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from Global Investing:

Three snapshots for Thursday

OECD growth forecasts released today show the euro zone countries lagging behind other G7 countries:

Reuters latest asset allocation polls showed global investors cut government debt from portfolios in March:

Germany's unemployment rate fell to a record low of 6.7% in March, bucking the trend in other euro zone countries:

from Global Investing:

Greece’s interest burden, post-PSI, will remain huge

It seems Greece has finally reached a deal on austerity measures needed for a bailout. But what about PSI?

(ECB President Mario Draghi just said he heard it was close to a deal. It's been close for a few weeks though...)

JP Morgan says Greek PSI is hardly going to change the heavy interest burden on the country and the issue of default will inevitably come up.

First of all, Greece's interest payments are huge.

Greece paid 15.5 bln euros in net interest payments in 2011, 17% of total general revenues. This is the highest among all OECD countries and more than 3 times the OECD average of 5%. It is also more than double the 8% average for other peripheral countries in the euro zone.

The U.S. bank estimates the Greek PSI is going to capture 205bln euros of private bond holders (and perhaps a further 55bln euros if the ECB participated).

Of this 260 bln euros, around 85 bln or a third are held domestically, by Greek social security funds, domestic banks to be largely nationalised post PSI, and the Greek central bank.

from MacroScope:

Hard-working Greeks

At the epicenter of Europe’s financial crisis, Greece has taken a lot of heat for setting off the panic that now threatens to engulf the rest of the continent. One common story line is that inefficient Southern European states are dragging down a more industrious North, a theme we have previously questioned on this blog.

A research note from Marc Chandler, head of currency strategy at Brown Brothers Harriman, highlights the disconnect between a negative perception of Greek workers with actual readings of hours worked from the Organization for Economic Cooperation and Development.

We’ll start with the picture, which pretty much tells the story:

Chandler suggests prejudice has gotten in the way of sound economic analysis:

The conventional narrative about the European debt crisis largely accepts the contention that the periphery of Europe have different work habits and these account to a large extent the economic and financial problems. Yet often time the discussion takes on such ethnocentric dimensions that sometimes it is difficult to see what is real.

The most recent data from the OECD covers 2008 and shows that in that year, Greek workers on average worked 48% more than their industrious German neighbors. The OECD data shows the average Greek worker spent 2120 hours at work compared with 1429 hours in Germany. Moreover, Greece is one of the only OECD countries in which workers were working longer in 2008 than in 1998. With 1802 hours at work, the average Italian employee spent more than 25% more time at work than the average German worker.

While many will be initially surprised by the data, on reflection it makes intuitive sense.   In crude terms, wealthier countries typically work smarter--more capital intensively--than poor countries, not longer. Contrary to conventional wisdom, the lack of Greek competitiveness, for example, does not seem to lie in hours working but with the combination of productivity and wages/benefits (unit labor costs).

from MacroScope:

Inequality highest in 30 years, OECD finds

Income inequality is at its highest levels in three decades, according to a new report from the Organization for Economic Development and Cooperation. The trend is no accident, the group says, but rather the result of a combination of spending cuts on social programs and lower taxes on the wealthy.

Tax and benefit systems play a major role in reducing market-driven inequality, but have become less effective at redistributing income since the mid-1990s. The main reason lies on the benefits side: benefits levels fell in nearly all OECD countries, eligibility rules were tightened to contain spending on social protection, and transfers to the poorest failed to keep pace with earnings growth. As a result, the benefit system in most countries has become less effective in reducing inequalities over the past 15 years. Another factor has been a cut in top tax rates for high-earners.

"There is nothing inevitable about high and growing inequalities," said OECD Secretary-General Angel Gurria.

The United States, which has seen a wave of national protests focused on the gap between rich and poor,  did not fare well in the report. Of the 34 nations in the OECD, the U.S. has the fourth highest level of inequality, after Chile, Mexico and Turkey.

Some other findings for the United States:

-- The wealthiest Americans have collected the bulk of the past three decades' income gains. The share of national income of the richest 1 percent more than doubled between 1980 and 2008 from 8 percent to 18 percent.

