A super-secret Digg toolbar has been spotted in the wild. We tracked down a beta tester who gave us the skinny on its features. The toolbar lets you Digg or Bury the page you are on, and shows how many Diggs it has already received. There are also links to show related pages, as well as more pages from the same source voted highly by the Digg community or marked as up and coming.
Then there is the “Random” button which works like StumbleUpon. It takes you to a randomly-generated page based on your past input and overall Digg voting. By the prominence of this button, it appears that is a feature Digg will be trying to highlight. Users can also share the page via Facebook, Twitter, or email via icons at the top. A drawer slides down to expose additional functionality.
Now, here where it gets interesting. For each page, the toolbar creates a shortened URL similar to TinyURL or bit.ly that starts instead with http://digg.com/. . . followed by a six-character code such as “http://digg.com/d1gVha.” When you share a page via Twitter or Facebook, it is that shortened URL which is used. And in fact, for the beta testers, the toolbar can be wrapped around any page simply by sticking “http://digg.com/” in front of any URL, which then gets converted into a shortened version. This technique works for pages that have never been Dugg as well. I could see this feature eventually showing up as part of a browser add-on so that Digg URL’s could be created with one click.
The toolbar is not an add-on to existing browsers. It is actually creating a large i-frame around the original Webpage and delivering it on the Digg.com domain. Users can click on an X to get rid of the toolbar frame and be taken to the original page, and the original page gets the hit as well. (This is a similar technique to what Ginx does with its Web-sharing Twitter client). But by running all of the recommended pages through its own domain, Digg can run all sorts of analytics on each page such as how many people viewed it, where people clicked to next, and so on.
It is amazing that Twitter has single-handedly created this need for shortened URLs and that a relatively large player like Digg now wants a piece of that market.
Click on the screenshot below for a larger image:
I think this is probably a better approach than trying to get people to download yet another toolbar.
However, it still does not address the question of how Digg will ever become profitable. The more page views it gets, the more costs it incurrs, and since a large portion of digg users are folks with ad blockers, the CPMs are incredible low.
From India
Anjai Sen
You gotta be sh#%ting me…
There’s so many ways digg is profitable already, this toolbar will only make them more money.
People will buy random diggs for $0.05 like stumbleupon does. With the amount of diggers there are, they’re gonna sell loads of traffic.
And CPM is low for little sites, landmarks like digg are banking.
You obviously have absolutely no idea what you are talking about.
“There’s so many ways digg is profitable already”
Oh really?
What part of “In 2007 the company lost $2.8 million on $4.8 million of revenue. In the first three quarters of 2008, Digg lost $4 million on $6.4 million of revenue.” do you not understand?
From India
Anjali Sen
@Ajali Sen: Turn on your sarcasm filter, Gubatron’s post will make more sense.
I see
@Anjali, you are right.
Digg is losing dollars like shit.
This Article is good enough proof.
http://www.tech...-rose-and-more/
Good Job babe.
More pageviews = more cost??? u r living 10 years back in time.
Good move by digg, it should try somethings, as it is can never go up. Next would be allowing non-login diggs but only half digg, while logged in can have 1 full digg.
ps. pls stop spamming techcrunch.. only babes with gud ass are sexy..
Enter one url to AAfter.com we give you 3 short URLs to make it fail proof. [excuse my ad]
I wonder why Digg is digging in this space. There are over 50 url shortening service providers around.
NICE!
Also diggin popurls’ toolbar at http://popshuffle.com as it’s more diversified than the others.
I keep getting an error page:
http://digg.com/d1gVha
I actually had this idea a very long time ago but never got around making something.
cool! Here’s a bucket of non-existent cash, and an unsigned lease on a yet-to-be-built office where you can fail to start a company to do something with that idea you never acted on.
Ideas = dime a dozen
Actually doing something with your ideas = priceless.
What happened to the Facebook Connect integration, is that still on the cards? This has potential but I have many toolbars/sidebars/widgets will this replace existing toolbars or become just another face in the crowd…
“The toolbar is not an add-on to existing browsers. It is actually creating a large i-frame around the original Webpage and delivering it on the Digg.com domain”
What a stupid idea. So I guess if you want to bookmark a page you have to bookmark the Digg url for the page?
But then again, most of the Digg fanboys are so awestruck by KR they will install anything that he promotes, so this will probably be popular with the Digg crowd.
Digg might push big traffic numbers to the pages it links to, but we are not in 1998 anymore. It takes more than eyeballs to make money.
Incredibly well put. :high five:
RBS Krize
von Raivo Pommer-Eesti-raimo1@hot.ee
Die Royal Bank of Scotland (RBS) hat 2008 mit 24,1 Milliarden Pfund den größten Verlust in der britischen Wirtschaftsgeschichte verzeichnet.
