[YEDG] 9th of Feb. AM 9:30. I hope to see you there!
박주하
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Google, the EU and antitrust
Search over
The third attempt at a settlement is likely to be the last
IN NOVEMBER 2009 Foundem, a price-comparison website, first complained to the European Commission about Google. The American company, Foundem argued, was exploiting its dominance of online search to the detriment of both competitors and consumers. The commission began an investigation a year later. On February 5th Joaquín Almunia, Europe’s competition commissioner, said that he and Google, which carries out more than 90% of online searches in Europe, had reached an agreement. (Google’s chairman, Eric Schmidt, is a member of The Economist Group’s board of directors.) This is Mr Almunia’s third attempt at a settlement in just under a year. He is confident that this one will stick.
The commissioner had four main worries, which he laid out in May 2012. The most important was that Google favoured its own search results (for flights, say, or to compare the prices of consumer goods) over those of specialist competitors. This has vexed him and the complainants, of which there are now 18, ever since. Microsoft, which has itself been in hot water with the commission in the past, is prominent among them. On the other three causes for concern—about Google using others’ content without permission, exclusive advertising deals and restrictions on taking data to rival advertising platforms—Mr Almunia was satisfied long ago.
Try, try and try again
Twice before Mr Almunia and Google have reached agreement on changes to the way Google presents search results on its European domains (google.co.uk, google.de, google.fr and so on, but not google.com). Twice the commissioner has asked Google to think again, after “market tests”—experiments to show how the proposals might work in practice—suggested that the proposed displays would direct few if any searches away from Google.
For instance, in the second attempt, last October, Google agreed to insert links to three rival shopping sites below its own. American academics retained by FairSearch Europe, a group whose members include several complainants, tested how these links might work in practice. For every search they reckoned that Google Shopping scored 36.7% of clicks, against 5% for rivals. Other clicks went to other parts of the page. For the mobile version, the skew to Google was greater still.
Now Mr Almunia has accepted a more marked change. When Google presents specialised searches, it will show links to rivals alongside, and in the same format. A search for outdoor gas grills, for instance, will bring up three Google Shopping results, labelled as such, next to three alternatives from other shopping search sites—but not from retailers directly. If Google’s have pictures, so will the others. The mobile-phone version will show two of Google’s and one other at first sight, with others visible by scrolling with the finger. If Google would normally charge for inclusion in the specialised search, the rivals’ slots will be allocated by auction. If not, Google’s normal algorithm, intended to promote the results most useful to the searcher, will decide what gets shown.
The upshot is that some Google searches will look different in Europe and America, and that Google’s engineers will have to write different code to serve different markets. None of the European changes affects Google’s maps, which are built into its search results. Google faced a similar investigation in America, but that ended just over a year ago with the firm making token concessions. A trustee will be appointed to oversee the European agreement for five years. If Google improves the display of its own results—say, by introducing video—it ought to do the same for the others.
The case is not over yet, but the chances are it will be soon. In explaining the settlement to the press, Mr Almunia said that he would write to all the complainants at length, setting out the reasons why he believes Google has done enough. He said he would listen to any criticisms they have, but added that after a three-year investigation he was “pretty confident” that his decision had “solid grounds”.
Plenty of criticism is already heading his way. Both FairSearch Europe and ICOMP, another grouping of Google’s adversaries, are fuming that Mr Almunia is planning no market tests this time. FairSearch Europe says such tests revealed the flaws in the first two proposals: so why not use them again?
The complainants also object to the auction for slots. Although only specialised sites will be able to bid, they argue that competition for prized space will force them to pay most of their profit to Google—so that Google scoops the pool wherever people click. FairSearch Europe calls the outcome “worse than doing nothing”.
Google, pointing to the costs of maintaining a different face in Europe, might disagree. Then again, by reaching a settlement the search giant will avoid the risk that the commission will impose more onerous changes. It will be free of one legal encumbrance as it pursues its seemingly limitless spread of ventures. And Mr Almunia will doubtless be pleased to have the case off his desk at last, well before his term in Brussels ends in the autumn.
The global economy
The worldwide wobble
The world economy will have a bumpy 2014. But the recovery is not, yet, at risk
Feb 8th 2014 |
FOR much of 2013 the world’s big stockmarkets had a magical quality about them. They soared upwards—America’s S&P 500 index rose by 30% last year, and Japan’s Nikkei by 57%—buoyed by monetary stimulus and growing optimism about global growth. Over the past month, the magic has abruptly worn off. More than $3 trillion has been wiped off global share prices since the start of January. The S&P 500 is down by almost 5%, the Nikkei by 14% and the MSCI emerging-market index by almost 9%.
