Archive for the ‘Weekend Wrap’ Category

Spanish passport

As an American, I sometimes eye with envy people who hold a passport from a European Union country— with one, it’s so easy to travel to, from, and within the continent. But an EU passport also represents far more mobility than just the tourist kind. Citizens of EU countries can easily do their banking in other nations, make inter-EU business deals more expeditiously, and even work abroad with few barriers. In good times, the arrangement seems to have worked well for everyone.

But in tough times, as in recent years, some cracks begin to show. Low barriers used to be a way to gain opportunity. Today, they’re often used as a way to escape hardship. Last week the New York Times ran an article on Spaniards stashing either their cash or themselves in other, more prosperous, more stable EU countries.

Moving your bank account is a relatively trivial thing to do. And while it creates headaches for banks who are already low on capital, as easy as cash flows out of a country, it can flow back in. More troubling is when people pack their bags.

“Migration of a skilled part of the labor force can be costly as it depletes the country’s stock of human capital,” said Arvind Krishnaumrthi, a professor of finance.

“It will create problems for Spain, but I’m sure countries the countries they move to will be thrilled to have them,” said Camelia Kuhnen, an associate professor of finance.

On balance, though, Spain would probably prefer to keep its workers. Still, that won’t be easy given the debt crisis. “It will be difficult to hang on to the workers who can leave, given the high rates of unemployment that countries like Spain are experiencing,” said Sergio Rebelo, a professor of finance.

Even after unemployment rates fall, it may be a while before battered countries are able to lure home the workers who left. In many European countries, “Political and cultural realities might make it impossible to stop brain drain in the short run,” Kuhnen said.

Still, the EU’s relatively open labor market has its upsides. “In the short run it helps because it allows workers to find jobs elsewhere,” Rebelo said. “There are also some potential benefits in the medium and long run. Economies like India complained for decades about ‘brain drain,’ the migration of educated workers to other countries. But, once India opened up and created conditions for growth, the Indian diaspora became an important business network that linked India to the world economy.

“The same can happen in Spain or Portugal. These are countries with great weather and wonderful food. Many of the immigrants will end up returning, bringing contacts and business ideas. But there is a cost to migration, when the young seek work abroad they leave behind a country that becomes older and less dynamic.”

As migration between EU nations becomes more commonplace, there could be some additional, non-economic benefits. Historically, language barriers and strong cultural identities have kept labor mobility low in Europe, especially compared to somewhere like the United States, which shares not only a common currency but typically a common language. Yet as people pick up and move to find employment, some of those cultural barriers will surely dissolve. That doesn’t mean there won’t be some hurdles. “In the short run, you’ll see more anti-immigration sentiment,” Kuhnen said. Immigrants are often accused of “stealing” jobs, she pointed out, a charge that may be levied more frequently in bad times than good. But, she added, eventually those suspicions could wane with time.

Is labor mobility good for Europe, both culturally and economically, I asked her? “In the long run, for sure the answer is yes.”

Photo by Katratzi.

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NEW YORK - NOVEMBER 18: General Motors (GM) CEO Dan Akerson rings the opening bell on the floor of the New York Stock Exchange as GM returns to the US stock market on November 18, 2010 in New York, City. Following Akerson s ringing of the bell, GM shares were opening 7 percent higher than their offer price. The surge in GM shares resulted in US stocks rising more than 1 percent overall. After a $50bn government bailout of GM 16 months ago, the iconic American auto company is set to become the largest global IPO in US financial history. (Photo by Spencer Platt/Getty Images)

After years of hideous designplastic body cladding, and generally questionable products, General Motors is back on the prowl with four new models for 2011 and a coveted Motor Trend Car of the Year award for its make-or-break model, the Chevy Volt. GM hasn’t been without its stumbles this past year, though, including a what-were-they-thinking memo urging dealers to drop “Chevy” for Chevrolet and a slip by chairman Ed Whitacre that could have botched the IPO timeline. But the new GM seems to have left most of its past transgressions behind and proceeded this week with its IPO, which was either the largest or second-largest IPO in U.S. history, depending on how you measure it. So how did the sale go?

