The Moorish Wanderer

5% d’inflation – ou comment justifier le dégonflement du PJD face à la Caisse de Compensation

Posted in Dismal Economics, Flash News, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on February 20, 2012

Ce bref post en Français est motivé par le fait que ce gouvernement, et surtout la composante PJD, semble bénéficier (injustement) d’une certaine candeur de la part des médias spécialisés dans l’actualité économique, alors même que la compétence des départements ministériels à gérer les problèmes épineux relatifs à l’économie est peu discutée. De plus, l’incompétence ambiante sur les bancs de l’opposition (incompétence dans le sens d’un manque de hargne couplée à la maîtrise de la complexité d’investigation qu’est le travail parlementaire) fait qu’à chaque vote du Projet de Loi de Finances, les erreurs et autres politiques hasardeuses du gouvernement ne seront pas discutées sérieusement, ni exposées devant l’opinion publique – ajoutant à l’avantage indu dont jouit l’exécutif en l’institution qu’est le Ministère des Finances. Au contraire, on donnerait au PJD et au gouvernement l’opportunité de monopoliser le narratif et l’orienter vers les sujets confortable: lutte contre la corruption, politique de promotion de la “morale”, etc… afin de masquer ce qui apparaît comme un aveu de faiblesse à porter le fer là où il le faut: débusquer les rentes et les exemptions fiscales inéquitables (la somme des dépenses fiscales prévues pour 2012 atteint 33 Milliards, soit près des 3/4 du déficit actuel) réformer la compensation (près de 6% du PIB) pour la faire bénéficier à ses récipiendaires véritables, et enfin assainir le Budget Général.

*Shotgun* "KA-BOOM" (Photo: l'Economiste)

Le déficit prévu pour 2012 avoisine les 5.6% du PIB suivant le dernier bulletin de la Trésorerie Générale du Royaume, loin de la limite de 3% promise dans le programme électoral du parti de M. Benkirane.De plus, la dette publique suivant les projections d’emprunts et de service de dette pour l’année 2012 atteint les 54% du PIB; Et malgré tout, cet article sur l’Economiste semble traduire l’hésitation du porte-parole PJD sur les affaires économiques, Dr Najib Boulif, à réformer dans le fond la Caisse de Compensation; Autant cette hésitation est compréhensible, autant l’usage de statistiques effarantes est regrettable; pire, arguer du refus de baisser la charge de compensation des 45 Milliards (Décembre 2011) par un effet automatique sur les tensions inflationnistes, à hauteur de 5% – des 1.1% observés en début d’année 2012. Serait-ce un mensonge pour faire passer la couardise du gouvernement?

La citation rapportée par l’Economiste mentionne:

plusieurs options se présentent, dont certaines sont radicales, comme la suppression de la compensation et le passage à la vérité des prix». Immédiatement, les prix des produits subventionnés connaîtront une hausse brutale. Ainsi, la bouteille de gaz coûtera 142 DH au lieu de 40 actuellement, et le sucre 10,80 DH (au lieu de 5,80 DH). Cela devrait se traduire par une inflation de 5% et le glissement d’une grande partie de la classe moyenne vers la catégorie de la population vulnérable. Difficile de choisir cette orientation dans un contexte social tendu.

En gros, cela signifie que les prix de la bouteille de gaz et du paquet de sucre augmenteront respectivement de  255% et 86%, avec pour effet d’une augmentation brutale de l’inflation de 1.1% (Janvier 2012) à 5%.

Or l’étude du HCP menée auprès des ménages en 2001 puis en 2006 permet de mesurer plus ou moins précisément l’élasticité-prix par rapport à ces deux classes de revenus. Une fois le calcul effectué, l’application mise à disposition sur le site du HCP permet de calculer précisément l’impact direct de ces hausses sur l’IPC (le nouvel indice des prix qui a remplacé l’ancien ICV en 2006) Il faut noter néanmoins que le HCP ne publie que des données relatives à l’élasticité-revenu, d’où la nécessité de retraiter ces résultats pour avoir une approximation de l’élasticité prix.