Die Bank will sich daher in den kommenden Jahren von einem großen Teil ihrer Aktivitäten trennen und stark auf die Kostenbremse drücken, wie RBS am Donnerstag mitteilte. Insgesamt stehen 20 000 der weltweit 180 000 Jobs auf der Kippe. Für Wirbel sorgten Berichte, dass der gescheiterte Ex-RBS-Chef Fred Goodwin (50), bereits jetzt jährlich aus Bankenmitteln ein Ruhestandsgehalt von 650 000 Pfund einstreicht.
Mit einer Konzentration auf das Kerngeschäft will Bankenchef Stephen Hester die RBS wieder in die Gewinnzone führen. Dazu will er die risikoreichen und verlustbringenden Geschäftsfelder zunächst bankenintern ausgliedern und später verkaufen. Betroffen davon soll vor allem das Investment-Banking sein. Zudem will die Bank ihr internationales Geschäft beschneiden und sich aus 36 von derzeit 54 Ländern zurückziehen.
Sprecken zie “Bugger off”?
ad revenue=dead.
http://tr.im/gOUl
I’m not keen on that iframe thing. I’d rather all functionality be built into a toolbar.
linkped already does this in a much more targeted fashion <- not affliated with them.
Interesting, agree about the above comment regarding toolbars. (i.e they’re not the way forward)
wow
NICE NICE NICE!
I want to try it NOW! A killer feature!
this is a badly needed tool for Digg, the current setup is getting antiquated
I’m glad digg is taking the time to get this one right.
Toolbars are the devil.
Emmely story
von Raivo Pommer-eesti-raimo1@hot.ee
Am Anfang stand der Verdacht der Unterschlagung, am Ende die fristlose Kündigung. Nach mehr als 30 Berufsjahren soll Kassiererin “Emmely” zwei Pfandbons über 48 und 82 Cent unterschlagen und damit ihren Arbeitgeber um 1,30 betrogen haben. Nach Ansicht des Berliner Landesarbeitsgerichts ein gravierender Vertrauensbruch, der die Kündigung der 50-Jährigen rechtfertigt. Nach Ansicht der Gewerkschaften nur Mittel zum Zweck, sich einer unbequemen Mitarbeiterin zu entledigen. Was meinen Sie? Rechtfertigt der vermeintliche Diebstahl eines Pfandbons nach 31 Jahren im Beruf eine solche Härte? Diskutieren Sie mit!
If Digg is going to go more “mainstream” and appeal to those end users like the typical AOL user then they have no choice but to make a toolbar available.
Bleh…another fluffy web 2.0 company that has crappy CPM…
Seriously, I think its ridiculous single handily crediting tinyurl and bit.ly’s existence to Twitter. I think Twitter is a neat invention, but come on. People use tinyurl and bit.ly for things besides Twitter. TC is becoming too twittered out, I’m starting to think someone there has a personal interest in the company.
Exactly. TC provides some pretty good angles on a hell of a lot of startups, even Twitter occasionally. But in general the Twitter commentary here has devolved into rabid fanboyism, the likes of which you’d have to go to Digg (or *shudder* YouTube) to see in the wild.
Honestly I think Twitter is sort of a killer app for tech bloggers, and it has some very powerful niches here and there (breaking news, search on live events), but honestly it’s just filling in the cracks as our society heads for total cognitive overload. Sooner or later all this attention-grabbing technology is going to result in a social backlash when people look up from their iphones and realize they can’t live like this anymore. Twitter is one of the foremost startups accelerating us towards that brick wall.
Killer app for some, waste of time for most.
OMGosh no way dude, a Digg toolbar? Thats sick! I cant wait. I need more tool bars to cover up my remaining browsing area!
RT
http://www.be-anonymous.us.tc
At the very least if this becomes pretty heavily used, it might just cut down on some of the dupe posting (though it’s likely that bitching about power users will continue).
Neat idea though. Can’t wait to see it when its done.
Does anyone else think that digg doesn’t need to “beat” stumbleupon? To me, they seem like they have different purposes altogether. Digg is for news stories, mostly, stumbleupon is more for websites. That’s the way I use them, anyway.
We’ve been working on similar feature for a couple months. I guess we will have to release it sooner than we thought
FAIL
already resorting to stealing ideas from other websites? sigh- nothing like another company trying to monitor all your surfing –
this is goin to do very lil for digg
I am going to both stumble and digg this page…
Eurokrize
Eesti-von Raivo Pommer–raimo1@hot.ee
L’euro poursuit son repli ce mardi face au dollar. Vers 18h45, un euro s’échangeait ainsi contre 1,32 dollar, après voir touché 1,3168 dollar, au plus bas depuis le 11 décembre. Lundi soir, un euro valait 1,3362 dollar. Les cambistes spéculent sur une probable baisse des taux européens à l’issue de la réunion du Conseil des gouverneurs de la Banque centrale européenne (BCE), ce jeudi à Francfort.
Face au ralentissement économique, l’institution présidée par Jean-Claude Trichet devrait opter pour un nouvel assouplissement monétaire. La majorité des économistes parient sur une baisse de 50 points de base du taux directeur européen, qui serait ainsi ramené à 2%.
