Friday, February 18, 2011

Week in review…

The FT's beyondbrics blog saw Jan Cienski interview a Deputy Finance Minister Dominik Radziwill who tried to perform a little publicity surgery. Poland's image has been hammered by negative news about a ballooning deficit, a reluctance to reform, and spats over pension reform. But Radziwill notes Poland has had little problem selling its debt to foreigners. Still, even he notes that "the era of cheap debt is ending." Inflation is rising, interest rates are rising, and, yes, Dominik, worry Poland will go from the "green island" of Europe in terms of being able to grow GDP in the crisis to just another one of the "sick men of Europe." How's that for wasted opportunity?

The WSJ's New Europe blog sees Marcin Sobczyk and Marynia Kruk cite an unnamed senior government official also trying on a little spin for size. This official notes that the government's deficit-cutting plans don't only involve rolling back the pension reform. They include a plan to reduce soldiers, police and similar personnel's pension benefits, both in terms of early retirement eligibility and actual payments. This is a red herring. The government first proposed this in early 2010 and it would only affect new recruits from January 1, 2012. That means a big "zero" in savings for 2012. According to the government's own calculations, it will save only just under 1 billion zloty to 2020 and 16 billion zlotys to the end of 2060. What's that famous John Maynard Keynes phrase about our fate in the long run?

The New Europe blog also notes that Polish consumer price growth jumped to 3.8% in January versus the previous year, hitting the highest level since April 2009. This brings inflation to well above the central bank's 2.5% target. Mounting inflation pressure is being seen the world over, sparking central banks like Poland's to raise interest rates in attempt to slow galloping price growth. Most analysts expect the National Bank of Poland (NBP) to keep raising interest rates. Increasing signs point to this happening at the central bank's Monetary Policy Council (MPC) sitting on March 2.

But ex-NBP Deputy Governor Krzysztof Rybinski, always the maverick, thinks a further hike of interest rates would be a huge mistake (ironic link here to the newspaper I have beside my desk). Rybinski notes that the current MPC is about to make the same mistake as the councils in place in 2000-01 and in 2004, both of which jacked up interest rates to counter inflation that rose due to factors outside the council's control, such as global food and fuel prices. The result of both was a sharp slowdown of economic growth, which would basically make the government's populist fiscal policy into a zoo.

Speaking of zoos (how do you like that segue), how about the Russian aviation official Oleg Smirnov's quip that even "if there weren't a single air traffic controller in the tower at Smolensk and instead a chimpanzee sat there and in a language that is not understandable to any human being, to any nationality, gave out information in gibberish, even such an absurdity would not be a reason for the catastrophe" that saw President Lech Kaczynski and dozens more die in a plane crash on April 10, 2010. Cue nasty Polish response. Considering the name of the guy who made the comment, I'd start with a tasteless jibe about vodka....

(In a special bonus final comment, I'll give you a quiz question: what has been called "brilliant, incredible," "another masterpiece," and "so relevant, yet fresh"? If you answered Radiohead's new album King of Limbs, pat yourself on the back. Head on over here to buy and download.)

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