Les coefficients d’élasticité synthétisent le comportement de consommation et déterminent la réaction de la demande d’un bien suite à toute modification du revenu et/ou des prix, et permettent par la suite de classer les biens et services en différentes catégories en fonction de la valeur de leurs élasticités.
Selon le niveau de l’élasticité-revenu, trois cas sont distingués :
▪ L’élasticité-revenu est supérieure à 1 : c’est le cas des biens de luxe dont la consommation varie à un rythme dépassant celui du revenu.
▪ L’élasticité-revenu est comprise entre 0 et 1 : c’est le cas des biens nécessaires dont la demande augmente à un rythme inférieur à celui du revenu.

(HCP – Elasticité Revenu des Ménages)

Les résultats sont comme suit:

Sucre: 0.54

Gaz (Chauffage, éclairage eau et dépenses d’énergie): 0.89

Nous constatons bien que ces deux biens sont nécessaires; Maintenant, considérons les coefficients budgétaires alloués à ces deux classes de produits; d’après la nomenclature adoptée pour le calcul de l’PIC, les dépenses moyennes de consommation en Sucre et Gaz sont représentent respectivement 1.6% et 5.7% de la dépense de consommation moyenne. Si l’on considère que ces dépenses sont autant de portions du revenu allouées, cela signifie qu’en 2011, un ménage moyen aura consommé en moyenne 69.000 dirhams, dont 1.100 dirhams pour le sucre et 3.900 pour le gaz et assimilés. Une augmentation des prix telle qu’indiquée dans l’article mentionné plus haut, et en prenant en considération les élasticités-revenus pour ces deux produits, un ménage rationnel augmentera le pourcentage alloué de sa consommation pour la maintenir à son niveau initial – une propriété motivée par l’élasticité historiquement constante entre l’évolution des prix et celle de la consommation des ménages; le résultat en est que pour un niveau de consommation équivalent, les pourcentages alloués seront désormais respectivement 2.34% (faisant passer le coefficient alimentaire de 39.3% à 40.5%) et 13%. Le résultat, suivant les calculs HCP, et une augmentation du taux d’inflation inférieure à ce qui est prévu, puisqu’elle passe de 1.1% telle qu’observée en Janvier 2012, à 0.9%.

Le fait est que les tensions inflationnistes sont à chercher autres part, dans la rubrique des “Autres Biens et Services”, Restaurants, Hôtels, etc. Mais le chiffre d’une inflation totale de 5% soutenue sur l’ensemble des 12 prochains mois est peu plausible, pas selon les statistiques officielles elles-même.

Thesis Working Paper n°3

Posted in Dismal Economics, Read & Heard, The Wanderer, Tiny bit of Politics by Zouhair ABH on March 17, 2011

In his March 1968 Presidential address, Milton Friedman[1] summarized the broad aims of every mainstream economic policy: ‘high employment, stable prices, and rapid growth’. He was also quick to point out that these goals are not always easy to bring together, and while these aims seem to be the consensus among economists, instrument policies designed to implement these objectives do not elicit the same agreement.

Monetary Policy is one of these instruments that were the subject of much debate; The global economy moved from a decade-long era of low inflation and robust growth –both of which were considered to be partly the result of sound monetary policy- to that of an economy hurled into financial turmoil, and ultimately, into persistent depression. Central bankers, just like government, put together policies and instruments to deal these economies out of recession in ways that were unimaginable a couple of years ago (ironically, Friedman finds the tight FED policy in the 1920’s as a factor in the Great Contraction. It seems Central bankers today did not make the same mistake). Although there is much debate about the efficiency of monetary policies –especially on the long run-, the fact remains, the historically low levels of interest rates are contributing to sustain world growth and OECD growth in particular. In contrast with other policy instruments, monetary policy moved to be a subtle tool, one that is not as interventionist as, say a fiscal stimulus or tax cuts, but proves to be, at least in the short run, a very powerful and effective instrument.

Just as Friedman underlined, monetary policy is there to avoid mistakes. And it seems that this negative proposition somewhat overshadows the other assigned objective to the Central Bank, namely ‘to provide a stable back-ground for the economy’ (Friedman does acknowledge the monetary policy’s ability to balance off non-monetary shocks, though). Later on, empirical research by Taylor[2] (1993) provides policy makers with both a theoretical and practical tool to engage in a more active (but not necessarily activist) policy scope in setting interest rates.

