Published in Business Spectator (Melbourne), 23 December 2010
A few years ago, Berkeley psychologist Philip E Tetlock stunned the world. After a 20-year long empirical study analysing more than 80,000 individual forecasts he concluded that experts are not much better at foretelling the future than anyone else. But was this really surprising? If it were otherwise, the pundits would have made a fortune on the ups and downs of the markets and enjoy the rest of their lives sipping champagne in the Caribbean. Instead, they are still making a living from being, well, experts.
Tetlock’s findings are unpleasant for every analyst and guru – and let’s be honest and include columnists in this category (except, of course, those writing for the Business Spectator). Not only that experts’ forecasts were not particularly good. The worst experts were the ones with the most extreme predictions.
As Tetlock wrote, boomsters “assigned probabilities of 65 per cent to rosy scenarios that materialised only 15 per cent of the time.” Doomsayers, however, fared even worse with “assigned probabilities of 70 per cent to bleak scenarios that materialised only 12 per cent of the time.”
If it is of any consolation to the boom or doom saying pundits, Tetlock showed that their more extreme predictions guaranteed them media attention. Again, this is hardly surprising. A razor-sharp statement, delivered with the confidence that makes the Pope’s self-proclaimed infallibility look pale, will always generate more hits on Google than a nuanced admission of one’s own ignorance. Would you rather like to read a story about the imminent end of the world or an opinion piece arguing that most global threats are sometimes exaggerated, somehow? Quite.
Rereading some of my own predictions on Europe this year, it just occurred to me that readers may think I am a ‘Euro doomster’. This sudden flash of self-awareness truly shocked me. To say it with the polemicist Henryk M Broder, I had always preferred to regard myself as a ‘sceptical optimist and a hopeful pessimist’ – a typical, jovial German if you like.
But what’s even worse than this bewildering realisation about my potential perception is the fact that, at least according to Professor Tetlock, as a doomster I have about a five in six chance of being wrong. In other words, only predicting next week’s lottery results would be a more promising way to reduce my credibility.
Maybe I should not have written this. Rational readers may now conclude that their time would be better spent cleaning their pools, compiling their overdue tax returns or going to the dentist instead of reading this article.
If you’re still with me, though, let me surprise you with my forecast for Europe and its economy in 2011: It will be very much like 2010.
This does not sound much like imminent doom, which probably makes it more plausible that I am right this time. What’s even better: This forecast firmly establishes me as an optimist. No, really.
To start the list of positive continuities, let’s look at the politics of Europe first. There will be very few important elections in 2011. Okay, the Danes, Finns and Estonians need to elect new parliaments. However, and with all due respect, Copenhagen, Helsinki and Tallinn are not the places where world politics is usually made.
The Swiss are also going to the polls but, as Wikileaks revealed, not even US diplomats understand how Switzerland’s curious democracy really works. If the Americans don’t get it, we can ignore it just as well.
Of the major European economies, only Italy may hold parliamentary elections. This is the result of the latest minor crisis of the Berlusconi government, which was completely exaggerated by the media. Or at least that part of the Italian media not owned by Il Cavaliere. In case of an Italian election, there is no need to expect any significant change as the Italian Prime Minister’s grip on power is almost as firm as his smile looks permanent. To say it positively, Berlusconi will stand godfather to many more years of political stability. Only naysayers would argue that this is the opposite kind of stability that Italy really needs.
Expect great continuity in economic terms as well. This year was, of course, extremely fruitful in terms of navigating the EU through challenging times. Who could possibly contradict the declaration of last week’s EU summit? It stated that the “temporary stability tools put in place earlier this year have proved their utility”.
So successful have the EU measures been in fact that this emergency mechanism will now become a permanent feature. Not a permanent emergency mechanism, to be sure, but a permanent stability mechanism. It sounds much nicer, too.
The EU leaders’ decision is so uncontroversial and straightforward that not a single referendum will be necessary to implement this amendment to the European treaties. As always in Europe, the continent’s politicians know much better what is needed than their often hapless and ungrateful peoples. This will ensure that democracy remains strong.
The EU summit also praised Ireland and Greece for their “impressive progress”. Moody’s agreed whole-heartedly with this assessment and downgraded Irish debt only by five notches instead of relegating it to junk status straight away. It’s a clear indication that things are moving in the right direction. We can expect similar rubber stamps of approval for the other PIIGS countries.
Monetary policy in Europe is another anchor of stability. Last week, the European Central Bank succeeded in doubling its subscribed capital. This clears the path for the ECB to follow the example of the Federal Reserve in increasing its balance sheet. By purchasing yet more government bonds, the ECB will be one of the fastest growing financial institutions on the planet. Miraculously, the Euro will nevertheless remain strong as the Americans are still printing money even faster than the Europeans.
I am sure readers will agree with me that 2011 will be another cracker of a year for Europe. Stable political leadership, sound economic management and monetary steadiness will once again prevail.
Given this altogether positive outlook, my chances of being wrong have now been reduced dramatically to just about three in four. And if there is one thing that I am slightly more confident about than this forecast, it is that on the 25th of December 2011 it will be Christmas once again.
On that note, Merry Christmas to everyone. And a better New Year.