That investors should lock in some profits after such a remarkable surge is hardly surprising (see article). American share prices, in particular, were beginning to look too high: the S&P finished 2013 at a multiple of 25 times ten-year earnings, well above the historical average of 16. A few bits of poor economic news of late are scarcely grounds for panic. It is hard to see a compelling economic reason why one unexpectedly weak report on American manufacturing, for instance, should push Japan’s Nikkei down by more than 4% in a day. Far easier to explain the market gyrations as a necessary correction.
From supercal…to fragilistic
Prices always jump around, but in the end they are determined by the underlying economy. Here it would be a mistake to be too sanguine. Economists are notoriously bad at predicting sudden turning-points in global growth. Even if it goes no further, the dip in asset prices has hurt this year’s growth prospects, particularly in emerging markets, where credit conditions are tighter and foreign capital less abundant. Tellingly, commodity prices are slipping too. The price of iron ore fell by more than 8% in January.
On balance, however, this newspaper’s assessment of the evidence to date is that investors’ gloom is overdone. A handful of disappointing numbers does not mean that America’s underlying recovery is stalling. China’s economy is slowing, but the odds of a sudden slump remain low. Although other emerging markets will indeed grow more slowly in 2014, they are not heading for a broad collapse. And the odds are rising that monetary policy in both Europe and Japan is about to be eased further. Global growth will still probably exceed last year’s pace of 3% (on a purchasing-power parity basis). For now, this looks more like a wobble than a tumble.
The outlook for America’s economy is by far the most important reason for this view. Since the United States is driving the global recovery, sustained weakness there would mean that prospects for the world economy were grim. But that does not seem likely. January’s spate of feeble statistics—from weak manufacturing orders to low car sales—can be explained, in part, by the weather. America has had an unusually bitter winter, with punishing snowfall and frigid temperatures. This has disrupted economic activity. It suggests that all the figures for January, including the all-important employment figures, which were due to be released on February 7th after The Economist went to press, should be taken with a truckload of salt.
All the more so because there is no reason to expect a sudden spending slump. The balance-sheets of American households are strong. The stockmarket slide has dented consumer confidence, but investors’ flight from risk has pushed down yields on Treasury bonds, which in turn should lower mortgage rates. Fiscal policy is far less of a drag than it was in 2013. All this still points to solid, above-trend growth of around 3% in 2014. One reason this may not excite investors is that it no longer implies an acceleration. America’s economy was roaring along at a 3.2% pace at the end of 2013. The first few months of 2014 will be weaker than that, even though average growth for 2014 still looks likely to outpace last year’s rate of 1.9%.
China’s economy, for its part, is clearly slowing. The latest purchasing managers’ index suggests factory activity is at a six-month low. The question is how far and how fast that slowdown goes. Many investors fear a “hard landing”. Their logic is that China has reached the limits of a debt-fuelled and investment-led growth model; and that this kind of growth does not just slow but ends in a financial bust. Hence the jitters on news that a shadow-bank product had to be bailed out. Yet it remains more likely that China’s growth is slowing rather than slumping. The government has the capacity to prevent a rout; and the recent bail-out suggests it is willing to use it.
If fears about a hard landing in China are exaggerated, then so are worries about a broad emerging-market collapse. That is because the pace of Chinese growth has a big direct impact on emerging economies as a whole. Expectations for Chinese growth will also be a big influence on the desire of foreigners to flee other emerging markets, and hence on how much financial conditions in these countries tighten. After more than doubling interest rates, Turkey’s economy will be lucky to grow by 2% in 2014, compared with almost 4% in 2013. But in most places less draconian rate hikes will merely dampen a hoped-for acceleration in growth rather than prompt a rout.
The final, paradoxical, reason for guarded optimism is that the market jitters make bolder monetary action more likely in Europe and Japan (see article). With inflation in the euro area running at a worryingly low 0.8%, the European Central Bank (which met on February 6th after we went to press) needs to do more to loosen monetary conditions. Really bold action, such as buying bundles of bank loans, is more likely when financial markets are in a funk. That logic is even stronger in Japan, whose stockmarket has fallen furthest and where the economy will be hit by a sharp rise in the consumption tax on April 1st. So more easing is on the cards.
Still in need of a spoonful of sugar
If this analysis is correct, the current market pessimism could prove temporary. Investors should recover their nerve as they realise that the bottom is not falling out of the world economy. Our prognosis is a lot better than the outcome markets now fear. But it would not be much to get excited about. The global recovery will be far from healthy: too reliant on America, still at risk from China, and still dependent on the prop of easy monetary policy. In other words, still awfully wobbly.