We deal with the following: In a game theory setting, the central bank has to assign levels of interest rates and output as targets for the economy (i.e. other players) to factor-in their own computations. These targets are not computed ex-nihilo; they are the outcome of preferences over two main variables, i.e. the levels of inflation and unemployment, both of which are considered to be the main, if not the only parameters the monetary policy-makers care about. We shall prove that, if a certain set of conditions is met, the monetary policy can deliver systematically optimal welfare for the economy. We shall also verify that this optimal welfare is a Nash and strategy-proof equilibrium as per a social choice function designed by the Central Bank. As a policy-maker, the first step is to delineate the Central Bank’s preferences over levels of inflation and unemployment, levels that can be proxy for setting interest rates and output gap targets, these targets are in turn set so as to reach a certain common welfare (whose existence and salient properties are to be proven and verified in the process)

Barro & Gordon[3] (1981) provided a simple but accurate model of Unemployment and Inflation, which will be adapted to fit in some game theory axioms used in this paper. The Barro-Gordon model can then be used to describe the Central Bank’s preferences and thus provide insight of the way of it computes both interest rates and output gap. This preliminary study of the Central Bank’s own preferences is crucial to the other players in the economy, as it conditions, up to a point, their own expectations and ultimately, their response to the Central Bank’s decisions. We shall also verify whether pre-commitment and other institutional arrangements (such as independence from the Government or ‘special interest’ groups) can help to reach a Pareto-optimal social welfare. Once conditions of rationality and Pareto-optimality are verified, The game theory setting will provide us with elements defining the equilibriums –if there are any-, first in a simple bargaining process between the Central Bank, and a Private Firm. We shall then move to a multi-players game, and verify again that earlier predictions about the Central bank’s preferences can yield an optimal welfare to the economy. Finally, we shall consider the conditions whereby the ‘Lucas Critique[4] effect is either minimized, or precluded altogether.

We shall consider the improved version of Kydland & Prescott (1977) model, by Gordon (1980):

Where Ut and Utn are respectively the unemployment rate and the ‘natural’ rate of unemployment,  πt and πte respectively the inflation rate and the equilibrium, ‘anticipated’ inflation rate. As a policy-maker, the central bank values these parameters, but does also take into account a ‘social cost’ function defined by the deviation of both variables from respective anchor values:


We shall however use an altered version of the said model, namely by introducing different axioms/assumptions, mainly about the use of the information set and the inflationary expectations. The rational expectation equilibrium πt is computed on the assumption that “Because there are many private agents, they [the agents] neglect any effect of their methods for formulating πte on the policymaker’s choice of πt[5]. We will not however retain such assumption;

Indeed, in the first very simplified instance, Central Bank faces only one private agent – and so inflationary expectations are going to be part of a strategic game, the information set will have a different use to both players. Then, in a more generalized setting, the Central Bank faces n non atomistic players, which means that their own inflationary expectations cannot be treated as given by the Central bank. Quite the opposite, the social function it devises has to be strategy proof with respect to each player’s anticipations.

This non-atomicity assumption is essential in computing the Central Bank’s desired level of inflation (and thus, the target levels of interest rates and output gap). It goes without saying that the proposed equilibrium in the Barro & Gordon model does not fit in this particular instance. The equilibrium can no longer be computed directly as a rule, but becomes a strategic game whereby each player has a certain type preference over unemployment and inflation (and react accordingly when recording signals of interest rates and output gap), and it is up to the Central Bank to devise a social function that completes the objectives assigned above.


[1] Milton Friedman, ‘The Role Of Monetary Policy’ Presidential Address to the 80th Meeting of the American Economic Association. The American Economic Review, Vol. LVIII, Number 1 March 1968

[2] Taylor, John B. ‘Discretion versus Policy Rules in Practice’ Carnegie-Rochester Conference Series on Public Policy (1993)

[3] Robert Barro & David Gordon, ‘A Positive Theory of Monetary Policy in a Natural-rate Model’ Working Paper n°807, NBER November 1981

[4] Tesfatsion, Leigh ‘Notes on the Lucas Critique’ Iowa State University (2010)

[5] Robert Barro & David Gordon, p.34

Do We Need Unemployment Benefits?

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on February 17, 2011

What a bold question! Well, I assume it is. Because the following will sound pretty strange from a self-confessed left-wing radical, who belongs to a political side that is known to be keen on supporting the unemployed, and in the Moroccan case, very close to the unemployed graduate movement. Therefore, do allow me to put in a disclaimer: I absolutely feel sympathy towards the unemployed movement, but I disagree with their almost fetishist obsession with jobs in the civil service. Indeed, constitutional rights allow for any citizen to apply for a job in the public sector. However, this right is narrowed down by the law, then by administrative regulations. It seems that even the idea of an entrance exam is too much for the most extreme of them to bear.