La tendance baissière de la devise européenne est par ailleurs renforcée par les craintes sur la dette de plusieurs gouvernements de la zone euro après que l’agence de notation Standard & Poor’s a placé la note de la dette à long terme de l’Etat espagnol sous surveillance négative. Cette dernière pourrait ainsi perdre son rang “AAA”.
De son côté, le billet vert a été soutenu par les propos de, Ben Bernanke. Le président de la Réserve fédérale américaine qui a estimé mardi que son institution disposait encore “d’outils puissants” contre la crise.
I just logged into Digg and there was a link to http://digg.com/tools/firefox at the bottom of my Profile page, next to a big Firefox logo, so perhaps it’s launched. Or maybe I was just randomly selected.
“Digg Toolbar for Firefox – The Digg Toolbar for Firefox lets you Digg, submit content, and keep track of Digg even when you’re not on the Digg site. Download the official Digg Toolbar for Firefox now.”
Digg is utterly irrelevant now. It’s 90% spam and 10% 14-year-old boys engaged in flame wars.
(Unlike Techcrunch, where the reverse is true.)
When’s your 15th birthday?
That’s the ugliest thing I’ve ever seen.
Digg sux0rs! NICE.. BIAT..
ANOTHER site supporting those super intrusive annoying social bars? Great.
Just please made a Safari’s version OK.
i hate downloading toolbars… i could get into this though.
as long as it works in safari
Oh no..not another toolbar. Already running out orb browser space with ff extensions
I’ve never been a fan of toolbars. I love when I use a friends computer and they have a ton of toolbars loaded up on the screen and they don’t even use them.
I say “NO!” to another useless toolbar!
slow news day
It’ll be fun to watch the battles play out in this space over the coming months/years. Hyper-competitive.
This looks like something I would use
Party like it’s 1999…
Yay bloatware.
Yawncakes
where they are just trying to copy stumbleupon with that toolbar but the thing is that there’s a big difference between stumble’s idea and digg’s idea. I think Digg might loose a lot of traffic by convincing users to use that toolbar and it might be pretty vulnerable to microsoft framework and people who will find those problems might get hundrends of votes and many pages popular just because digg wants to add more features to their system.
digg is ok like now, they should work on other areas like stopping poor users from burrying quality articles just to get in front of you and other things like those to get their system right and improve it. they shouldn’t waste time with toolbars that could turn all things upside down.
Paribas grosbank BNP in Paris krisis
von Raivo Pommer-Eesti-raimo1@hot.ee
Peinlicher Computerfehler bei der französischen Großbank BNP Paribas: Das Finanzinstitut hat von zahlreichen Kundenkonten aus Versehen zu viel Geld abgebucht.
Fast 600 000 Transaktionen wie Überweisungen wurden wegen eines Softwarefehlers irrtümlich zweimal oder sogar dreimal ausgeführt. Betroffen seien einige zehntausend Konten, bestätigte ein Sprecher der Bank am Freitag.
Das Institut kündigte an, die Fehlbuchungen innerhalb von 48 Stunden wieder rückgängig zu machen. “Die Kunden werden natürlich nicht die Konsequenzen dieses Vorfalls tragen”, hieß es bei BNP Paribas. Auch wer durch die Abbuchungen in die roten Zahlen gerutscht sei, müsse keine Zusatzkosten durch Zinsen befürchten. Wie viel Geld fälschlicherweise den Besitzer wechselte, wollte die Bank zunächst nicht sagen. Auch zur Ursache des Computerfehlers gab es keine Angaben.
This isn’t really going to help Digg with their CPM, StumbleUpon has proved how worthless stumble CPMs are, read my post:
http://zedomax....dsense-revenue/
I even have a similar site http://sitehoppin.com to test out things, stumble-model isn’t great for making money, but it’s good for stumbling.
We are using this frame since 6 months in Polish Digg clone: wykop.pl. It is perfect for virals, gives additional 50% pageviews, and users love it!
Wykop.pl has right now 2,5 mln unique users, 5,8 mln visits and about 30 mln pageviews (only in Poland).
Catastrophe Eastern
von Raivo Pommer-Eesti-raimo1@hot.ee
Eastern Europe’s woes are not unmanageable. But they are not being managed. The result could be catastrophe
AMID the wreckage of Latvia’s retailing industry, which has declined 17% year on year according to the latest figures, one item is selling well: T-shirts with seemingly mysterious slogans such as “Nasing spesal”. Latvians are glad to have something to laugh about, even if it is only their finance minister, Atis Slakteris. In an ill-judged foreign television interview, using heavily accented and idiosyncratic English worthy of the film character Borat, he described his country’s economic problems as “nothing special”.
Put mildly, that was an original interpretation. Fuelled by reckless bank lending, particularly in construction and consumer loans, Latvia had enjoyed a colossal boom, with double-digit economic growth and a current-account deficit that peaked at over 20% of GDP. Conventional wisdom would have suggested applying the brakes hard, by tightening the budget and curbing borrowing. But the country’s rulers, a lightweight lot with close ties to business, rejected that. Fast economic growth made voters feel that European Union membership was at last producing practical benefits, after a disappointing start when tens of thousands of Latvians went abroad in search of work, leaving rural villages and small towns depopulated.