김은영
Greetings all,
Please find the articles we are going to cover this Sunday and a new venue
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Geopolitics
The petrostate of America
The energy boom is good for America and the world. It would be nice if Barack Obama helped a bit
“RISE early, work hard, strike oil.” The late oil baron J. Paul Getty’s formula for success is working rather well for America, which may already have surpassed Russia as the world’s largest producer of oil and gas (see article). By 2020 it should have overtaken Saudi Arabia as the largest pumper of oil, the more valuable fuel. By then the “fracking” revolution—a clever way of extracting oil and gas from shale deposits—should have added 2-4% to American GDP and created twice as many jobs than carmaking provides today.
All this is a credit to American ingenuity. Commodities have been a mixed blessing for other countries (see our leader on Argentina). But this oil boom is earned: it owes less to geological luck than enterprise, ready finance and dazzling technology. America’s energy firms have invested in new ways of pumping out hydrocarbons that everyone knew were there but could not extract economically. The new oilfields in Texas and North Dakota resemble high-tech factories. “Directional” drills guided by satellite technology bore miles down, turn, bore miles to the side and hit a target no bigger than a truck wheel. Thousands of gallons of water are then injected to open hairline cracks in the rock, and the oil and gas are sucked out.
From the point of view of the rest of the world, the new American petrostate is useful. Fracking provides a source of energy that is not only new but also relatively clean, cheap and without political strings. It should reduce the dependence on dirty fuels, such as coal, and extortionate suppliers, such as Russia. Moreover, fracking is unusually flexible. Setting up an oil rig in the Gulf of Mexico can take years. But America’s frackers can sink wells and start pumping within weeks. So if the oil price spikes, they drill more wells. If it falls, they let old ones run down. In theory, fracking should make future oil shocks less severe, because American producers can respond quickly.
Fracking all over the world
Some foreign-policy wonks argue that this dramatic change in America’s fortunes argues for a fundamental change in the country’s foreign policy. If America can produce its own oil, they argue, why waste so much blood and treasure policing the Middle East? Yet even if it were politically sensible for America to disengage from the world—which this newspaper does not believe it is—the economic logic is flawed. The price of oil depends on global supply and demand, so Middle Eastern producers will remain vital for the foreseeable future. It is in the superpower’s interest to keep Gulf sea lanes open (and not to invite China to do the job instead).
Although America’s foreign policy should not change, its energy policy should. Its ban on the export of crude oil, for instance, dating from the 1970s, was intended to secure supplies for American consumers. But its main effect is to hand a windfall to refiners, who buy oil cheaply and sell petrol at the global price. Barack Obama should lift it so that newly fracked oil can be sold wherever it makes the most cash. And he should approve the Keystone XL pipeline, which would carry oil from Canada’s tar sands to American refineries; an exhaustive official study has deemed the project environmentally sound.
America does not ban the export of natural gas, but it makes getting permits insanely slow. Fracking has made gas extraordinarily cheap in America. In Asia it sells for more than triple the price; in Europe, double. Even allowing for the hefty cost of liquefying it and shipping it, there are huge profits to be made from this spread. The main beneficiaries of the complicated export-permit regime are American petrochemical firms, which love cheap gas and lobby for it.
Mr Obama should ignore them. Gas exports could generate tankerloads of cash. To the extent that they displace coal, they would be good for the environment. And they could pay foreign-policy dividends, such as offering Europeans an alternative to Russian gas and so reducing Vladimir Putin’s power to bully his neighbours. Allowing exports might cause America’s domestic gas prices to rise a little, but it would also make American frackers pump more of it, cushioning the blow.
A world in which the leading petrostate is a liberal democracy has much to recommend it. But perhaps the biggest potential benefit of America’s energy boom is its example. Shale oil and gas deposits are common in many countries. In some they may be inaccessible, either because of geology or because of environmental fears: but in most they go unexploited because governments have not followed America’s example in granting mineral rights to individual landowners, so that the communities most disrupted by fracking are also enriched by it. Become a champion of a global fracking revolution, Mr Obama, and the world could look on America very differently
Global monetary policy
Countervailing motion
The Fed may be “tapering” but central banks in Japan and Europe are still easing
Red rags to KurodaTHOSE looking for someone to blame for the upheaval in financial markets tend to finger the Federal Reserve. By phasing out its scheme of suppressing interest rates through bond purchases, the theory runs, it prompted capital to stampede from emerging markets into the rich world in expectation of rising yields. Yet the Fed’s shift to a less expansionary monetary policy is only half the story: central banks in the euro area and Japan, the world’s second- and fourth-biggest economies (at market exchange rates), are still moving in the opposite direction.
