Monday, 12 July 2010

Is it so?

"The policies of German Chancellor Angela Merkel in the current economic crisis are comparable with those of Margaret Thatcher, writes economist Pedro Lains in the business paper Jornal de Negócios: 'Although with more pragmatism than ideology Merkel is currently pursuing a similar course to Thatcher's in the 1980s. If Germany got it's way financial discipline would rule in politics, not the money-wasting of the states which in Merkel's eyes is fatal for growth. For Europe she wants less integration and more stipulation of costs as well as regulations on who covers them. What will this stance bring Merkel? Does she represent the majority in Germany? Or is there a more pro-European Germany that is passively waiting for the crisis to end? Merkel's election results of recent months are encouraging for Europe. Perhaps Merkel will suffer the same fate as her predecessor: she'll be toppled once she's solved the main problems. But even if she loses she will win. For Europe will no longer work the way it did when she took office.'"
From Eurotopics.

Wednesday, 7 July 2010

The euro-crisis: necessary versus sufficient conditions of the eurozone framework

   There are two views on the causes of the current European crisis. The following quote by Wolfgang Schauble well represents the first:
   To the question of what caused the recent turmoil in the euro zone, there is one simple answer: excessive budget deficits in many European countries (FT June 2010).
   The second view (here) is that that the markets finally realized that there is no mechanism to correct external imbalances beyond self-equilibrating forces.
   The fiscal irresponsibility of Greece can partially explain the reasoning behind the first view. I say partially because Greece is such a small fraction of the EMU GDP that it cannot be the sole cause of the current crisis. It is true that during the last decade, the fiscal behavior of most other EMU's members, especially the three largest, has not been irreproachable. Nevertheless pointing to excessive deficits as the simple answer of the euro-crisis appears simplistic and ... insufficient. Consider that two of the countries most affected by the crisis are Spain and Ireland. The same two countries have been the most virtuous fiscal entities of the euro-zone, the champions of the Maastricht Treaty criteria so to speak, as the following graph shows (click to enlarge). I take stock of the Irish and Spaniard experience to conclude that lack of fiscal rectitude is not sufficient to explain the current euro-turmoil.

Sunday, 4 July 2010

I'll be back

   Like the famous quote, Telefonica is announcing "I'll be back..." to take VIVO from Portugal Telecom - the fight for the Brazilian joint-venture of the two firms was to be expected, sooner or later.
   Although most of the discussion has been about the recent use (and abuse?) of golden share rights by the Portuguese Government, there is a renewed lesson from all this.
   And that lesson is plain simple, and comes over and over again - the notion of "core national shareholders" in so-called "national champions" is quite elusive and it meltdowns every time
it faces a sufficiently high price. No wonder, and actually I would not expect any company or bank to let go profits just for "national pride". After all, they can always claim they will put the money to good use (and they hope better use) than keeping the current shares.
   Let's take some basic economics (and get corrected if I do something wrong...). First, current shareholders of Portugal Telecom (PT) are not forced to vote in favor of selling Vivo to Telefonica. The single argument to sell is the price.

Friday, 2 July 2010

The importance of Portugal to Portugal Telecom

   In a segment in the night news yesterday, the CEO and chairman of Portugal Telecome (PT) argued that the Brazilian market is crucial for the company. To back it up with numbers, the Brazilian market accounts for 72% of their costumers, 45% of their revenues, and 40% of their profits.
   There's another way to look at these numbers. Even though the Portuguese market only accounts for about 28% of PT's customers, they generate almost 55% of its revenues and 60% of its profits. It looks like what is really crucial for PT is to keep competition out of the Portuguese market. Just imagine if the government (underhandedly) stopped blocking competition from abroad, and Telefonica or others entered the Portuguese market starting a price war?
   PT might not be happy, but the Portuguese customers would be: ultimately, they've been the ones financing PTs Brazilian expansion all along.