Now that this matter is settled, let us turn to the idea itself; Why would Morocco need an unemployed benefits program? First, because the bulk of our unemployed population is not voluntary on the dole. They are genuinely looking for a job, and for many of them, the underground economy is providing for their living. Benefits, when properly designed and applied would allow them to live in dignity, and look for proper jobs. The way I see it, the benefits are there not to disturb some market mechanisms that are yet to be defined and enforced, but to set the standards for better labour-management relationship, and for the public authorities to encourage individuals to move from underground to legal, ‘official’ economy.

Let us first consider the figures on unemployment and inflation. The relationship is considered to be cardinal in mainstream academia. The well-known NAIRU (non accelerating inflation rate of unemployment) is a good start for us to estimate how deep involuntary unemployment is, and thus provide the public authorities with the financial means to deal with it.

Anti-inflationary policies have been more successful. Unemployment however, not so much. Or is it because of anti-inflationary policies? (World Bank & RDH Figures)

When one considers the relatively recent historical series on inflation and unemployment, one is surprised to notice that there was a surprisingly effective effort put into taming inflation (and Morocco can pride itself to be in a full deflation mode without much damage to growth) while policies, when carried out, look despairingly ineffective in view of the near stable level of unemployment. The question remains: why does unemployment remain that high? In a precedent post, I mentioned data that ruled out any serious effect minimum wage might have. There is also little, if no evidence pointing to relationship between labour legislation and unemployment. If anything, it is favourable to the management, especially in the important economic sectors like textile, Telecom services and other outsourced services. I should elaborate on that later on.

When simple econometric computations are run on unemployment and inflation, results look a bit inconclusive. Indeed, the Moroccan Philips Curve does not look like the theoretical one, and if anything, any correlation is too low and too insignificant to be of use. Though it might be too early to tell, there seems to be no direct link between anti-inflationary policies and unemployment. It does however deny policy makers from such argument.

They failed in addressing the problem because they did not devise the proper policies, not because of the so-called necessary trade-off between inflation and unemployment. To their credit, it must be pointed out that a particular sub-population was not fully cooperative; in fact, it was adamant in its claim for public service recruitment.

Moving on. The current level of unemployment can be reduced. Why so? Because even with sketchy econometric models, there is a way to compute the level of unemployed people that can be put to jobs. If I may direct the reader’s attention to a post I wrote on estimating the output gap for the Moroccan economy, the computations reached the conclusion that, as late as 2009, the Moroccan factory is producing below its productive capacity. The terms of the equation are simple: because output gap is negative, the economy can take on more labour so as to lift-up real GDP until the potential GDP is reached. We know the existing level of labour stock, we know exactly (well, with a confidence interval of 95%) how much labour adds to GDP, there remains only to compute how much is needed from the unemployed to bridge that gap in labour force. Estimates are such that an additional 5 basis points to the workforce  –ceteris paribus, mainly the capital stock- are needed to bridge the output gap, and certainly much more if capital stock was expanded too. 5% looks a lot (that is, after all, about 53% of the unemployment rate) but then again, because convergence process (the so-called catching-up) with potential output takes time, it remains quite a reasonable target. In absolute terms, that means some 482.000 people would find new jobs. Before I go any further, I must apologize for the sketchy figures, which is mainly due to the data (and my own limited knowledge on the particular field of labour economics)

No particular correlation can be observed from the graph

Now that we know the current level of unemployment can be cured up to 5%, why bother about introducing benefits for those on the dole? First because, just like other vulnerable populations, the public authorities rely on family and tribal solidarity to look after the special needs, the divorcées, the underdogs and the misfits. The large-scale shift in values, the rising individualism (whatever has been said on the matter, RDH surveys can testify) all these changes that are breaking -or already did so- the traditional mould so many people long for (and you know what they are called? reactionaries, that right) and so there’s a need to implement nation-wide programs, like the employment or support benefits. The targeted  population, following the HCP figures, would be as follows: about 700.000 unemployed with little or no qualification, not so much a burden on the nation, considering benefits are usually lower than the minimum wage;

