Europe on the Japenese Road Map


Strong article from Anatole Kaletsky this. I wouldn't go along with his tongue in cheek optimism about the UK and the US, but on the danger of what he calls the media cliché of Germany being the prinicipal deflation candidate (I think you will find I was saying this here and on Bonobo Land long before it became fashionable to do so) I think he is bang on target. Also exceptional is his recognition that: "Cutting unemployment pay, reducing job protection and scaling back pensions can accelerate economic growth in an economy where demand is growing. But in an economy suffering from long-term demand stagnation, even the talk of such harsh supply-side reforms is likely to damage consumer confidence and further undermine demand." This is a point - like voices in the wilderness - Eddie Lee and I have been trying to hit home for some time. The srtuctural reforms are necessary, but everything is timing and mix, and if you don't get these right you're more likely to sink Germany further than to do anything constructive. Germany is an ageing and apprehensive society:

Last week’s figures confirmed that the German, Italian and Dutch economies have all entered their second or third quarters of economic decline, and that the eurozone as a whole was stagnant for the ninth consecutive month, with most industrial indicators pointing to further weakness ahead.

Despite all this grim news, investors are bidding up share prices across Europe, Germany has been the best performing major stock market in the world this year and the euro remains cripplingly expensive against the pound, yen and dollar, not to mention the Chinese renminbi — as anyone who has been on holiday in Europe this year can attest.

This divergence between market behaviour and economic reality can have one of two consequences. Either the eurozone economy will soon start to perform much better than the present statistics are suggesting; or investors in euro assets will soon realise that they are caught up in another asset bubble in some ways even more irrational than the dot-com speculation of the 1990s or the bond bubble that imploded so spectacularly two months ago.


There are several reasons why the outlook for Europe today looks considerably worse than it did for Japan in the mid-1990s, when its economy lurched from cyclical recession to structural depression.

The first is the paralysis of monetary and fiscal policy as a result of the single currency project. The monetary response to economic stagnation in Europe is proving even more timid than it was in Japan.

The European Central Bank has consistently dragged its feet and aggravated the recession, to the point where investors actually expect an increase in European interest rate next year. Compare this to what happened in Japan after the yen shock of 1995. Japan had already reduced its interest rates to 2 per cent a year before the yen shock hit in early 1995. From that point on the Bank of Japan became much more aggressive, slashing three-month rates to zero in six months (see bottom chart). Does anyone seriously expect the ECB to act so decisively in the next six months?

Fiscal policy will provide even less support for the euroland economy. European budgets are already in deficit, and fiscal policy is prevented by the Stability Pact from playing an active stabilising role. Japan managed to avoid a deep depression in the late 1990s because government spending kept the economy afloat, providing a net stimulus of almost 1 per cent of GDP each year between 1995 and 1999.

In euroland, the fiscal stimulus will be nil in the next few years — even on the optimistic assumption that Germany and France continue to ignore the Maastricht treaty’s insane strictures to reduce budget deficits when they ought to be expanding.

Meanwhile, the euro has become almost as overvalued as the yen was in 1995. In fact export prospects for Europe are now even bleaker than they were for Japan in the 1990s. Japan’s net exports grew rapidly from 1996 until 2000, providing the economy with its main source of growth. But Japan was able to increase its trade surplus only because America was allowing its trade deficit to expand.

Combining the influences of fiscal policy and trade, we can see that Japan was saved from depression in the late 1990s by a widening of budget deficits and export surpluses, which added more than 1 per cent to GDP growth each year.

Europe now faces exactly the opposite macroeconomic outlook. The budget deficit will be stable at best and may even narrow, if governments are mad enough to follow the instructions of the European Commission and the ECB. At the same time, euroland’s current account will shift towards deficit by 1 to 2 per cent of GDP.

Thus Europe is carrying a much heavier handicap in the global deflation stakes than Japan did in the 1990s.

But what about economic reforms? Surely the Europeans are finally getting the message about deregulating labour markets, cutting taxes, strengthening competition and trimming their welfare states?

There are some grounds for greater optimism in this area, especially in Germany, where Gerhard Schröder’s Agenda 2010 programme is proving surprisingly successful in introducing some modest labour market reforms. But structural reforms, in the absence of a positive monetary and fiscal policy, can be worse than useless.

