International Economics: IB Economics

This Observer piece compares the Ukrainian and Russian economies, two years after the conflict started. The former is struggling - the conflict represents a massive supply-side shock, shrinking the economy by 30%, 20% of the population are living in poverty and the government is dependent upon $40bn of foreign aid. 

In contrast, whilst the Russian economy contracted by 2% in 2022, it grew by 3% last year. The debt-to-GDP ratio is less than 20% and the budget deficit was only 1% of GDP. and inflation is in single figures. 

Why? Russia prepared itself for war, and Ukraine was caught by surprise. However, there are signs that sanctions are starting to work at the margin.

Public finance issues in the US, as the government is going to run up against its borrowing limit, the so-called debt ceiling, currently set at $31.4bn.

This article looks at what this means - for the most part it's resulted in a renegotiation of the cap, but it leads to lots of bleating about spending cuts and on occasion it has led to the closure of federal government departments. However, as yet the US hasn't ever defaulted - and the effects of this, not just for the US, would be significant. 

This BBC clip looks as the debt incurred by government's over the course of the coronavirus pandemic, and wonders how nation's can pay back the accumulated national debt.

There's a nice distinction between budget deficits and national debt, with clarity about the extent to which debt should be considered an issue, although you might argue that the notion of pandemic 'debt' in the headline is a little bit misleading. 

However, you might ask whether governments should even be concerned about paying back that debt - and, indeed, the clip implies this.  

Really interesting opinion piece from Larry Elliott suggesting that Joe Biden's fiscal stimulus package represents more than a simple policy intervention designed to help the US recover from the coronavirus pandemic.

He thinks that it is part of a more concerted move towards increased state involvement in the economy, and less concern about the budget balance. I'm not convinced yet.

This sort of thing is one of the key tenets of so-called Modern Monetary Theory, which argues that economies with monetary sovereignty are able to print money to finance increased expenditure without triggering inflation, so long as they respect the productive capacity of their economies. 

Another nice international perspective, with Jeffrey Frankel wryly observing that the election of Joe Biden has seemingly got Republican politicians worried about the budget deficit. 

The coronavirus relief package is going to cost a lot of money! But isn't it entertaining how if a budget deficit occurs as a result of helping the most vulnerable, then that's a bad thing. But if it comes about as a result of tax cuts for the rich, then...?

And if you think about it even further, if you are running a budget deficit, then you're going to be borrowing from somewhere, presumably those people rich enough to save? 

I'll put this here - it doesn't strike me as mainstream UK macroeconomics, but it is an interesting assessment of what economic policy might look like in an independent Scotland, in the wake of figures re-emphasising the extent to which the Scots are 'subsidized' by Westminster.

Indeed, the notional Scottish budget deficit is 8.6% of GDP - so what are the policy options that might accompany an independent Scotland. Modern monetary theory makes an appearance...

The European Union has put together a package of measures to try and help the Eurozone economy through the coronavirus outbreak. It's designed to prop up investment and give governments greater freedom as regards budget deficits and state aid. All sobering stuff: I can't see how there's going to be anything like growth in the Eurozone this year at this rate.

We've not heard much from Italy recently - and here's why. Italy has just entered a recession - with successive quarters of negative growth - and this is bad news, not least for public finances. 

However, after all the struggles in passing its budget, a decline in government revenues might increase government borrowing, something that the EU is keen to avoid, and potentially worsen the nation's debt problem. 

It appears that Italy and the EU have agreed a deal to end their ongoing row over the state of the Italian budget. The compromise agreement will see the size of the Italian budget deficit be reduced from 2.4% to 2.04%, not as much as the EU would have liked, but a reduction nonetheless. 

However, in the longer term, there are still concerns about the extent to which slower Italian growth is going to affect the share of debt as a percentage of GDP. 

For those of us of a certain age, the news that the Italians are in reverse probably doesn't come as much of a surprise. However, it seems that the Italian government are going to revise its national budget, reducing the size of the budget deficit to comply with he demands of the European Commission, and in doing so ensure that it continues to comply with the Growth and Stability Pact. 

Wot larks! Or as they might also have said in Brussels "Arrivederci, Roma"

Hold onto your hats - the Italian government has chosen to defy the EU over its budget plans, and has stuck to its guns. As a result, the government plans an expansionary budget designed to "reduce poverty" but that is likely to mean a budget deficit of 2.4% of GDP, and that is what is agitating the EU.

