World Economic News

French Housing Bubble Set To Burst

Ambrose Evans-Pritchard wrote in the Daily Telegraph of March 28, "French property construction plummeted 15.1% in February and home prices have begun to slip." French home prices had grown 210% since 1995, compared with 190% in the United States. Last year, construction slowed to 7.2% and in January became negative: -0.6%. Jean-Paul Six, chief economist for Standard & Poor, said that this is "the delayed effect of rising interest rates." The French bust will lead all other European countries, with the exception of Germany and Switzerland. Spain seems pretty vulnerable, with more than 93% of mortgages of the adjustable-rate variety. "It is worse than in the U.S.," says Manuel Romera, director of Instituto de la Impresa in Madrid.

France's mortgages are mostly fixed-rate, and there is no subprime market. However, according to OFCE research institute, home prices are 25% overvalued. In Italy, home prices have increased 92% in ten years, and in February, for the first time in some time, the number of cities with declining prices was more than those with increasing prices.

Argentina To Advise Ecuador on Debt, Economic Policy

Argentina will advise the Ecuadoran government not only on debt restructuring, but on economic policy as well. The cooperation is designed to jump-start Ecuador's economy, which suffers from the combined effect of foreign indebtedness and a large budget deficit. The high-powered Argentine delegation that visited Quito on March 22-23, led by Finance Minister Felisa Miceli, and including the Foreign and Planning Ministers, signed several agreements with their counterparts to share Argentina's experience on restructuring its foreign debt, but also to offer advice on managing financial resources, trade and tariff policy, strengthening the role of state banks, and gearing up the country's productive capabilities as quickly as possible to begin to reverse extreme poverty.

While in Ecuador, Argentina's First Lady Sen. Cristina Fernandez applauded the agreements signed between the two nations' business sectors, emphasizing that these go well beyond mere economic or trade accords. "They are decidedly a productive framework for social progress and improving our people's living standards." Foreign bankers couldn't have been pleased with the remarks of Ecuador's Finance Minister Ricardo Patino; asked whether the Correa government might consider the same type of debt restructuring that Argentina implemented, with a large writedown, he coyly replied "I don't know. We'll see how things go over the next few weeks."