-- The richest 1 percent now makes an average of $1.3 million in after-tax income (compared to $17,700 for the poorest 20 percent). During the same time, the top marginal income tax rate dropped from 70 percent in 1981 to 35 percent in 2010.

from Breakingviews:

Sky’s the limit on euro zone disaster scenarios

By Edward Hadas The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The modern industrial economy rests on three pillars: finance, government and industry. A sudden break-up of the euro zone would damage all three.

The 2008 failure of Lehman Brothers sets a stupidly grim precedent. Fear spread like wildfire across the previously pampered financial sector, producers panicked and the fiscal and monetary authorities dawdled. But the lessons should have been learned. In theory, there is time to prepare for an uneventful return to the pre-euro order of one country-one currency.

In practice, though, no one is close to ready. On the contrary, the financial pillar is already tottering. Depositors and institutional investors are undermining its foundations by running to ever shrinking islands of safety. If the euro fell, the financial equivalent of a multi-car pile-up would be likely: banks deprived of liquidity pull loans, induce recession, run up losses and go out of business. Asset markets become dysfunctional and central banks cannot keep up.

The government has a potent weapon to counter financial shortages: the electronic equivalent of the printing press. An empowered Greek central bank could do it just as well as the European Central Bank. But too much of such monetary creation out of nothing debases currencies and destroys trust. Fiscal deficits and monetary support are already high, so another significant increase in official activism would test the limits of the monetary imperium. The second economic pillar looks brittle.

If any significant governments lose their credibility – France, Italy, the United States and UK are all candidates - global financial disarray is all but certain. The result would be a hit to the third pillar, industry. World trade fell 11 percent in 2009 and global GDP declined by 0.7 percent. With governments weaker now than then, those declines could be doubled or tripled this time around. The chaos might tempt some government to use one of their non-economic powers: to engage in war.

from MacroScope:

Being poor is no fun: study

Poor people have shorter life spans and more health problems than the wealthy. Surprising? For growth-obsessed economists, yes actually. A new study from The Organization for Economic Cooperation and Development represents a worthy attempt to move economics away from its traditional tendency to equate growth with well being. Its rankings suggest factors other than the rate of gross domestic product expansion are important in determining quality of life.

But as often happen when economists look for a human angle in their research, they end up stating the glaringly obvious. Take this statement:

Some groups of the population, particularly less educated and low-income people, tend to fare systematically worse in all dimensions of well-being considered in this report. For instance they live shorter lives and report greater health problems; their children obtain worse school results; they participate less in political activities; they can rely on lower social networks in case of needs; they are more exposed to crime and pollution; they tend to be less satisfied with their life as a whole than more educated and higher-income people.

You don't say? And what about this gem:

Having a job is an essential element of well-being. Good jobs provide earnings, but also shape personal identity and opportunities for social relationships.

OECD economists must be elated then: updating the dense "How's Life" report each year should keep them employed for the foreseeable future.

from Financial Regulatory Forum:

France draws up tax blacklist, to apply sanctions

PARIS, Feb 16 (Reuters) - France has drawn up a list of 18 countries accused of failing to cooperate on tax issues, and will slap punitive taxes on certain financial transactions involving them, an official document showed on Tuesday.

The document, obtained by Reuters, was signed by Economy Minister Christine Lagarde and Budget Minister Eric Woerth and lists Central American and Asian countries as well as tiny Caribbean and Pacific island nations.

Dated Feb. 12, it does not mention any European countries.

Under a French law passed late last year, a 50 percent tax will be slapped on dividends, interest, royalties and service fees paid by a person based in France to a beneficiary based in one of the listed countries. This will be applied as of March 1. The previous tax was 15 percent.

A 50 percent tax will also be applied to gains from real estate and securities transactions carried out by persons or companies based in the listed places, according to the law.

The full French list includes: Anguilla, Belize, Brunei, Costa Rica, Dominica, Grenada, Guatemala, Cook Islands, Marshall Islands, Liberia, Montserrat, Nauru, Niue, Panama, Philippines, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and Grenadines.

The document will be reviewed on Jan. 1, 2011, taking into consideration any progress in the listed countries' compliance with global tax rules.

from Breakingviews:

Stampede of the oil bulls

Oil price bulls and bears have both had their triumphs in recent history. The price of crude rose to $147 a barrel in July of 2008 only to plummet to $33 a barrel a few months later. It swung past $82 a barrel this week because of a cold snap, and is up 18 percent since mid-December. But barring heightened tension in the Middle East, oil looks likely to slide in the short term.

