This week we invite readers to test their knowledge of some topical subjects. We hope you enjoy the light-hearted quiz.
What is a nodding donkey?
1. What is a nodding donkey?
A. A normally intransigent animal which is appreciative of the carrot it has just received.
B. A eurozone finance minister who does not hail from Germany but is happy to dispense German medicine – on the vague assumption that he is unlikely to ever need it himself.
C. A pump used to prolong the life of oilfields nearing depletion.
Answer C: Nodding donkeys are synonymous with the decline of US oil production. From a high of 3,517 million barrels in 1970, annual production fell steadily to 1,830 million barrels by 2008. The US is now tapping unconventional energy sources. In four years, the shale boom has transformed the US from the world’s largest importer of gas to near self- sufficiency. The IEA predicts that the US will replace Saudi Arabia as the world’s largest producer by 2020 – a remarkable turnaround and clearly a major development for the US economy.
2. The EU cites excessive working time as a major cause of stress, depression and illness. The EU addresses this problem by:
A. Driving unemployment to record highs.
B. Holding EU summits over the weekend, which break up on Monday at dawn before the markets open.
C. Fully enforcing the Working Time Directive.
Answer C: France has gone beyond the requirements of the directive by limiting the working week to 35 hours. The UK has opted out of certain requirements. The directive applies to ever fewer people in the southern eurozone as unemployment rises steadily due to EU policy decisions – a de facto opt out. Eurozone unemployment is currently 12 per cent – a record high since the single currency was launched in 1999. Over 50 per cent of Spain’s youth are unemployed.
3. On July 15, 2011, it was announced that Dexia had passed (with flying colours) an EU-wide stress test conducted by the European Banking Authority, in cooperation with the National Bank of Belgium, the European Central Bank, the European Commission and the European Systemic Risk Board. How many working hours (assuming a 35-hour French working week) later did Dexia require a bailout?
A. 430.
B. 4,300.
C. Trick question – if these hallowed European institutions stood shoulder to shoulder and collectively and solemnly stated that a bank had adequate capital to cater for an ‘adverse scenario’, the bank clearly had adequate capital. It follows that the bank did not require a bailout.
Answer A: One of the primary measures used to test the financial strength of a bank is the Tier 1 ratio. Put simply, this compares the size of a bank’s core capital to its assets. Dexia had a solid Tier 1 ratio, yet it failed. It is important to understand why, since Dexia gives a salutary lesson about the systemic risks which still exist in the banking system. There are two primary reasons: firstly, the Tier 1 calculation failed to capture unbooked losses (on a mark to market basis) on assets held.
Secondly, the Tier 1 ratio was applied not to the aggregate value of the assets, but to the residual value after eliminating what were deemed risk free assets – such as Greek government bonds. Clearly this was farcical – but what is remarkable is that a strong Tier 1 ratio is still cited as ‘proving’ financial strength.
4. Which great European leader said that European federalists are not more European – they are simply more federal?
A. Herman Van Rompuy.
B. Juan Manuel Barroso.
C. Margaret Thatcher.
Answer C: By elimination (on multiple bases) it could only have been Margaret Thatcher. The statement reflects the idea that the EU is merely a political construct – whose current protagonists happen to have leftist and dirigiste tendencies. They have no more claim on being pro-European than anybody that does not share the same political ideology but is nevertheless pro- European.
In her Bruges speech, Thatcher said: “Europe is not the creation of the Treaty of Rome. Nor is the European idea the property of any group or institution.’’
Presumably Thatcherite economic solutions which would promote European long-term growth and employment (ie. pro-European) would be deemed anti-European if they involved devolution of political power back to nation states (ie. anti-EU federalism) to make them more effective and competitive on the world stage.
From an objective perspective based on actual observed results (e.g. economic wreckage, mass unemployment and loss of moral high ground as sacred principles are sacrificed for ‘the project’), it is perhaps more appropriate to label the EU itself as anti-European.
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Curmi & Partners Ltd is a member of the Malta Stock Exchange and licensed by the MFSA to conduct investment services business. This article is the objective and independent opinion of the author. The value of investments may fall as well as rise and past performance is no guarantee of future performance.
Martin Webster is head of equity research at Curmi and Partners Ltd.