Is this the beginning of a new Eurozone crisis? The European Commission has formally rejected the Italian budget, the first time it has taken this action.

What next? It will be interesting to see how this develops: remember the Italian economy is smaller than it was in 2008, and the government was elected on the back of campaign promises that would increase public spending.

Larry Elliott summarises why the Italian government is on course to clash with the European Union as a result of the former's decision to increase the budget deficit, potentially to 2.4% of GDP. 

Whilst this doesn't, of itself, breach the Growth and Stability Pact it is likely to make the EU wary of the possibility that Italy becomes the 'new Greece'.

The latest Kenneth Rogoff piece argues that higher interest rates are the new normal - that's why they earn the big bucks - and that economic agents are going to have to adjust to that. 

In particular, it focuses on the implications for governments who were used to borrowing at almost zero cost but who now face interest rates of around 5%, which has made borrowing seem considerably less attractive. 

The US Senate has voted to extend the permissible debt ceiling two weeks before it elapses. This allows the government to run a budget deficit, but perhaps more importantly dodges the prospect of goverrnment having to shutdown, as it has done in the past.  

The Observer take on the first 100 days of Bidenomics: presumably a B, or a B+. There's agreement over the need for a fiscal stimulus, but a degree of confusion because it seems difficult to reconcile increased government spending with shrinking the budget deficit in the longer-term. 

However, the general direction of travel has been well-received in this instance. 

India's Finance Minister Nirmala Sitharaman faces a difficult task in putting together a fiscal package to support the economy through the tail-end of the coronavirus pandemic. 

Broadly speaking, three themes have emerged: a massive uptick in healthcare spending, with the health budget having more than doubled; increased infrastructure spending; disinvestment - i.e. the state withdrawing from economic activity - with the privatisation of Air India, a couple of state-owned banks and an insurance company. 

However, there are some interesting areas for consideration - not least the public finances: the budget deficit is going to rise to 6.8%, well above the 5.6% forecast.  

I've already 'scooped' some material about the large rises in government spending and the implications of this for the wider macroeconomy. This article looks at the growth of the US budget deficit to over $3 trillion in the wake of increased spending to counter coronavirus. 

Proof that all economies have adopted desperate measures - the US is borrowing five times more than its previous quarterly record during the 2008 financial crisis. The budget deficit has reached $3.7 trillion and national debt is now more than 100% of GDP. 

Of course, the President will no doubt attribute this to the 'Chinese virus' but the reality is that for all his talk of an economy reaching record heights, he's done little, if anything, to correct structural weaknesses, or pay down some of the debt - which could have been done if the economy was doing so well. One wonders whether a business mogul with a history of bankrupting casinos and hotels on the back of unsustainable levels of borrowing really is the best fit as President of the United States. 

A bit more analysis of the state of the Argentine economy, suggesting that President Macri's reforms seem to be on the point of fizzling out. 

Having repealed the capital controls of the Kirchner government, President Macri embarked upon market-based reform, reducing subsidies and tackling successive budget deficits. However, the economic hasn't recovered, and despite the support of international financial institutions, like the IMF, Argentina still has interest rates of 60% on its debt. 

One wonders whether, given time, Macri's reforms could have tackled the problem. On the evidence of Sunday's primaries, it seems we'll never get to find out. 

Have you ever wondered what the IMF does? If so, then this clip is for you. It looks at how the IMF partnered with Ghana to help it overcome an economic crisis and help guarantee fiscal stability, in the face of profligate government spending attempting to curry favour with voters. 

A must watch in my view: it shows how international institutions can sometimes be more valued than a country's own politicians. 

The ongoing 'gilets janues' protests in France are going to cost the government around 11 billion euros - requiring the French government to cut spending in other areas.

One of the problems is that the French have to meet the terms of Growth and Stability Pact, limiting the deficit-to-GDP ratio, as well as reassuring international investors.

It sounds like a flashback to Jeux Sans Frontieres - one for the youngsters - "Here come the Italians".

This time they're not wearing a polyurethane giant suit and carrying a measuring cylinder of some brightly coloured liquid, but they are preparing to take on the EU over their budget has been rejected again.

Is Italy the new Greece? Discuss.

The EU versus Italy: only one winner.

Prepare to man the barricades: the EU are preparing to ask the Italian government to revise their draft budget, and I suspect that this isn't going to be well-received.

Watch this space.