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AB 2000 studies

Alain Boublil Blog


2005-2015: in ten years, (almost) everything has changed...

Let us remember! In 2005, oil prices began to rebound, after fluctuating for twenty years between 15 and 40 dollars per barrel. When it reached 50 dollars, people started to worry and to talk about expensive oil. Theorists of "peak oil" voiced their concerns and announced the imminent exhaustion of resources. Patrick Artus in La Tribune predicted a barrel around $ 300 in 2015! Jean Marie Chevallier replied wisely that it was very difficult to forecast. A few weeks earlier, Alain Terzian, still in La Tribune, came to the obvious conclusion: the world had never had much oil. Ten years have passed and the revolution of unconventional hydrocarbons happened. Oil production increased by 20% and the barrel price has fallen from $ 140 (its highest peak) to $ 60. Today, we think it is "cheap".

Same story for the dollar, but it goes the other way round. In 2005, people were concerned by the  twin US deficit. The budget deficit exploded after the intervention in Iraq and the "tax reform" of the Bush administration. The current account deficit exploded as well. The surplus countries funded it – China, first and foremost. Bernanke just succeeded Greenspan. On both sides of the Atlantic Ocean, inflation was a threat and time was on the rise in interest rates. But Europe raised them faster than the US, which delighted the Fed, whose avowed strategy was to reduce the external deficit attributed to a too strong dollar. Between 1999 and 2005, the euro went from 0.90 $ to 1.35 $.

Ten years later, and while the US external imbalances were only partially compensated, we are witnessing the opposite trend. The euro is weakened as a result of divergent expectations about the two central bank policies: an expansionist policy this time in the euro zone, and a restrictive policy in the United States, with the prospect of rising interest rates. Between summer 2014 and spring 2015, the dollar regained all the ground it had lost between 2003 and 2005. The euro is now fluctuating around $ 1.05.

There is change also in Europe. In 2005, while Tony Blair prepared to step down and, according to Le Monde, 350,000 British "left that year their island to enjoy a better life," the "sick man" was Germany, with an unemployment rate over 11% and a growth rate consistently below that of France since 1995, despite the reforms that would cause Chancellor Schroeder’s defeat. Angela Merkel, leader of the CDU, won the election at the end of 2005 and formed a large coalition. Ten years later, everything changed: France is now the "sick man" of Europe, with a growth rate below that of Germany and an unemployment rate two twice higher: 10%. The roles are reversed. Meanwhile, Europe underwent a crisis, with the rejection of the Constitutional Treaty by France and the Netherlands, and the failure of Lisbon Agenda that was supposed to provide Europe with the most competitive economies in the world in 2010. In 2015, looking back is even more cruel: facing a "twofold crisis", the "subprime" and that of the euro zone, Europe is struggling to restart, while the United States has started again and China pursues its journey.

Even if the global economy has been turned upside down, some constants remained. First, the American model is still extremely unequal. Thomas Piketty was right to highlight it in his book, but he did not invent anything. The Washington Post, dated March 12, 2006 pointed it: between 1980 and 2004, the GDP per capita grew by two thirds but the average real wage stagnated. Another obvious fact: the after-tax income of the 20% lowest-paid employees grew by 8%, while the after-tax income of the 20% highest-paid employees increased by 59%. The same goes for estate: the rise in house prices was more than offset by the rise in household debt and that is worrying observers. The Financial Times, dated April 19, 2005, reported that the practice of securitization of mortgages has reached unprecedented proportions and that risks are not under control. We know what happened next: two years later the sub-prime crisis broke out. We had hoped to offset the growing income disparities by providing credit to those who were the most vulnerable. Capitalism may generate inequality, as claimed by Thomas Piketty. But the key is not there. Trying to compensate for this defect by encouraging debt leads to structural crisis.

Another constant, no offenses to anyone who did not and still not believe it, is the performance of the Chinese economy. In 2005, Chinese economy is expected to get the fourth place, ahead of France and the United Kingdom, who are still neck-to-neck. The oil issue lies already at the heart of the discussions. The King of Saudi Arabia, worried that Angola might become a serious competitor, did not hesitate to go to Beijing to sign a "cooperation agreement". As for its relations with Japan, it is a love-hate relationship. Japan is still a major economic partner but it was sharply criticized for refusing to acknowledge its faults during the sino-japanese war. Prime Minister Koizumi’s visit to Yasukuni pagoda triggered anger in Beijing, such as the one made by his former colleague and successor, Shinzo Abe, ten years later.

Meanwhile, China has become the second largest economy and the first trading country. Boosting their economy like anyone else in July 2008, anticipating thereby the crisis that broke out in September due to the bankruptcy of Lehman, Chinese leaders have maintained the country on a path that would make it the world's largest economy before 2025. The arithmetic slowdown in the last two years reflects an obvious fact: once power production has been secured and large infrastructure created, growth is now oriented towards the satisfaction of domestic demand, by developing services. The increase in absolute value of Chinese production is growing considerably, although its rate is inexorably approaching that of developed countries. Concluding thereby that China is threatened by the crisis is deeply wrong. But it will not be the first or the last mistake we make about this country that some observers, especially in France, are eventually unable to understand.

By the end of 2003, Financial Times economic editorialist Martin Wolf began a series of articles explaining that Europe belonged the past, the United States to the present and Asia dominated by China, to the future. Despite all the upheavals of the past decade, this standpoint, at least, has not changed.



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