Thursday, June 30, 2011

The Hungarian Presidency's legacy: Bloggers allowed in the Council

Today is the final day of the Hungarian EU Presidency. From tomorrow, Poland will set the agenda and organize Council meetings for the remainder of 2011.

It is not my place to judge the overall performance of the Hungarian Presidency, but in one aspect it deserves a lot of praise. It was the first Presidency to allow bloggers into the Council meetings. Several times, bloggers Ronny Patz, Europasionaria and Litterbasket (Joe Litobarski) have reported directly from the Council, and in a handful of meetings with Brussels-based bloggers, the Presidency has made the inner workings of the Council more transparent (see a comprehensive blogtour by Mathew Lowry here).

Although it would seem a basic principle of democracy to let citizens attend a Council and ask questions to their politicians, earlier attempts at transparency achieved one thing most of all: it allowed lobbyists to monopolize the floor. With social media taking a more important place in the European policy debate, the Council is trying to give a greater space to European bloggers. In future, the Council's deliberations go, citizen bloggers should be allowed to request access to Council meetings, but it has to be safeguarded that they don't wear a lobbyist's hat. Much is still under negotiation, but after the Hungarian Presidency paved the way, hopes are high that bloggers could more regularly report from the Council.

We hope the Polish Presidency will be prepared to continue the work started by its predecessor. And we are highly thankful for the efforts of Gergely Polner and Hajdú Márton who devoted time and energy to European social media during the HU Presidency.

Update (19/07/2011): See coloredopinions for an interesting discussion on Blogging as a Wheat and Chessboard Problem

Wednesday, June 29, 2011

The taxpayer offers the European Council a €240m Easter egg

Sketch of the new Europa building/Source: Council
Rejoice, austerity-ridden peoples of Europe. The European Council will obtain a brand-new €240m building at the place of today's Residence Palace in the European district of Brussels. Lavishly designed and with a prominent "beer belly" or "egg" in its center, the new Europa building is intended to host the president of the European Council, the Council presidencies, delegations and the press.

After the 2004 enlargement, says the Council, more permanent office spaces is needed to accomodate new arrivals in Brussels. The European Council therefore decided in March 2004 to offer itself a new building and selected a proposal by the architects Philippe SAMYN & PARTNERS in September 2005. At the time, European leaders demanded that the the cost of the building remain below €240m.

Faced with a frowning Angela Merkel and a fuming David Cameron, angry about the overall cost, the timing of the publication and the amount of €100,000 spent on an advertising brochure, Eurocrats were unapologetic during the recent European Council: "This was decided years ago, before the crisis. It will cost more now to cancel than to complete. It's good value."

The Justus Lipsius Building where meetings of the European Council and the Council of Ministers currently take place has a surface of 137 960 m2 with another 27 130 m2 rented in other buildings. In April, June and October, Ministers shun Brussels to meet in the Kirchberg Conference Centre in Luxembourg.

Although all EU citizens have a reason to be angry about yet another European building whose conference rooms will remain vacant between sessions (the EP building in Strasbourg is vacant in three weeks of four, except for visiting school classes), the really tough bit concerns Belgium. The Belgian government kindly agreed in the name of its citizens to cover the entire cost of the building and only claim reimbursement when it hands the premises over to the EU in 2014.

Wednesday, June 22, 2011

Kiyosaki's promise: Quit your job, let your money work for you

Don't work for money, let your money work for you. That is the essence of an interesting book by Robert T. Kiyosaki called "Rich Dad, Poor Dad". Employment in a company with a fixed work contract, Kiyosaki says, will lead most people into a hamster's wheel. Looking to earn money to support their growing expenses (children, house, car etc.), most people tend to work harder to receive more pay. They promptly hand over a larger share of their income to the State as they enter a higher tax category. In 2010 for example, an average German citizen employed in a private firm was working for the government until July 4th, after which he started producing value for himself. If he decided to work harder, it might push Tax Freedom Day even farther away.