Now, I don’t have much time, nor data to elaborate on how these benefits should be defined (and I think legislation here plays a critical role) but under the assumption of average benefits of MAD 1100 per month per individual is not only workable, but provides invaluable teachings in order to expand the program and protect the left-behind, while encouraging them to fight back and return to work. Incidentally, the whole annual cost for such a scheme is approximately MAD 7 Billion, that is 13% of a wealth tax levy on the millionaires in Morocco (at the low rate of 40%). So in essence, a benefit scheme is perfectly workable, so long as it works as it serves a two-fold objective: first, as a temporary stipend for those unemployed (that would include training costs, job lookout, etc…) and as the nation’s solidarity with those definitely unable to contribute to society.

I should like to devote a piece on how these benefits should be designed so as to encourage rather than subdue work, but there it is: it is high time we grabbed the bull by the horn and start a debate on how efficient benefits schemes should be. Their introduction is now beyond debate, it is a necessity.

Inflation, Output Gap and Monetary Policy in Morocco

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on January 17, 2011

What is to be discussed about money in Morocco? First, perhaps an attempt to correct some misconceptions about currency, monetary base and inflation. Read on twitter: “If money supply doubles, prices will double as well, holding physical output fixed”. The statement is mathematical, in these sense that it appeals to only one outcome out of two: true or false. The statement also asserts the old-style quantitative theory of money. By the way, the author of such sentence is not to blame, and I am grateful to them for providing me the opportunity, ney, the inspiration to write about something.

There’s indeed a popular misconception, which partially-educated journalists and politicians like to spread, about the kind of relationship between money supply, GDP and level of inflation. As far as Morocco is concerned, the new monetary theories hold particular in favour of my case. Milton Friedman once stated that “Inflation is always and everywhere a monetary phenomenon”. He was right at the time. The global trend this last year does not support the evidence. In the 1970’s (at times of high inflation, as we will see later on), that was true. But then again, that was the case because monetary supply was, for the better or the worse, restricted to greater proportions compared to nowadays. In fact, it is foolish to mistake the inflation/money supply relationship as a ‘post hoc ergo propter hoc‘ one. Inflation was quite high (due to other parameters that are too numerous to delineate here) and some economists -as well as policy-makers– thought, with some reasons, that high level of inflation was to be lived with, and that the Philips curve being considered to be very flat, any anti-inflationist policies were too expensive in terms of social and labour cost.

Inflation trend in Industrialized and Emerging countries

As it turned out, late 1970’s and through out the 1980’s, policies were quite aggressive against inflation, and, at the price of durable recession (but not deflation) reversed the trend, and with the 1990’s, the great moderation, i.e. a sustained low level of inflation was such that OECD countries enjoyed near-uninterrupted growth over two decades. On the other hand, monetary base expanded substantially over the same period. Graphs are quite enough to prove that, after the Volcker-style policies in disciplining inflation expectations, the world never had it so good with low inflation rates, and at the same time, credit allowances and monetary base grew at near-exponential rates. At the end of the day, our day, doubling money supply does not double prices. (even in Morocco)

Credit & Monetary base, on the other hand, exploded to exponential proportions

I mentioned in a previous article something about output gap and potential output. There were some interesting comments about how the results were obtained, and on second thoughts, I wondered if they were that well-founded. These results were a rough estimate; and a bad one too, not least because I did not proceed properly with the computations (I’d keep it very superficial) as it turned out.

So I will make it up to the reader by redoing the computations in a more rigorous way. The self-pride of a would-be economist is at stake. (it would also definitely deter me from following advices about writing short pieces…) The strict definition of potential output is : ‘the total gross domestic product (GDP) that could be produced by an economy if all its resources were fully employed’. Now the Cobb-Douglas function remains a reasonable starting point. There was a comment on how unlikely the parameters a and b are to remain constant, so that’s how we will proceed: a). We maintain the assumption GDP output is produced by means of Cobb-Douglas function, Capital and Labour are the main inputs, and Total productivity factor (also called Solow Residual) can be inferred from empirical data. Because of the discrepancies in available databases, we should focus on growth rates rather than actual figures. Used data is the World Bank Data.

b). Because we considered Cobb-Douglas, the logarithmic transformation is a good proxy for the growth rate of each component