Click here
The central assumption, in Latvia and many other countries in or near the EU, was that convergence with rich Europe’s living standards and other comforts was inevitable. Lending in foreign currency went from 60% of the total in 2004 to 90% in 2008. Why pay high interest rates in the local currency, the lat, when the cost of a euro loan was so much cheaper? In a few years Latvia would surely join the euro anyway. Similarly, worries about financing the inflows were dismissed: Swedish banks would no more abandon their subsidiaries in Latvia than they would pull out of, say, southern Sweden.
Last year tested those assumptions nearly to breaking point. First, Latvia’s housing bubble popped. Then the main locally owned bank, Parex, went bust and had to be nationalised, amid fears that it could not pay two syndicated loans due this year. In December Latvia accepted a humiliating €7.5 billion ($9.56 billion) bail-out led by the IMF.
The big cuts in social spending that the package entailed led to vigorous public protests. Now the government has resigned. At a time when strong leadership and public trust are needed more than ever, the country’s squabbling and discredited politicians look hopelessly out of their depth. Latvia is an economic pipsqueak, with just 2.4m people. But the rest of the region is watching nervously, fearful that more bad news from the Baltics could bring others crashing down too.
It is easy to be pessimistic. This is indeed the worst economic crisis since the collapse of the communist planned economies and the wrenching process of privatisation, liberalisation and stabilisation that followed. The main ex-communist economies are likely to contract by 3% this year, according to Capital Economics, a consultancy. Yet the picture is not uniform. Only a few countries have needed an IMF bail-out. One is Latvia, whose economy is set to contract by at least 12% this year, and whose credit rating has just been downgraded by Standard & Poor’s to junk. Another is Hungary, burdened with a larger debt-to-GDP ratio than almost any other new EU member. It received $25 billion in October and faces a contraction of up to 6%. A third is Ukraine—chaotically run, corrupt and badly hit by the slowdown in its main export market, Russia. Ukraine’s IMF deal brought it $4.5 billion in November. But a second tranche of $1.9 billion is stuck; the deal is unravelling as politicians squabble over spending cuts. Its economy is likely to shrink by 10% this year. Other countries with IMF packages agreed or pending include Belarus (a Russian ally which is still expected to see growth this year), Georgia (which was bailed out after last year’s war with Russia) and Serbia.
Most other countries in the region are faring much better, though. Poland—by far the largest economy of the new EU members—is nowhere near collapse. Unlike its central European neighbours, it is big enough not to depend chiefly on exports to the rest of the EU. By European standards, its public finances are in fairly good shape. Its debt-to-GDP ratio is below 50%. Growth will be negligible, or slightly negative, but nobody is forecasting a big decline. Some Polish firms and households have taken out foreign-currency loans—but the figure is around 30% of all private-sector lending, compared with twice that in Hungary.
The second-biggest economy, the Czech Republic, is in good shape too. Its economy may shrink by 2%, but it has a solid banking system and low debt. Its neighbour Slovakia is in better shape still: it managed to join the euro zone this year. Like Slovenia, which joined two years ago, Slovakia can enjoy the full protection of rich Europe’s currency union, rather than just the indirect benefit of being due to join it some day.
Farther afield, the picture is very different. For the poorest ex-communist economies, the problem is not financial meltdown. They lack much to melt. Their exports are raw materials, agricultural products and people. In six countries, money sent home by foreign workers counts for more than 10% of GDP (in Tajikistan and Moldova it is more than 30%). Outsiders who agonise over the Latvian lat or Hungarian forint are rarely bothered with worries about the somoni (Tajikistan), leu (Moldova) or manat (Turkmenistan).
That highlights an important problem. Outsiders tend to lump “the ex-communist world” or “eastern Europe” together, as though a shared history of totalitarian captivity was the main determinant of economic fortune, two decades after the evil empire collapsed. Though many problems are shared, the differences between the ex-communist countries are often greater than those that distinguish them from the countries of “old Europe” (see table).
They range from distant, dirt-poor despotic places to countries in the EU that are not just richer than some of the old ones, but have better credit ratings, sounder public finances and stronger public institutions. In almost any contest for good government, stability or prosperity, Slovenia (under a sort of communism until 1991) looks better than Greece, which invented democracy and was never communist.
The thirst for capital
Historical and geographical quibbles aside, what the ex-communist countries have shared over the past decade is a mighty thirst for capital. Having missed out on decades of growth and integration with the outside world, almost all (a few oddballs in Central Asia aside) are trying to catch up. Money from abroad has come in from borrowing on the bond market, from foreign direct investment or from selling shares. Most often it has come through bank loans.
At one extreme is Russia, which enjoyed huge external surpluses thanks to its wealth of raw materials. But its big companies borrowed lavishly on the strength of that, creating a potential short-term debt problem. Russian corporate borrowers have to pay back around $100 billion this year. At the other extreme lie countries such as Slovakia. They attracted billions from foreign car manufacturers, drawn by a skilled workforce, low taxes and decent roads in the heart of high-cost Europe.