Cutting unemployment pay, reducing job protection and scaling back pensions can accelerate economic growth in an economy where demand is growing. But in an economy suffering from long-term demand stagnation, even the talk of such harsh supply-side reforms is likely to damage consumer confidence and further undermine demand.

This is another of the key lessons from Japan. With an aggressively growth-oriented monetary and fiscal policy (of the kind seen in the US and Britain since the early 1990s) labour market reforms can create new jobs and win public support, but in the absence of a clear commitment from the central bank and the government to keep demand growing, supply-side reforms simply put people on the dole.

Yet in Europe, the institutions that created the euro have made the co-ordinated changes in monetary, fiscal and structural policies almost impossible, even if the reform movement starts to command strong political support. This is at the heart of the long-term economic problems faced by the eurozone.

Japan became a laughing stock in the last decade because of the inability of its politicians, bureaucrats and central bankers to agree on the economic reforms that were clearly required. But Japan’s challenge in creating consensus is nothing compared with the nightmare of creating co-operation among the warring institutions of the eurozone. The ECB is a far more independent central bank than the BoJ ever could be. The European Commission, even more than the Japanese bureaucracy, is a self-serving institution that pursues its own agenda, regardless of what elected politicians may say.

The eurozone has 12 governments, which between them include roughly 50 coalition parties, as against the single government (more or less) in Japan. This means that Japanese-style problems of fiscal, monetary and political co-ordination must be multiplied by 12 in Europe, or maybe raised to the twelfth power. Investors around the world are betting that Europe is suffering nothing worse a standard cyclical downturn and will soon recover to become the healthiest economy in the world. They could turn out to be right. But remember: that is what everybody thought about Japan in 1995.
Source: The Times
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German Recession Now Official

Now the Federal Statistics Office has made it official: Germany is in recession. Not a good day for Europe this.

The dollar hit a four-month high against the euro on Thursday after Germany, the eurozone's largest economy, went into technical recession as its exports dropped sharply and domestic demand remained weak. As expected, the Federal Statistics Office confirmed gross domestic product fell 0.1 per cent quarter-on-quarter, adding to a 0.2 per cent drop in the first three months.

Exports, which have supported Germany's economy during the downturn of the last two years, were hit in the second quarter by the single currency's steep climb to over $1.19 against the dollar in May. However, revisions to first-quarter data showed that exports fell in the first three months also, after a previously reported rise. "We have emphasized for months now that the rapid increase in the euro would add another unneeded drag on the eurozone economy, said Steven Saywell at Citigroup. "We take these data as confirmation of our view that the eurozone economy cannot sustain euro-dollar at current levels." The euro has sustained a sharp sell off in recent sessions as upbeat US data compared with bleak European numbers have led investors to sell the single currency and buy dollars on expectations the US economy will recover fastest from the global slowdown.
Source: Financial Times
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French Economy in Recession

So let's start the day with the good news shall we. I am of course being ironic. The latest info on second quarter GDP growth in the French economy (released yesterday by Insee) shows a 0.3% contraction. The equity markets seem way out of line with a very flat looking economic horizon here in Europe, and we shouldn't be surprised to see a 'correction' at some stage.

The French economy suffered a sharper-than-expected fall in growth during the second quarter, casting a shadow over hopes of a recovery in the eurozone. French GDP fell 0.3 per cent in the period, according to figures released on Wednesday by Insee, the official statistics institute, which lowered its previous figure for first quarter growth from 0.3 per cent to 0.2 per cent. Equity markets have risen strongly in recent weeks on hopes that an accelerating US pick-up will drag the 12-eurozone nations out of the mire. "It shows we should not get carried away by market optimism," said Ken Wattret of BNP Paribas. "At the moment it is expectations that are leading the charge . . . there's not much improvement in hard data." Forward-looking surveys, such as Germany's ZEW index, which rose strongly this week, have pointed to a rebound in optimism and a gradual upturn by the year-end. But the weak data from France - Europe's second largest economy - highlight the lack of drive in the region's economy. They are likely to lead to a downward revision of preliminary GDP data which showed the eurozone stagnated in the second quarter as recession gripped Germany, Italy and the Netherlands. "Last week's snap estimate of flat eurozone growth is already looking optimistic," said Mark Cliffe of ING. Eurostat - the EU statistics agency - is now likely to cut its estimate of eurozone economic growth in the second quarter from zero to minus 0.1 per cent, according to Reuters.
Source: Financial Times
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Euro Skeptic Sweden?