  • The Obama administration can breath a sign of relief, writes Clare Baldwin and Soyoung Kim for Reuters. The IPO “is good news for the Obama administration, which faced criticism for bailing out GM.” Over at Bloomberg, David Welch and Craig Trudell point out that the administration did well, but it needs to sell the rest at a higher price to break even. To recover the entire $49.5 billion investment, including the $13.4 billion George W. Bush committed, the Treasury needs to sell the rest at $53.07.
  • Taxpayers see some returns, too, writes Todd Lassa at Motor Trend. The government unloaded just over 358 million shares at $33 a share, which equates to $11.8 billion. That’s still a far cry from the $49.5 billion the government pumped into the company last year, but the sale leaves the Treasury with a 33 percent stake in the company. There’s hope yet that we could break even.
  • UAW retirees will keep their health benefits longer, says Matthew Dolan and Phred Dvorak at the Wall Street Journal. VEBA, the independent trust tasked with supporting benefits for retired UAW workers, sold nearly 90 million shares worth a total of $2.9 billion. Auto makers originally paid lump sums into the trust to relieve themselves of pension burdens, but when GM and Chrysler entered bankruptcy, the trust received an equity stake instead. VEBA still holds 173.5 million shares in the new GM.
  • Speaking of Chrysler, they’re not doing so hot, notes Bill Vlasic and Nick Bunkley of the New York Times. While the flurry of press around GM’s IPO has driven Ford’s stock higher (it’s slew of new models hasn’t hurt, either), Chrysler appears to be falling behind. “Chrysler’s sales in the United States are less than half what they were five years ago and its product lineup is still in the early stages of an overhaul,” they point out. CEO Sergio Marchionne is fighting years of stagnant product development, but small cars designed for his other company, Fiat, may be the American marque’s white knight.
  • Oh yeah, GM did pretty well, too, says David Welch, Lee Spears, and Craig Trudell at Bloomberg. If the company can sell its total allotment of initial shares, it will pull in $23.1 billion, making it the single largest IPO in history.

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WASHINGTON - APRIL 27: U.S. President Barack Obama (C) speaks as co-chairs of the National Commission on Fiscal Responsibility and Reform Erskine Bowles (L) and Alan Simpson (R) listen in the Rose Garden of the White House April 27, 2010 in Washington, DC. Obama thanked members of the National Commission on Fiscal Responsibility and Reform for their service and spoke on the 'importance of forging bipartisan consensus around recommendations to meaningfully improve our long-run fiscal health.' (Photo by Alex Wong/Getty Images)

With the midterm elections in the rearview mirror, the co-chairs of President Obama’s deficit reduction commission released a draft plan of their own. Erskine Bowles, one of President Clinton’s chiefs of staff, and Alan Simpson, a former Republican Senator from Wyoming, announced the plan weeks in advance of the entire commission’s report. Clive Crook at The Atlantic speculates that disagreements have stalled the commissions progress, and that the two co-chairs “decided to rush a joint proposal out rather than have it die in private talks without seeing light of day.”

  • Nobody’s happy, says Jackie Calmes at the New York Times. Republicans are angry because the Bowles-Simpson proposal suggests raising taxes. Democrats are upset with the plan because it proposes raising the retirement age and cuts spending far more than it raises revenue. Some liberals are quietly threatening primary challenges if President Obama supports major parts of the plan, while some conservatives are preparing to challenge Republicans who accede to any increase in revenue.
  • But parts of the plan may survive, Brian Faler says at BusinessWeek. Though many politicians are speaking out against the proposal, some aspects, such as the overhaul of the tax code and defense spending cuts, may make it into legislation in some form or another.
  • The Bowles-Simpson plan puts everything on the table, and that’s a good thing, writes Clive Crook at The Atlantic. Though the conservatives and liberals alike have bashed the deficit reduction proposal, Crook argues Bowles and Simpson were right to suggest spending cuts for nearly every program. Presumably the deficit would die a death by a thousand cuts while we the people would barely notice.
  • Where’s business on this one? Peter Nicholas asks at the Los Angeles Times. Though the proposal seeks to raise revenue by $1 trillion over the next nine years, business leaders—who are traditionally against higher taxes—have been surprisingly quiet. Some think the deficits will stifle growth, and that fear has lead to an acceptance that any effort to cut deficits must also include higher taxes.
  • We did it better, write the editors over at Esquire. The magazine recruited its own bipartisan commission earlier this year and published a report on the commission’s findings one month ago. Bonus points for liking their commission’s report better.

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bills and coins

Income inequality in the United States has widened greatly over the last forty years—by now that’s no secret. The top 0.1 percent now earn eight percent of the national income, compared with just two percent in 1973. The recession and the recent debate over extending the Bush-era tax cuts for the wealthy have made the widening income divide a hot topic. Lots has been said about the issue in the past few weeks, so here’s a quick peek at some of the coverage.

Photo by AMagill and _Dori_.

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