Let your money work for you/adapted from
Flickr CC BY esbjorn2
Kiyosaki therefore proposes to a) cut spending and b) invest the money thus saved. His book can be criticized for many reasons, but the idea of "making money work for you" sounded appealing. I'm all in favor of investment with a moral backbone, so I scrapped speculation on oil, currencies, pension funds and food commodities in favor of stock options. I invested a fictional 7740 EUR into a portfolio of big stable European companies on May 7th (if I wanted to do that annually, it would require me 645 EUR per month in real life). Commission fees etc. of approx. 2% would put it down to 7585 EUR.

Now, the DAX which reunites 30 of the strongest enterprises in Europe's economic locomotive, Germany, grew by roughly 26% in 2009 and 17% in 2010 (my calculations). If I was lucky and my European company portfolio outdid the DAX by a third, I'd be between 23% and 35%. After a year of foregoing spending, I'd have gained 1745-2654 EUR (again subject to taxes).

Let your money work for you? I couldn't quit my job and live on 2654 EUR per year. Nor could I do so after ten or 20 years. Investment, I guess, cannot replace a work contract. It can give you a bit of spending money, but it won't make you rich unless you put your money into high-risk endeavors like startups or low-priced stocks.

Besides, for the last month all of my big European company stocks have only seen one direction: down.

Tuesday, June 21, 2011

What does the financial crisis have to do with Three Mile Island?

A lot, if one believes the Financial Times columnist and book author Tim Harford. For his book Adapt, he researched the parallels between security in engineering and security in financial markets. Harford singles out three main issues which put the stability of the financial markets in danger: complex structures of financial institutions, interconnectedness of financial institutions and a lack of control through regulators.

The more complex a financial institution, the more likely it is that risks will not be recognized until it is to late. Harford compares the meltdown of Lehman Brothers with the failing reactor at Three Mile Island in the United States. The reactor, he says, started overheating at 4 a.m. when knowledgeable personnel was absent, the control room was difficult to understand due to its impractical design and security systems reinforced the catastrophe rather than attenuating it.

Controlled explosion of a bank/CC BY-NC
In the financial meltdown of Lehman Brothers, Harford sees the same process. Pricewaterhouse & Coopers was asked to organize Lehman Brothers Europe's orderly insolvency but when its consultants arrived, they had no idea how to understand the complexity of the institution with its numbers of divisions, assets and real estate. They ended up following Lehman Brother employees around to understand what there job actually was.

Likewise, politicians were not given adequate information permitting them to handle the financial crisis responsibly. Harford cites an example of Tim Geither, the head of New York FED at the time of the Lehman Brother collapse, who received the information about AIG's imminent breakdown at 4 a.m. after a transatlantic flight on a handwritten DIN A4 paper with a lot of numbers.

Finally, security systems reinforced the financial meltdown. According to Harford, even small banks that didn't engage in risky speculation often took out an insurance with a re-insurer like AIG. The goal: if for whatever reason customers should withdraw more money than the bank had in cash, the remainder would be covered by the re-insurer. Given that most re-insurers were rated AAA, this also gave the small bank an AAA rating (as it was now absolutely certain that the bank could service its debt). However, in practice re-insurer A also had a re-insurance contract with re-insurer B, who had a contract with re-insurer C, who had a contract with re-insurer - A! At the moment where A's panicking clients withdrew money, it not only pulled B and C into the abyss, but also the small commercial bank. Its portfolio was suddenly no longer insured and became rated C; it did not obtain any more loans from other financial actors except for skyrocketing interest rates.

The example shows two things. Not only was there a latent error lurking in the equation: The security system would fail exactly at the moment when everybody sold stocks and rushed to the banks to withdraw their money. But the security system also put players in danger that it was supposed to protect. Besides, it gave an incentive to insured banks to take a greater risk, certain that they would be covered if their speculation backfired.