With less than one month to go before Sweden's vote on whether on not to enter the euro, the Economist reflects on the state of the game. It is clear that the outcome is far from certain. Poll results seem to suggest a 'no' vote, but polls can be wrong. One thing is clear, early enthusiasm for the euro is running a little weaker now. Widespread reports of the short term inflationary impact is one factor, growth and stability pact arguments are another. Then there is the often commented problem of the one-size-fits-all monetary policy: looking at Germany may cause many Swedes to ponder a little longer. My own feeling is that the Swedes would do well to adopt a wait and see approach, after all the costs of staying out - for at lest the time being - are more or less known, those which may be associated with an (apparently) irrevocable membership are much more difficult to evaluate.

WHEN does it make sense to join a currency union? Robert Mundell, an economist at New York’s Columbia University, argued long ago that small, open economies, tied together by trade and investment, should adopt a single money. Sweden’s great and good were so impressed with Mr Mundell’s theory of “optimum currency areas” they gave him a Nobel prize. Sweden’s voters seem less impressed. On September 14th, the people of this small, open economy, tightly bound to Europe by trade and investment, will vote in a referendum on joining the euro. Few think it optimal. Many don’t care for it at all.

A poll by Sifo, released last Friday, showed that 49% of Swedish voters want to keep the krona (crown) and only 34% are happy to see it disappear. On Monday, Gallup announced similar results. The “no” campaign has been gaining momentum since the end of last year, feeding on fears that the euro will bring price hikes and welfare cuts. On Saturday, Goran Persson, Sweden’s prime minister, moved to allay both concerns. A price and competition commission would be created, he said, to make sure Sweden’s retailers did not take advantage of the new currency to raise prices or round them up. Mr Persson also cut a deal with the LO, Sweden’s main confederation of blue-collar trade unions, agreeing a new fiscal framework that would reconcile Sweden’s generous social contract with the euro area’s restrictive stability pact. Swedes are whole-hearted internationalists but, as Swedish economist Lars Calmfors puts it, they are “half-hearted and unreliable Europeans”.
Source: The Economist
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A Small Worrying Detail about Germany

Amidst the growing political storm which surrounds Germany's growing debt problems one little detail of not inconsiderable importance has escaped the lips of opposition Bavarian CSU leader Edmund Stoiber: more and more Germans are leaving Germany. I have previously blogged the detail that the number of young people leaving has doubled each year for the past two years. Now we have it, as it were, from the horses mouth (of course Stoiber is persuing his own line of argument which I in no way endorse, especially in it's more xenophobic and anti-immigrant variant).

This tendency is unfortunately just what you would expect in a globalised labour market where the young and well-educated have the ability to travel: they leave to seek a better future elsewhere, or, as they say in the UK, they vote with their feet. The process, if not arrested by a general change of mentality all round, will surely produce a bi-polar situation with some countries enjoying the increasing returns of growing young cohorts (virtually gratis) while others experience the diminishing ones of an ever older work force. (This, of course, is one of the reasons I am so interested in, and pre-occupied for, Bulgaria. Minor digression here, I am heading south - and into sunny Valencia - next weekend to resume the study, and this time I will have a companion, a young Bulgarian research student, sent, like manna from heaven, by Margy. He is here doing, can you imagine, voluntary work among seamen in the port of Barcelona. A very intelligent boy - he started ethnographic research among Bulgaria's minorities when he was still in the last years of school - and from a 'good family', he was most shocked to learn under what conditions his relatively well-educated fellow countrymen were living and working here in Spain, something like the 'wild west' he commented. My initial feeling was that the whole thing was too strong for him, and that he wasn't going to be interested. But then I thought, if he goes back to Bulgaria and does a doctorate on something else, what will he do after he finishes, come to Valencia to pick oranges and peppers? And sure enough his interest soon perked up, we even talked jokingly about the situation, with me suggesting that clearly some contact with a Spanish university might come in handy one day. Please don't misunderstand me, I am not at all being cynical here, this is simply the logical conclusion of where we are going - at least here in Europe - if things continue unchecked).

