More Trouble for Greece?


For a more dynamic view of such analyses you may wish to explore our, recently developed, tool MapView. It is free to download as is the operating Manual (but it isn’t really so complicated as that may suggest).

If you decide to do this please drop me an email and I shall forward a zip file containing reports for US and European countries: david@ontonix.com

Here are some Complexity Facts based upon our work.

The complexity of the Greece’s economic system is in free fall. In the previous Ontonix blog on the evolution of the complexity of the structure of European Union’s economy we have seen that it was possible to predict, in advance, the effects of the sub-prime crisis and that the economic recovery is much stronger for the founding member countries (EU 15) than that of the countries that have joined after May 1, 2004 (EU12).

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Will the Euro Survive? Will the EU Survive?


Following  the bailout of Greece earlier this year today (22/11/2010) it is Ireland’s turn. The Europeans are facing the bitter truth that certain lifestyles are not sustainable. While this is certainly the case, it is also true that the richer nations won’t be willing to subsidise the poorer nations for ever. This places not only the Euro under pressure, it also suggests that a couple of bailouts more will question seriously the European Union itself. The Daily Telegraph sustains in a recent article that the Euro will not survive five years (read here).

 

Along similar lines are the comments of Joseph Stiglitz (see his article).

 

 

Using Eurostat’s macroeconomic data – the same data which we use to analyse the entire EU economy, publishing our quarterly Structural Fragility Reports – we have conducted an analysis of the so-called PIGS (Portugal, Ireland, Greece and Spain) as well as that of the big four economies (Germany, France, Italy and the UK. The idea is to confront these two systems and to analyse their resilience. Here is what we found.

 

First of all the PIGS. Below the Complexity & Risk Map of the four economies is illustrated, indicating, first of all, an alarming one-star complexity rating. This points to very low resilience (robustness), hence very high fragility. This means the structure of the combined economies is close to  dissolving. The map has a density of 23% pointing to a fairly high risk of contagion. The system functions close to its critical complexity – the current complexity of this system of four countries is 48.4 while the critical complexity (maximum complexity sustainable with the current structure of the economy) is 53. This means there is very little margin for error. Moreover, for systems functioning so close to their critical complexity it is extremely difficult to make credible forecasts.

 

The Complexity Profile reported below illustrates in what measure each of the four countries contributes to the overall headache of the EU (and the BCE). Spain, being the biggest economy, has the largest footprint in the PIGS economy and contributes to 27% of the problem (complexity). Follows Greece (23%) while Ireland and Portugal contribute each around 19%. Based on the Complexity Profile, it is clearly Spain that will need to be bailed out (if at all necessary) because it can do the most damage in case of default. The problem is that the EU may not have enough resources to bail out such a large economy.

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Eurozone & EU survival: If it keeps on rainin’ levee’s gonna break..


Robert Plant (left) and Jimmy Page (right) of ...

Image via Wikipedia

 

You may never have figured Robert Plant, Jimmy Page and Co. as financial analysts or students of economic theory. But why not? At the end of the day these guys – LEGENDS – have as much chance of accurately predicting the financial future as anyone else!!!

The truth is the levee is “shot”…

It’s been raining like hell for for too many years now. The “weathermen” [economists & bankers] manipulate the rainfall data and assure us that the long term outlook is good – their incentives depend upon a belief system that bestows such power upon them!

Whilst the “engineers” [politicians & Public Sector] prefer the “finger-in-the-dyke” approach to flood prevention. After all, if you believe the weathermen, the outlook is sunny and anyway, the levee is “too big to fail”. In the meantime taking as much money as possible from both weathermen and those [citizens] living on the flood plain. After all if you have gotten away without major repairs or reconstruction for this long [and been able to grow “fat” at the expense of others], with sovereign debt so easy to come by, probability is that no-one will ever know unless they get too close. Risk worth taking. Better to do that than own up to the years of neglect and mismanagement!

So long as there are enough digits to plug the holes, bodies to absorb or divert the leaks and “they” stay dry. So long as the pressure doesn’t get so great as to suddenly exploit any undetected cracks [hidden fragility]  “on our watch” they will hail us as the best damn levee-keepers in living history. Knighthood, memoirs, TV, column, lecture tours, universal adulation. It’s brilliant! Flawless!

Well the bad news is that the game is up.

This is an extract from my blog in August this year. Complex Systems and Ecology: Report by US National Academies/NRC & Fed. Reserve Bank of NY

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The Fragility of the EU Economy Rated VERY HIGH



From this infographic the embedded links you will be able to gain an insight into the unique capabilities that Ontonix bring to data analysis. Note the steady increase in complexity prior to the “global economic trauma” of late 2007 and the, even sharper, decline through 2009/10.

This illustrates why understanding, measuring and monitoring the “structural robustness” of an organisation – ecosystem – network, in such an inter-connected and turbulent climate should be a a C-Level priority. Quantitative Complexity Management can serve as an early warning system – crisis anticipation.

Alternatively you could rely upon economic forecasts or conventional analyses and wait to see how events, that are apparently unrelated to “you and yours”, impact you and your stakeholders!

Q4 2009 EU Structural Fragility Report. Download FREE sample copy here.

Q1 2010 EU Structural Fragility Report. NOW AVAILABLE for €199. Contact us to obtain a copy.

Recent news on an imminent bailout of the troubled Irish economy and emergency meetings of the EU finance ministers in Brussels (17 November 2010) point to a highly fragile situation of the eurozone economy.

According to the EU Structural Fragility analysis (based on Eurostat data) performed by Ontonix on a quarterly basis, the fragility changed from HIGH in Q4 2009 to VERY HIGH in Q1 2010. A constant plunge of complexity, as indicated in the figure above, points to a shrinking economy of the system of 27 EU member states. This points to very high risk of contagion.

The Q2 2010 EU Structural Fragility Report shall be published as soon as Eurostat releases the Q2 data.

The tracking of the evolution of the combined complexity of the eurozone countries shows clearly how it is possible, using this technique, to not only anticipate but to actually measure the fragility of the economy seen as a system of interacting entities (countries).

More soon.