ε term is there for statistical purposes, as it captures 'white noise'

its growth rate is the sum of labour and capital growth, and the growth rate in the Solow residual

When regression is run on output growth, labour and capital, results show that labour has a important part of output growth. Results also show that in facts, output production over the considered time period has increasing returns to scale, a result that is confirmed by academic papers on growth in emerging countries. There is therefore a residual of 2.2% accounting for growth that can be considered part of the Solow residual (the total productivity factor, or technical innovation). It must be pointed out however, that the estimation of the total productivity factors is less accurate than the coefficient α and β, but nonetheless, its quality is such that the coefficient can be trusted to render meaningful results. To sum up, the estimated parameters, while certainly not constant across time, do not change significantly too, and the obtained coefficients are significant, in the sense that future computations on that basis are going to deliver meaningful results as well.

The table shows the model to have a very high R², and estimated coefficients for both labour (l) and capital (k) show increasing return to scale (as 0.941+0.28>1)

Now, let us move to estimating the potential GDP. It is always difficult to estimate certain components of the potential output, so the method that suited us quite well in getting coefficients is going to be put to use, once more. Estimating Potential GDP, then.
so potential GDP is the level of output produced when the economy is at full employment, i.e. when the level of unemployment is at its feasible lowest (so-called natural unemployment rate) without triggering inflation (What is called NAIRU, or Non-accelerating inflation rate of unemployment). A much simpler way is to compute the growth rate of labour stock (which I did). Now that all the parameters have been computed to be of readable content (thanks to traditional econometric tools), we can therefore compute the output gap for the period, so as to move further in our quest for monetary policy.

As the graph shows, output gap in Morocco was quite hectic over the past two decades, and even though we did enjoy significant positive output (that are overall quite good for the economy) the volatility is such that benefits were immediately wiped out after a while. However, when recomputed into a normal frequence (i.e. fitted into a Gauss-Laplace distribution, regardless of time frame), the normalized  average over 20 years was -1.46 point of GDP (i.e., we lost, every year on average, 1.46 GDP growth because productivity was not full). Quite an indictment for the regime’s eulogist, considering that the loss of productivity could have taken the current GDP per capita from $ 2900 to $ 4400 (roughly the same wealth in Peru or Jamaica, and above Tunisia) and thus moves us from lower middle-income to middle income emerging markets.

Over the early 2000’s, output gap was positive on average, the trend next years is likely to be a period of negative output gap, which threatens with risk of recession

How could the monetary policy have accounted for such growth? First, it must be stated that the next batch of computations is even more sketchy, but that is due to the sparse information I have to scramble for. In monetary policy settings, it’s usually up to output and inflation targeting to define the announced rate. For the benefit of  the profane, the standard policy tool central bankers around the world is the Taylor Rule. J-B Taylor wrote in 1993 a paper assessing the Fed’s interest rate policy, and end up, by means of econometric computations, with an equation bringing together inflation targeting and output gap as follows:

Where the set interest rate is the real Hicksian interest rate and weighted gaps in expected inflation and output.

As I said before, it is difficult to verify the Taylor rule for Morocco, mainly because of patchy data on the targeted inflation rate (if there ever was, that is), but also because at the time there was little independence to be enjoyed from government (it is still the case, but the governor enjoys a wider margin). We can however get a good proxy of the equation as three-quarters of it is more or less within reach. Output gap has already been computed, there remains the equilibrium interest rate (for which a proxy can be found later on) Regular computations give the following results:

Starting from 2001, interest rates have been too low with the Taylor rate

The Taylor rule has limited effect here, mainly due to the abscence of inflation targeting for many years (to my knowledge, the Central Bank started only a couple of years ago)

I guess one of the exogenous reasons why there’s a wild discrepancy between computed and actual rates is due to the fact that we are not entirely free of our monetary policy, due to foreign trade. Morocco tries (or tried) to synchronize with significant European partners, and in order to get the best out of it, synchronized their interest rate with the ECB. That’s a good move, but then it makes us more dependent on France and Spain, at a time they are facing considerable challenge.

There’s also another danger to the current level of interest rates: it might sound very conservative, but there is a need for BAM to take interest rates to a higher level. I mentioned the conservatism cliché because left-wing economists in emerging countries tend to favour lower interest rates (for consumption stimulus purposes). But in this particular case, low rates profit to real estate speculators, and not the households struggling to buy their first home.