Mr Stoiber also said Mr Schröder lacked "long-term goals", and such short- termism had seen him "bleed Germany dry" of top talent by cutting investment and increasing social benefits. "About 1.4m Germans have left the country in the last 10 years, and 80 per cent of them were high-flyers who have taken their knowledge abroad," he said.
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Germany Looking Towards Japan?

Interesting article about Germany's Bankgesellschaft from Gillian Tett in the FT. The situation is described by some as being "the biggest banking scandal in German history". The Bankgesellschaft in its modern form was created by the Berlin government in 1994 from the fusion of a variety of state owned savings banks, mortgage lenders and commercial banks. Much of the Berlin reconstruction party was financed via the bank and now that the property momentum has all but dropped out of the German economy the bank has, well guess what, a substantial non-performing loan problem. Hence the comparisons with the Japanese situation. In 2001 German regulators belatedly inspected the bank, deemed it insolvent and forced it to declare a E1.65 billion loss, a record in the sector. Berlin's politicians decided they could not bear to see the bank collapse so they pumped in E2 billion more capital, taking state ownership from 57 per cent to 81 per cent, and promised to underwrite future losses on some E20 billion of particularly dubious loans in the bank portfolio. But with the new financial and economic climate in Germany things cannot be left to stand as they are, so the Berlin government is busily trying to sell the thing off. Just how representative of the German banking and finance sector the Bankgesellschaft actually is only time will show.

For Germans to avert their eyes from Japan is not a good idea. Germany's economy, the largest in Europe, has been ailing for so long that a question is starting to be whispered by international policymakers and businessmen: is it at risk of catching the so-called "Japanese disease", the deadly cocktail of deflation, stagnation, political paralysis and banking jitters that has bedevilled Tokyo policymakers for the past decade?

There are already similarities. In the immediate postwar decades, both nations rebuilt their shattered economies with startling speed and astonishing success. This was in large part because both had formidable manufacturing skills and had developed a financial system based around banks willing to channel cheap loans to industry. Indeed, by the 1980s (Japan) and 1990s (Germany), they were dominating the Asian and European economies respectively and were presented as the model for neighbours to emulate.

Then it went wrong. For the past 13 years, Japan has suffered from economic stagnation, spiralling national debt, falling prices, declining industrial competitiveness - and a series of banking collapses. In Germany, economic crisis became evident more recently after it mishandled reunification by converting the former East German currency into D-Marks at a level that made East Germany utterly uncompetitive. At the same time West Germany was saddled with a huge reconstruction bill. The country now faces the challenges of rising debt and an ageing workforce; its industries are losing competitiveness on the world stage and its economy is being stalked by deflation. Germany is even starting to display a feature that is both a symptom and cause of other economic ills - rotten banks.

German leaders angrily dismiss the idea that their nation is turning into a "second Japan". When Hans Eichel, the German finance minister, attended a conference of international bankers in Berlin this summer, he said the latest economic indicators "give rise to a certain optimism that the German economy can make a gradual recovery". Josef Ackermann, the chief executive of Deutsche Bank, a man whom Eichel praised for his "sensible optimism", says Germany's problems "are not comparable to a Japanese crisis".

Others disagree. "The situation is more alarming than the German government is admitting," said Stephen Roach, chief economist at Morgan Stanley. Indeed, it is precisely because men such as Eichel and Ackermann sound so upbeat that many economists are alarmed. For what has made Japan's predicament so pernicious in the past decade is not simply lousy economic data but the endless refusal by the Tokyo establishment to admit that anything is seriously wrong.

Optimists say this self-delusion won't happen in Germany and point out that in recent months Eichel and Chancellor Gerhard Schroder have been talking about the need for change, and are pursuing reforms in parliament. Critics say the pace is much too slow, partly because the Germans, like the Japanese, seem to prefer stability at almost any cost. Both still have living memories of the devastating consequences of chronic instability and war.
Source: Financial Times
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German Government Banking on a Strong Recovery

The latest news from the German Finance Ministry only serves to underline the limited room for manouevre which the German government has right now. The hope seems to be that the combined effect of a short - but not especially sharp - shock to consumption in the form of a tax cut, plus the ongoing 'structural reforms' will be enough to shake the German economy out of its lethargy. This, in any event, I doubt. So the question is, if the 'play' doesn't work, what next?