Harford draws four conclusions from his findings: it is crucial to
  • understand the structure of a financial institution to reduce risks and latent errors
  • not only understand but reduce complexity of this institution, 
  • decouple regular bank activities from risky activities so that they cannot be endangered by the collapse of the speculative sector and 
  • encourage whistleblowers within the institution to uncover risks and to communicate them. 
I encourage you to listen to the entire talk Tim Harford recently gave at the LSE. You can find it here. 

Friday, June 3, 2011

Poland awaits a tough Council Presidency

Another month and Poland will replace Hungary at the helm of the EU Council of Ministers. The new Presidency is yet to clarify its priorities, but the general lines are clear. Poland wants to focus on “European integration as the source of growth”, a “Secure Europe” and a “Europe benefiting from openness”.

It will be a tough time. As Euroskeptics are gaining ground in Finland, Denmark, France and the UK, the European Parliament insists on an increase of the EU's funds for the period of 2014-2020. Further European integration will be difficult to bring about. In an analysis for the Polish foreign ministry, the authors expect financial negotiations "on all fronts", given that the reform packages of Common Agricultural Policy (between 44% and 40% of total budget in 2007-13), Cohesion Policy and other policies will be on the table by the second half of 2011.

With regard to the European internal market, Poland has set high stakes for itself. It wants to "introduce a new model of economic growth, one that would allow the Union to secure appropriate level of economic development for the coming decades and guarantee the well-being of EU citizens". Focusing on the electronic services market and on the establishment of a European patent are two aspects that the Presidency wants to pursue in this regard.

It will be particularly interesting to see the Polish contribution in energy policy. While most European countries are looking to expand renewable energy, Poland still derives around 54% of its energy from coal and wants to start a nuclear energy program. And yet, the government wants to make renewable energy and the development of a European energy infrastructure an important part of its Presidency.

During the second half of 2011, many eyes in Europe will turn to Poland. Can it use the Presidency to be an honest broker and at the same time become one of the five big players in the EU?

The government is somewhat condemned to success: a failure of European solidarity right now could be taken as a go-ahead for other countries to let European integration unravel. To top it, the Council Presidency is expected to be overshadowed by legislative elections in Poland which are set to take place in October 2011.

Not an easy Presidency. But if it is successful, Poland will take a more central place in EU policy-making in future.

Wednesday, June 1, 2011

I throw away, you don't eat

Between yesterday and today, 219,000 people joined the dinner tables all around the world. Tomorrow, another 219,000 new world citizens will join us on this planet and another 219,000 the day after. They are born into a world that cannot feed them any more and that asks for higher and higher entry fees.

Until 2050, demand for food is expected to rise by 70%, says Oxfam in a new report published today. And within 20 years, global food prices could double as a result of climate change. The consequences look like this:

The EU has realized that it needs to act. At a food security conference organized by the European Economic and Social Committee (EESC) last week, Agriculture Commissioner Ciolos and Development Commissioner Piebalgs highlighted the responsibility that the EU has for food security in developing countries. The message is clear: agriculture in the global South has to become more efficient, more productive, more rewarding for the individual farmer and better governed through international, national, regional and local institutions. Sounds like an affair to be left to paper-producing bureaucrats.

But the help that the global North can give is not only about "capacity-building", it's not only about "technical support" from government to government. It starts with things as easy as reducing food waste. According to a recent study by the Food and Agriculture Organization (FAO) of the UN, a third of all products we buy are thrown away. But of course, demand for them drives prices up in the first place. Unless you are a trader of agricultural commodities, that should worry you.

Now, do I really need a luxury buffet for my XXth birthday that allows my guests a choice between 50 different kinds of food? Or could I cut it down to 15? And if there are leftovers, couldn't I put them in doggy bags and give them to a shelter?
And do I really need to throw away that two-day old cauliflower because I am leaving on a two-week vacation? Or could I put it in the freezer? There are a range of websites that offer advice on nutrition and consumer behavior, for example this one, this one, this one and a lot of others.

We all make choices every day - since we live in a global market, our consumer choices impact directly on others. Ask Spain if you don't believe me.

Shouldn't we be more responsible consumers?

As a courtesy, please don't +1 my blogposts.