Demand remains relatively subdued, in spite of the massive stimulus applied to the global economy. This is especially true in OECD countries and the United States, the largest consumer of energy. American crude oil inventories actually rose by 1.3 million barrels last week when temperatures plummeted, according to the latest figures by the Department of Energy. Elsewhere in the OECD, oil inventories have fallen, but only slightly, according to the International Energy Agency. They are still high, at nearly 60 days of demand.

Other factors could weigh on the price in the immediate future too. A combination of easy money from the world’s central banks and the weak dollar has made investing in commodities relatively attractive. But the central bankers' generosity could soon come to an end if inflation moves from a theoretical threat to a reality.

Oil bulls argue that global economic growth, in particular in China and other emerging markets, will be strong enough to sustain further gains. But the recovery remains too uncertain to call. China has just hiked interest rates on its three-month bills in an effort to slow bank lending, a move that could ultimately lead to a dampening of demand. That alone shaved a few cents off the oil price Thursday.

The bulls may eventually have their day. Production is falling in non-OPEC countries, even factoring in some mega fields coming on stream in Russia and elsewhere. But it will not be until mid-2011 that global demand will outpace supply, according to Goldman Sachs, which predicts an average oil price of $110 for that year. It may make sense to snuggle up with the oil bears -- at least for the rest of the winter.

from Global Investing:

What worries the BRICs

Some fascinating data about the growing power of emerging markets, particularly the BRICs, was on display at the OECD's annual investment conference in Paris this week. Not the least of it came from MIGA, the World Bank's Multilateral Investment Guarantee Agency, which tries to help protect foreign direct investors from various forms of political risk.

MIGA has mainly focused on encouraging investment into developing countries, but a lot of its latest work is about investment from emerging economies.

This has been exploding over the past decade. Net outward investment from developing countries reached $198 billion in 2008 from around $20 billion in 2000. The 2008 figure was only 10.8 percent of global FDI, but it was just 1.4 percent in 2000.

Not surprisingly, the lion's share comes from the BRICS -- Brazil, Russia, India and China -- which together made up 73 percent of outflows last year. BRIC outward investment jumped to $144.3 billion in 2008 from $29.6 billion three years earlier.

Perhaps the most interesting data, however, concerned political risk insurance. MIGA studied the kind of insurance BRICs outward investors were taking to see what kind of things worried them.

Brazil had a mixed of concerns, but Indians were most worried about transfer and convertibility restrictions, the Chinese concerned themseves with war and civil disturbance and Russians were extremely worried about breaches of contract.

Sceptics might be tempted to see this as a reflection of national concerns. But MIGA said it was more micro than that. Russian investment, for example, is dominated by commodity exploration, an area said to be more subject to contract problems than others.

from MacroScope:

Health and the older worker

An interesting post on ING's new eZonomics blog points the reader to a new study on older workers and health.  The findings -- as reported in The Lancet -- don't at first glance look terribly surprising:

A poor work environment and health complaints before retirement were associated with a steeper yearly increase in the prevalence of suboptimum health while still in work, and a greater retirement-related improvement; however, people with a combination of high occupational grade, low demands, and high satisfaction at work showed no such retirement-related improvement.

In simple terms, this is saying that if a worker is happy, their health is better. Anyone who has ever had a bad job could have told them that! But the study, of course takes it further.

Working life for older workers needs to be redesigned to achieve higher labour-market participation.

This has broad implications, given the trend away from final salary pensions and the general view that workers are going to have to work longer than in previous generations. Companies that are faced with workers who cannot easily retire because of a lack of pension savings, that need people to work longer  and that are subject to increasing anti-age discrimination will need to take the employment needs of older employees on board.

It may not be easy. As the ING post points out, the OECD looks at the issue in a 2006 report entitled "Live Longer, Work Longer". It began its report:

In an era of rapid population ageing, many employment and social policies, practices and attitudes that discourage work at an older age have passed their sell-by date and need to be overhauled. They not only deny older workers choice about when and how to retire but are costly for business, the economy and society.