Countries that relied chiefly on foreign direct investment are the least vulnerable now. The new factories may shut down. But it is harder for that capital to flee. Those that rely on foreign investors buying their bonds, such as Hungary, are the most vulnerable: their fortunes vary with every twitch of a trader’s fingers. In the middle are those that rely on lending from foreign banks to their local subsidiaries. That looked solid in the boom years, as Western banks scrambled to win market share by offering good terms to borrowers and lenders in the fastest-growing bit of Europe. It is still highly unlikely that any Western bank will pull the plug on a subsidiary anywhere—even in troubled Ukraine.
But nerves are jangling. The ex-communist countries have survived the first phase of the crisis, thanks to their own policies and some external support. The second phase, in which the rich world is turning stingier and possibly more protectionist and lenders are scurrying to safety, may be harder. The ex-communist economies must repay or roll over a whopping $400 billion-odd in short-term borrowings this year. Coupled with the lazy but easy lumping of nearly three dozen countries together, that creates the region’s biggest danger: contagion (see article). In other words, failure in one place sparks a disaster in another, even though it may be far away and have the same problem in a far more manageable form.
Contagion could happen in many ways. One is if depositors lose confidence that their savings are safe. So far, Western-owned banks have enjoyed rock-solid credibility: more so, in many cases, than governments or other public institutions. But that confidence could be undermined. If only one foreign bank pulls the rug from under one local subsidiary, leaving depositors stranded, it will cloud perceptions of banks’ reliability across the region. The most dangerous kinds of bank runs would be those in which depositors try to pull out either their foreign currency, or local currency which they would then attempt to convert into hard currency. In some countries that could overwhelm the ability of the central bank to support the financial system.
Another weak point is where shareholders take fright. If a foreign bank with big exposure to the region—Swedish, Austrian or Italian—needs to raise more capital but finds that outsiders think its loan book is too risky, what happens? The price of rescue may be that it sheds a troubled foreign subsidiary. Signs of shareholder twitchiness are growing (see chart).
For now, the most likely source of contagion is collapsing currencies. The paradox is that for countries with floating exchange rates, an orderly depreciation would in normal circumstances be a good way of cushioning an external shock, such as the slump in export markets now hitting the ex-communist economies. It stokes competitiveness and, along with lower interest rates, it lays the foundations for a return to growth. Governments with sound public finances might also consider running a looser fiscal policy to counteract the downturn.
Propping up the currency
For most of the countries in the region, such a textbook response is out of the question. Some have currency boards, or pegged exchange rates. In the Baltic states these have been the centrepiece of economic policy for more than 15 years. Abandoning them would not only bankrupt big chunks of the economy that have borrowed in euros. It would also be a huge psychological blow to public confidence in the whole idea of independent statehood. These countries have suffered the most painful part of being in the euro zone—the inability to devalue and regain competitiveness—without getting all the benefits.
Countries with floating exchange rates have a bit more room for manoeuvre. Their problem (a big one in Hungary, a lesser one in Romania and Poland) is that falling exchange rates may bankrupt the firms and households which have, in past years, taken out unwise loans in foreign currencies, chiefly euros and Swiss francs. That was, in effect, a convergence play. If you believed your country was heading for the euro zone some time in the next few years, then why not take advantage of the low interest rates there, rather than suffer the higher ones in your domestic currency?
What seemed a minor risk back then now looks painfully mistaken. For those earning forints or Polish zloty, the big swings in exchange rates in recent weeks have sent the size of both loans and repayments spiralling upwards. The zloty has dropped 28% and the forint 22% against the euro since the middle of last year. If the East Asian crisis of 1997 is any guide, these and other currencies may yet have further to fall.
This risk of a currency collapse will limit these countries’ options. So far many big central European countries have cut interest rates heavily to try to boost their economies—Poland’s central bank cut its policy rate again this week. But currency weakness will limit their room for manoeuvre. The Czech, Hungarian and Polish central banks issued a co-ordinated statement this week hinting they might intervene to support their exchange rates. But that route is tricky. Russia has blown half its reserves in a series of unsuccessful attempts to try to prop up the rouble.
Spending and tax policies would be another way of dealing with a downturn. But these are constrained, too. Those countries with a chance of joining the euro are scrambling to cut their budget deficits to get them in line with the 3% of GDP target set by the EU’s Maastricht treaty. Yet that aggravates the problem. The danger for Latvia and Ukraine is a downward spiral, where cuts in public spending damage the economy in a way that helps to entrench the deficit.
So far, the economic crisis has not translated into populist or protectionist politics. It is the east European countries that have been demanding that the rest of the EU stick by the rules of the single market. Their development over the past decades has been thanks to the free movement of capital, goods and labour. They would like a lot more of it: in a contest to subsidise industries, rich countries always win.
