times when internet access is key to success, Poland has the highest digital exclusion rates in Europe? The why list is very, very long.

Who can do it? One obvious candidate to lead young generation is Rafal Dutkiewicz, president of Wroclaw. Lech Kaczynski has catapulted himself from Warsaw president to Poland’s top job, so it can be done. But Polska XXI was a false start, new opening cannot be done with old pricks. So unless Dutkiewicz rethinks his strategy, he is no challenge to Tusk.

To sum up, we face a very challenging year, globally and in Poland. I listed above many known unknowns, there are also many unknown unknowns, regarding war, politics, disruptive innovations, social developments. I wish all my blog readers to do well in such a challenging environment. The best personal strategy for 2009 is to avoid excessive financial risk and invest in one’s intellectual capital. Happy New Year.

Your comments on my 2009 forecasts are warmly welcome.

Update:

Here is a link to Financial Times 2009 predictions.

And here is a link to Nouriel Roubini 2009  predictions.

And here is a link to Dani Rodrik 2009 predictions, one about China draws attention.

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“The optimal fiscal package should be timely, large, lasting, diversified, contingent, collective,and sustainable: timely, because the need for action is immediate; large, because the current and expected decrease in private demand is exceptionally large; lasting because the downturn will last for some time; diversified because of the unusual degree of uncertainty associated with any single measure; contingent, because the need to reduce the perceived probability of another “Great Depression” requires a commitment to do more, if needed; collective, since each country that has fiscal space should contribute; and sustainable, so as not to lead to a debt explosion and adverse reactions of financial markets. Looking at the content of the fiscal package, in the current circumstances, spending increases, and targeted tax cuts and transfers, are likely to have the highest multipliers. General tax cuts or subsidies, either for consumers or for firms, are likely to have lower multipliers”.

In less technical language it reads: Spend, spend, spend. Subsidize, subsidize, subsidize. Taxes cut, cut, cut. FAST.

In detail IMF recommends for example expanding social safety nets in countries where such nets are limited, or giving tax credit to those consumers that are credit constrained (read my lips, to those that used 10 credit cards and can’t repay today). I am not saying that these proposals are wrong, but I did notice that IMF threw Washington consensus manual to the garbage and is writing a new one. We have just seen first few chapters, but a lot remains to be written. IMF recognizes dangers of massive fiscal easing, take a look at the following two quotes:

“Financial markets do not seem, at present, overly concerned about medium-term sustainability in the largest advanced countries, though there has been some widening of borrowing costs within the euro zone that likely reflect sustainability concerns. This is however limited comfort, as markets often react late and abruptly. Thus, a fiscally unsustainable path can eventually lead to sharp adjustments in real interest rates, and these in turn can destabilize financial markets and undercut recovery prospects [...].

“What can be done to avoid this danger? The following features can help:

• Implementing mostly measures that are reversible or that have clear sunset clauses contingent on the economic situation;
• Implementing policies that eliminate distortions (e.g., financial transaction taxes);
• Increasing the scope of automatic stabilizers that, by their nature, are countercyclical;[...]
• Providing more robust medium-term fiscal frameworks. These should cover a period of four to five years and ideally include: accurate and timely projections of government revenues and expenditures; a government balance sheet reporting data on government assets and liabilities; a statement of contingent liabilities and other fiscal risks; and transparent arrangements for monitoring and reporting fiscal information for central and subnational government, other public sector entities, and central bank quasi-fiscal operations, on a regular and timely basis. Such frameworks should be designed to give confidence that increases in public debt resulting from the stimulus are eventually offset;
• Strengthening fiscal governance. For example, independent fiscal councils could help monitor fiscal developments, thus increasing fiscal transparency, and could also advise on specific short-term policies or medium-term budgetary frameworks, to reduce the public’s perception of possible political biases; and
• Improving expenditure procedures to ensure that stepped-up public works spending is well directed to raise long-term growth (and tax-raising) potential.

IMF also goes outside the box (which is good) and recommends several activities to cope with the credit crunch:

“One of the characteristics of the current financial crisis is an extreme shift in investors’ preferences towards liquid treasury bills and away from private assets. To the extent that the state is in a better position than private investors to buy and hold these private assets, it may want to do so, in effect, partly replacing the private sector in financial intermediation. In the U.S. context, the government could issue treasury bills and use the funds to provide financing for some of the ultimate borrowers. The issue is clearly that the public sector does not have a comparative advantage in evaluating credit risk, nor in administering a diverse portfolio of assets. A possible solution may be to outsource the management of the banking activities to a private entity.”

“

• In the present environment of extreme uncertainty, there may be a high private value to delaying consumption and investment decisions until part of the uncertainty is resolved. Equally important, banks may delay their decisions on which projects to finance for similar reasons.

• In this context, the government could provide insurance against extreme recessions by offering contracts, with payment, for example, contingent on GDP growth falling below some threshold level. Banks could condition loan approvals on firms having purchased such insurance from the government. This is analogous to the flood insurance that mortgage companies often require from borrowers. While such contracts would most likely be attractive to firms, which suffer disproportionately during large recessions, they could be open to individuals as well. Widespread use of such contracts would provide an additional automatic stabilizer because payments would be made when they are most needed, namely in bad times. Such a market would also provide a market-based view of future output and the likelihood of severe shocks. (GDP-linked bonds, which have been discussed in the academic literature for some time, would also go some way towards the same goal.)

• An obvious worry about such a scheme is counterparty risk, i.e., that the government may not be able or willing to honor its obligations. The contingent liabilities created by providing insurance should be included appropriately in the budget and should be taken into consideration when calculating medium-run fiscal sustainability.”

There is also a long list of to-do list and avoid-to-do list. A very interesting reading, highly recommended to policy-makers. It remains to be seen whether Obama economic dream team will use these recommendations. What IMF is missing completely, is focus on intellectual assets, issue raised in two previous posts.

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