In Japan, the government of Shinzo Abe is striving to exorcise the deflation that has haunted its economy for a decade and a half, in part through a bond-purchasing scheme on a par with America’s. If Japan is confronting the ghost of deflation past, the euro zone is spooked by deflation yet to come. Preliminary figures show headline inflation falling to 0.7% in January, matching the October low that prompted the European Central Bank (ECB) to cut its main policy rate to 0.25%. The bank’s council, which was meeting on February 6th as The Economist went to press, was facing pressure to loosen monetary policy again, either through a further rate cut or by providing more liquidity.
Last April the Bank of Japan (BOJ), under the freshly appointed Haruhiko Kuroda, started buying ¥7 trillion ($70 billion) of assets a month—close to the Fed’s monthly purchases, then of $85 billion but now $65 billion, and a far greater sum relative to the size of the Japanese economy. The BOJ is widely assumed to be about to expand this “quantitative easing” (QE). So far, the results have been promising.
The yen, which had already started to depreciate in 2012, lurched down still further last year, causing corporate profits and the stockmarket to soar. The currency depreciation has in particular pushed up headline inflation, which reached 1.6% in December (see chart). But core inflation (ie, excluding energy and food) has also moved into positive territory and is rising at its fastest pace since 1998. Although many observers still doubt that the BOJ will hit its target of generating inflation of 2% by the spring of next year, that no longer looks implausible. Moreover, Mr Kuroda, echoing the euro-saving phrase of Mario Draghi, the boss of the ECB, has vowed to do “whatever it takes”.
Mr Kuroda’s no-holds-barred QE has become all the more important since one of the other main elements of Mr Abe’s economic resuscitation plan—big supply-side reforms such as making it easier to sack permanent employees, and thus encourage hiring—is not making much headway. Indeed, with Kurodanomics now dominating Abenomics, the question preoccupying markets is how soon and how dramatically the BOJ will increase its QE. A spur to action may be the first of two scheduled increases in Japan’s consumption tax, which is due to rise from 5% to 8% in April. The last time the unpopular tax was raised, in 1997, the convalescent economy sickened again.
This time will be different, Mr Abe hopes, not least because his government will temper the contractionary effect with a temporary fiscal stimulus worth ¥5.5 trillion. The prime minister is also leaning on large firms to raise wages this spring in the annual shunto pay negotiation with unions. The need for higher wages was spelt out in official figures this week showing that earnings fell in real terms by 1.1% in the year to December. Mr Abe’s tactics have had some success. Keidanren, a lobby for big business, said in mid-January that it was backing pay rises by its members for the first time in six years. But small firms may not follow suit and the shunto round will not touch the ranks of low-paid, part-time and temporary workers upon whom Japanese firms increasingly depend.
Kurodanomics, meet Draghinomics
Mr Abe has other reasons to be nervous about raising the consumption tax. This year’s turmoil in emerging markets evokes unpleasant memories of the Asian crisis of 1997-98, which curbed Japanese exports and exacerbated the ill-effects of the consumption-tax rise. As global investors seek refuge in financial havens, the yen has started to appreciate again. That has cast a pall over the stockmarket: the Nikkei 225 fell by over 4% on February 4th, bringing its decline since the start of this year to 14%.
The difficulties facing Japan in trying to slough off deflation show why it is so important to try to avoid it in the first place. Mr Draghi has argued that the euro zone is not turning Japanese, but there are some worrying similarities. The single-currency area has for example been slow to deal with its lame banks. The asset-quality review and stress tests that will be carried out this year offer an opportunity to root out the bad loans and recapitalise the weak banks, but it is long overdue. The delay has contributed to a dearth of credit as undercapitalised banks retrench, which in turn has hindered growth.
With output in the euro zone still 3% lower than its pre-crisis peak of early 2008, it is hardly surprising that inflationary pressures are conspicuous by their absence. Core inflation in January was 0.8%, just a notch up from the record low of 0.7% at the end of 2013.
The ECB’s main hope is that the weak recovery that started last spring will put down deeper roots. That hope will be nourished by a report this week from Markit, a data-research firm, which showed manufacturing conditions at their most buoyant since mid-2011. Even so, the ECB’s declared bias is to ease monetary policy.
In what remains a dollar-based international monetary system, emerging economies are undoubtedly affected most of all by what the Fed does. But the rich world’s central banks are not conducting synchronised tightening; instead their monetary stances are diverging. Emerging markets may have benefited in particular from an era of cheap money and swelling liquidity—but that era is still far from over.