But that stance will not hold indefinitely if things get worse. Willem Buiter, a prominent economist, believes it is only a matter of time before some of the ex-communist countries introduce capital controls. That, in theory, would allow them to concentrate on stabilising their economies without worrying so much about the external value of their currency. If voters find the economic pain of adjustment unbearable, politicians can pass laws that will make foreign-currency borrowings repayable in local currency. That would be met with fury by the foreign banks, who would in effect see their loan books expropriated. But it could happen.
Against that background, what can be done? The east European countries are, belatedly, co-ordinating their approach within the EU, holding their own mini-summit on March 1st. They want to embarrass countries such as France for what they see as its protectionist approach to the crisis. They are supporting each other: the Czech Republic and Estonia were among those contributing to the Latvian bail-out.
But even co-ordinated local efforts are unlikely to make much difference, given the scale of the problem. The real lead, and the real money, must come from outside the region. That brings into play a slew of political problems. Having trumpeted their free-market principles in past years, and dismissed the stodgy approach of countries such as Germany and France, the new EU members from eastern Europe are now turning to old Europe in the hope that it can hurry up the flow of EU structural funds to counteract the downturn, bail out or prop up over-exposed banks in places like Austria, and stretch the rules of the European Central Bank to let it provide support to countries outside the euro zone. The case for such measures is strong, and it is in the interest of all Europe that contagion is contained. But that does not mean that it will happen.
Catastrophe Eastern
von Raivo Pommer-Eesti-raimo1@hot.ee
Eastern Europe’s woes are not unmanageable. But they are not being managed. The result could be catastrophe
AMID the wreckage of Latvia’s retailing industry, which has declined 17% year on year according to the latest figures, one item is selling well: T-shirts with seemingly mysterious slogans such as “Nasing spesal”. Latvians are glad to have something to laugh about, even if it is only their finance minister, Atis Slakteris. In an ill-judged foreign television interview, using heavily accented and idiosyncratic English worthy of the film character Borat, he described his country’s economic problems as “nothing special”.
Put mildly, that was an original interpretation. Fuelled by reckless bank lending, particularly in construction and consumer loans, Latvia had enjoyed a colossal boom, with double-digit economic growth and a current-account deficit that peaked at over 20% of GDP. Conventional wisdom would have suggested applying the brakes hard, by tightening the budget and curbing borrowing. But the country’s rulers, a lightweight lot with close ties to business, rejected that. Fast economic growth made voters feel that European Union membership was at last producing practical benefits, after a disappointing start when tens of thousands of Latvians went abroad in search of work, leaving rural villages and small towns depopulated.
Click here
The central assumption, in Latvia and many other countries in or near the EU, was that convergence with rich Europe’s living standards and other comforts was inevitable. Lending in foreign currency went from 60% of the total in 2004 to 90% in 2008. Why pay high interest rates in the local currency, the lat, when the cost of a euro loan was so much cheaper? In a few years Latvia would surely join the euro anyway. Similarly, worries about financing the inflows were dismissed: Swedish banks would no more abandon their subsidiaries in Latvia than they would pull out of, say, southern Sweden.
Last year tested those assumptions nearly to breaking point. First, Latvia’s housing bubble popped. Then the main locally owned bank, Parex, went bust and had to be nationalised, amid fears that it could not pay two syndicated loans due this year. In December Latvia accepted a humiliating €7.5 billion ($9.56 billion) bail-out led by the IMF.
The big cuts in social spending that the package entailed led to vigorous public protests. Now the government has resigned. At a time when strong leadership and public trust are needed more than ever, the country’s squabbling and discredited politicians look hopelessly out of their depth. Latvia is an economic pipsqueak, with just 2.4m people. But the rest of the region is watching nervously, fearful that more bad news from the Baltics could bring others crashing down too.
It is easy to be pessimistic. This is indeed the worst economic crisis since the collapse of the communist planned economies and the wrenching process of privatisation, liberalisation and stabilisation that followed. The main ex-communist economies are likely to contract by 3% this year, according to Capital Economics, a consultancy. Yet the picture is not uniform. Only a few countries have needed an IMF bail-out. One is Latvia, whose economy is set to contract by at least 12% this year, and whose credit rating has just been downgraded by Standard & Poor’s to junk. Another is Hungary, burdened with a larger debt-to-GDP ratio than almost any other new EU member. It received $25 billion in October and faces a contraction of up to 6%. A third is Ukraine—chaotically run, corrupt and badly hit by the slowdown in its main export market, Russia. Ukraine’s IMF deal brought it $4.5 billion in November. But a second tranche of $1.9 billion is stuck; the deal is unravelling as politicians squabble over spending cuts. Its economy is likely to shrink by 10% this year. Other countries with IMF packages agreed or pending include Belarus (a Russian ally which is still expected to see growth this year), Georgia (which was bailed out after last year’s war with Russia) and Serbia.