The German government's refinancing plan will cost taxpayers an additional euro 10.6bn ($12bn, £7.5bn) a year from 2005, according to a government proposal. The refinancing proposal, to be presented to the cabinet on Wednesday, includes tax cuts and reductions in subsidies, and aims to increase government revenues by euro 5.5bn next year. Hans Eichel, the German finance minister, plans from 2004 to cut subsidies to home-builders and commuters in addition to cutting subsidies for farmers.

The accompanying budget law entails bringing forward tax cuts from 2005 to 2004, which will see a one-off euro15.6bn tax relief for the taxpayer. At the same time, however, the government is pressing ahead with the long-term cuts in state subsidies from next year to finance the tax reform. This will see the government's revenues improve substantially from 2005, as the shortfall in tax revenues will already have been absorbed. The budget law still has to be passed by the Bundesrat, the upper house of parliament, where the refinancing plan may face opposition from the Christian Democrats.

If the tax reforms are brought forward but the refinancing package is blocked, parliament would have to approve an even higher debt burden; the government's decision to bring tax cuts forward to next year will cause a shortfall in revenues, adding further strains to stretched finances. According to Mr Eichel's proposal, seen by FT Deutschland, the federal government's budget consolidation efforts would increase state revenues by euro 10.6bn in 2005, by euro 11.2bn in 2006 and by euro 12.9bn in 2007. By bringing the tax reform forward by a year the government hopes to give the ailing economy a nudge. The government's ambitious reform drive and accelerated tax cuts have helped improve depressed sentiment in the eurozone's largest economy. The tax-cut plans have put pressure on the EU's stability and growth pact. Berlin admits it could break the pact for the third year in 2004, calling into question whether the deficit ceiling of 3 per cent of GDP still holds.
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Germany on the Brink.........of Recovery?

There has been some talk recently in Blogland as to whether Wim Duisenberg should, by rights, eat his hat. One thing is clear, if the optimists are right, and the German economy does make a surpringly robust recovery, I will have to think again, and wear sackcloth and ashes for at least six months. Meantime allow me to remain the 'doubting Thomas' of the pack. First a piece from today's FT

Germany's Ifo business climate index, one of the most closely-watched economic indicators of eurozone growth, rose for a third successive month in July, further underpinning hopes for recovery in the country's feeble economy. The rise in the Ifo index followed a dramatic jump in another growth indicator, the ZEW economic institute's monthly expectations indicator earlier this month. Together, the indices provide a much-needed boost to the government, which is in the midst of pushing through an ambitious reform agenda in an effort to revive the stagnant economy. Crucially, the Ifo' s third rise - helped by recovering stock markets, the slightly weaker euro and the reform debate - signals that the real economy can be expected to follow the trend. "Based on previous experience, an improvement in the Ifo business climate three months in succession signals a coming economic upturn," Ifo president Hans-Werner Sinn commented. Unlike the ZEW, which is based on a survey of financial market analysts, the Ifo index, which is based on a survey of 7,000 companies, also provides firmer evidence that the turnaround in sentiment extends to businesses. At the same time, however, Monday's rise in Ifo's key index for western Germany was smaller than expected - to 89.2 from 88.8 in June, less than the 89.8 that had been forecast - highlighting that caution is still needed amid mixed signals from the real economy. Numerous economists, including at the IMF and Bundesbank, have revised down their expectations for German growth to near zero for this year, and 1.5 per cent for 2004, well below the government's official forecasts. With the economy still flirting with recession, and much dependent on whether the euro will again strengthen against the US dollar, the pressure remains firmly in place for chancellor Gerhard Schr?der to rapidly deliver on the "Agenda 2010" reforms he outlined in March.
Source: Financial Times
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Now clearly the expectation is one of a global recovery lifting all boats. For a look at what Keynes would perhaps have called the 'treasury view' let's make a brief visit to Morgan Stanley's Elga Bartsch last Friday:

Six months ago, I published a report entitled Is Germany Doomed? (January 6, 2003), in which I argued that the German economy would be reaching a critical point this year, in terms of both the business cycle and economic policies. As I feared at the time, the economy slipped back into recession in the first half of this year and is unlikely to do anything but stagnate for the year as a whole. Nevertheless, I am now ready to give three cheers to the Chancellor on the progress he is making in pushing through his reform agenda (see German Economics: Schroeder's Masterplan, March 16, 2003).