Most other countries in the region are faring much better, though. Poland—by far the largest economy of the new EU members—is nowhere near collapse. Unlike its central European neighbours, it is big enough not to depend chiefly on exports to the rest of the EU. By European standards, its public finances are in fairly good shape. Its debt-to-GDP ratio is below 50%. Growth will be negligible, or slightly negative, but nobody is forecasting a big decline. Some Polish firms and households have taken out foreign-currency loans—but the figure is around 30% of all private-sector lending, compared with twice that in Hungary.
The second-biggest economy, the Czech Republic, is in good shape too. Its economy may shrink by 2%, but it has a solid banking system and low debt. Its neighbour Slovakia is in better shape still: it managed to join the euro zone this year. Like Slovenia, which joined two years ago, Slovakia can enjoy the full protection of rich Europe’s currency union, rather than just the indirect benefit of being due to join it some day.
Farther afield, the picture is very different. For the poorest ex-communist economies, the problem is not financial meltdown. They lack much to melt. Their exports are raw materials, agricultural products and people. In six countries, money sent home by foreign workers counts for more than 10% of GDP (in Tajikistan and Moldova it is more than 30%). Outsiders who agonise over the Latvian lat or Hungarian forint are rarely bothered with worries about the somoni (Tajikistan), leu (Moldova) or manat (Turkmenistan).
That highlights an important problem. Outsiders tend to lump “the ex-communist world” or “eastern Europe” together, as though a shared history of totalitarian captivity was the main determinant of economic fortune, two decades after the evil empire collapsed. Though many problems are shared, the differences between the ex-communist countries are often greater than those that distinguish them from the countries of “old Europe” (see table).
They range from distant, dirt-poor despotic places to countries in the EU that are not just richer than some of the old ones, but have better credit ratings, sounder public finances and stronger public institutions. In almost any contest for good government, stability or prosperity, Slovenia (under a sort of communism until 1991) looks better than Greece, which invented democracy and was never communist.
The thirst for capital
Historical and geographical quibbles aside, what the ex-communist countries have shared over the past decade is a mighty thirst for capital. Having missed out on decades of growth and integration with the outside world, almost all (a few oddballs in Central Asia aside) are trying to catch up. Money from abroad has come in from borrowing on the bond market, from foreign direct investment or from selling shares. Most often it has come through bank loans.
At one extreme is Russia, which enjoyed huge external surpluses thanks to its wealth of raw materials. But its big companies borrowed lavishly on the strength of that, creating a potential short-term debt problem. Russian corporate borrowers have to pay back around $100 billion this year. At the other extreme lie countries such as Slovakia. They attracted billions from foreign car manufacturers, drawn by a skilled workforce, low taxes and decent roads in the heart of high-cost Europe.
Countries that relied chiefly on foreign direct investment are the least vulnerable now. The new factories may shut down. But it is harder for that capital to flee. Those that rely on foreign investors buying their bonds, such as Hungary, are the most vulnerable: their fortunes vary with every twitch of a trader’s fingers. In the middle are those that rely on lending from foreign banks to their local subsidiaries. That looked solid in the boom years, as Western banks scrambled to win market share by offering good terms to borrowers and lenders in the fastest-growing bit of Europe. It is still highly unlikely that any Western bank will pull the plug on a subsidiary anywhere—even in troubled Ukraine.
But nerves are jangling. The ex-communist countries have survived the first phase of the crisis, thanks to their own policies and some external support. The second phase, in which the rich world is turning stingier and possibly more protectionist and lenders are scurrying to safety, may be harder. The ex-communist economies must repay or roll over a whopping $400 billion-odd in short-term borrowings this year. Coupled with the lazy but easy lumping of nearly three dozen countries together, that creates the region’s biggest danger: contagion (see article). In other words, failure in one place sparks a disaster in another, even though it may be far away and have the same problem in a far more manageable form.
Contagion could happen in many ways. One is if depositors lose confidence that their savings are safe. So far, Western-owned banks have enjoyed rock-solid credibility: more so, in many cases, than governments or other public institutions. But that confidence could be undermined. If only one foreign bank pulls the rug from under one local subsidiary, leaving depositors stranded, it will cloud perceptions of banks’ reliability across the region. The most dangerous kinds of bank runs would be those in which depositors try to pull out either their foreign currency, or local currency which they would then attempt to convert into hard currency. In some countries that could overwhelm the ability of the central bank to support the financial system.
Another weak point is where shareholders take fright. If a foreign bank with big exposure to the region—Swedish, Austrian or Italian—needs to raise more capital but finds that outsiders think its loan book is too risky, what happens? The price of rescue may be that it sheds a troubled foreign subsidiary. Signs of shareholder twitchiness are growing (see chart).
For now, the most likely source of contagion is collapsing currencies. The paradox is that for countries with floating exchange rates, an orderly depreciation would in normal circumstances be a good way of cushioning an external shock, such as the slump in export markets now hitting the ex-communist economies. It stokes competitiveness and, along with lower interest rates, it lays the foundations for a return to growth. Governments with sound public finances might also consider running a looser fiscal policy to counteract the downturn.
Propping up the currency
For most of the countries in the region, such a textbook response is out of the question. Some have currency boards, or pegged exchange rates. In the Baltic states these have been the centrepiece of economic policy for more than 15 years. Abandoning them would not only bankrupt big chunks of the economy that have borrowed in euros. It would also be a huge psychological blow to public confidence in the whole idea of independent statehood. These countries have suffered the most painful part of being in the euro zone—the inability to devalue and regain competitiveness—without getting all the benefits.
Countries with floating exchange rates have a bit more room for manoeuvre. Their problem (a big one in Hungary, a lesser one in Romania and Poland) is that falling exchange rates may bankrupt the firms and households which have, in past years, taken out unwise loans in foreign currencies, chiefly euros and Swiss francs. That was, in effect, a convergence play. If you believed your country was heading for the euro zone some time in the next few years, then why not take advantage of the low interest rates there, rather than suffer the higher ones in your domestic currency?
What seemed a minor risk back then now looks painfully mistaken. For those earning forints or Polish zloty, the big swings in exchange rates in recent weeks have sent the size of both loans and repayments spiralling upwards. The zloty has dropped 28% and the forint 22% against the euro since the middle of last year. If the East Asian crisis of 1997 is any guide, these and other currencies may yet have further to fall.
This risk of a currency collapse will limit these countries’ options. So far many big central European countries have cut interest rates heavily to try to boost their economies—Poland’s central bank cut its policy rate again this week. But currency weakness will limit their room for manoeuvre. The Czech, Hungarian and Polish central banks issued a co-ordinated statement this week hinting they might intervene to support their exchange rates. But that route is tricky. Russia has blown half its reserves in a series of unsuccessful attempts to try to prop up the rouble.
Spending and tax policies would be another way of dealing with a downturn. But these are constrained, too. Those countries with a chance of joining the euro are scrambling to cut their budget deficits to get them in line with the 3% of GDP target set by the EU’s Maastricht treaty. Yet that aggravates the problem. The danger for Latvia and Ukraine is a downward spiral, where cuts in public spending damage the economy in a way that helps to entrench the deficit.
So far, the economic crisis has not translated into populist or protectionist politics. It is the east European countries that have been demanding that the rest of the EU stick by the rules of the single market. Their development over the past decades has been thanks to the free movement of capital, goods and labour. They would like a lot more of it: in a contest to subsidise industries, rich countries always win.
But that stance will not hold indefinitely if things get worse. Willem Buiter, a prominent economist, believes it is only a matter of time before some of the ex-communist countries introduce capital controls. That, in theory, would allow them to concentrate on stabilising their economies without worrying so much about the external value of their currency. If voters find the economic pain of adjustment unbearable, politicians can pass laws that will make foreign-currency borrowings repayable in local currency. That would be met with fury by the foreign banks, who would in effect see their loan books expropriated. But it could happen.
Against that background, what can be done? The east European countries are, belatedly, co-ordinating their approach within the EU, holding their own mini-summit on March 1st. They want to embarrass countries such as France for what they see as its protectionist approach to the crisis. They are supporting each other: the Czech Republic and Estonia were among those contributing to the Latvian bail-out.
But even co-ordinated local efforts are unlikely to make much difference, given the scale of the problem. The real lead, and the real money, must come from outside the region. That brings into play a slew of political problems. Having trumpeted their free-market principles in past years, and dismissed the stodgy approach of countries such as Germany and France, the new EU members from eastern Europe are now turning to old Europe in the hope that it can hurry up the flow of EU structural funds to counteract the downturn, bail out or prop up over-exposed banks in places like Austria, and stretch the rules of the European Central Bank to let it provide support to countries outside the euro zone. The case for such measures is strong, and it is in the interest of all Europe that contagion is contained. But that does not mean that it will happen.
Dividendenkatastrofe
von Raivo Pommer-raimo1@hot.ee
Viele große deutsche Konzerne werden ihre Aktionäre auch in diesem Jahr noch einmal mit einer hohen Ausschüttung für ihre Treue belohnen, obwohl sich ihre Geschäftslage in den vergangenen Monaten rasch verschlechtert hat und die Aussichten für 2009 höchst unsicher sind. Nach Schätzung der Landesbank Baden-Württemberg wird die gesamte Dividendensumme aller Konzerne aus dem Deutschen Aktienindex (Dax-30) in diesem Jahr nur um 16,5 Prozent auf knapp 23,38 Milliarden Euro sinken. Für 2007 hatten die Dax-Konzerne die Rekordsumme von 28,1 Milliarden Euro ausgeschüttet.
Die Aufforderung des Bundesfinanzministers Peer Steinbrück, angesichts der Wirtschaftskrise auf Dividenden vollständig zu verzichten, wird in vielen Unternehmen und an den Finanzmärkten abgelehnt. Das sei der blanke Populismus im Wahljahr, erklärte Ulrich Hocker, der Hauptgeschäftsführer der Aktionärsschutzgemeinschaft DSW. An den zum Teil noch sehr guten Geschäftsergebnissen des Jahres 2008 sollten die Anteilseigner auch angemessen beteiligt werden, forderte er.