The first cheer is for the attempt to push through structural reforms, notably on labour market regulation. On my estimates, these reforms could add 0.75% to GDP over the next few years -- a small, but not negligible, effect. The second is for trying to lower (or at least limit further increases in) social security contributions, notably by trying to contain healthcare expenditure, reduce unemployment benefits and freeze pension spending. The third cheer is for pulling forward income tax cuts of about €15 billion that were originally scheduled for 2005, to next year, thereby bringing the total tax relief in 2004 to €20 billion, or 1% of GDP.

In light of these developments, we are revising up our 2004 GDP growth forecasts from 1.7% to 2.1%. If confirmed by official data, 2004 would record the second-strongest growth rate since 1994. Only the exceptional boom year of 2000, when the German economy registered a strikingly high growth rate of 2.9%, would surpass our new 2004 GDP forecast. The upward revision to the growth outlook, which brings our numbers to the upper end of the range of available forecasts, is concentrated in domestic demand, the long-standing Achilles heel of the German economy. In particular, we are raising our forecasts for consumer spending by almost a full percentage point to 2.1%, the highest growth rate since 1999. We are also increasing our forecast for investment spending from 1.3% to 1.8%, as small and medium-sized companies, which do not pay corporate taxes but income taxes, will also benefit from the income tax reduction. To some extent, the stronger domestic demand will also translate into stronger import demand, which comes as good news for Germany's neighbours.

Even though a growth forecast of 2.1%, almost one-third above trend growth, may already seem a little vertiginous, we believe that our forecasts are still on the conservative side. In particular, we have not factored in a reduction in social security contributions implied by efforts to contain spending on healthcare, pensions and unemployment benefits. In our view, January 1, 2004, will be too early to expect a marked reduction in contributions, which are equally shared between employers and employees, because we think that the cyclical upward pressures on contribution rates are likely to prevail in the near term.

With monetary policy remaining overly restrictive for the German economy and with fiscal policy under the scrutiny of the excessive deficit procedure, bold structural reforms really seem to be the best way forward. A recent IMF report estimates that by embracing US labour market regulations, the euro-area unemployment rate could be lowered by some 3.5 percentage points and output boosted by 5.25% in the long run. This simulation assumes that the replacement ratio of unemployment benefits, employment protection legislation and labour taxes are lowered to US levels. Of these three factors, however, it is really the replacement ratio and the employment protection legislation that matter most. Both of them are at the heart of Chancellor Schroeder's reform agenda. If, in addition, euro-area product markets were as deregulated as their US counterparts, this would boost output by roughly the same amount as a change in the labour market regime (see Unemployment and Labour Market Institutions: Why Reforms Pay Off, IMF, April 2003). For an economy that has underperformed the rest of the euro area for almost a decade now, attempting to unleash additional growth potential of 10% would not be a bad move. In fact, it might be the best one.
Source: Morgan Stanley Global Economic Forum
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Now as regular readers will know all too well, I am not in principle opposed to the 'labour market reforms', nor to product market deregulation, nor to pension reform, what I am not sure about is whether these measures when applied will produce the anticipated recovery. Elga convinces me of one thing, when you want to be convinced, it's not too hard to convince yourself - 10% additional growth potential, just like that, and you didn't even see my hands move! As Eddie once said, everything here is timing, timing and a broader view of the problem. Among other quaint details, I fail to see why we have to note that the monetary conditions are overrestrictive and leave matters there. If they are overrestrictive, shouldn't they be loosened? Finally, something Eddie sent in the mailbox this morning seems strangely to the point.

It seems to me that people tend to think one-sided. When they talk about structural problems like rigid labour markets, they think supply side. Remove the disincentives to work and flexibilise labour markets. People forget the demand side effects (which become larger, as they are a function of the demographics?)

And when you talk about determination of monetary aggregates for example, a large part of the reason why central banks are having less of an impact must be they are having less of an influence on the relationship between banks & their clients – the reason being the changing demograhics (non-linearity over the age curve?)

While the underlying causes are different, the deflation we get is always Keynesian - insufficient demand. But because of the differences again, much of which is where we are on the age curve, the cures, I agree, would have to be a lot more creative than standard Keynesian remedies.

My sense is that many people out there (particularly policymakers) think all we need to do is get the costing correct. I guess it’s essentially neo-classical thinking? They think micro and not macro.