Overpriced Milk

Why does a skinny cappuccino cost Eur 3.20 while a skinny Latte costs a mere Eur 3 at Starbucks in Munich? Milk is cheaper than froth, something that will register with British dairy farmers, who are complaining about falling milk prices.

The Starbucks index currently puts a tall late at Eur 2.85 in Alicante, 3.00 in Munich and 3.50 in Paris and Amsterdam, but Eur 3.85 in Athens, which plays right into the hands of those who think Greece is the European economy which suffers most from excessive prices.

Mind you, CHF 6.10 for the same drink in Zurich this week is scary, while GBP 2.15 could be argued as a reason to buy the pound were it not for iPad prices. It seems the Swiss, relative to the Brits, value coffee more highly than Apples.

iPad prices are normalising

The Dollar price of an iPad 2, now and last year. Many thanks to Edward, who did the web research for me as his 'work experience' yesterday!

Some countries have seen prices come down, all countries have seen exchange rate movements, The big outlier a year ago was Brazil but Real softness is going some way towards sorting that out. Cheapest place to buy an iPad is still the USA. Japanese prices are added and highlight that years of deflation mean Japan isn't over the top expensive any more.

In the UK, we're being over-charged.....and while Switzerland is super-expensive for many things, an iPad is cheaper in Zurich than in London, apparently.

If you only traded FX on the basis of iPad prices (would have got you short real last year, but it's not really a sophisticated strategy!) you would sell the Swedish krona and buy the dollar or the yen...

Terra Mitica and the carousel of austerity

Terra Mitica, the world’s best theme park, opened in 2000, in the bright dawn of Spain’s Euro Zone membership. Money was cheap and plentiful, the economy embarking on a boom. The pound was on a high and the local economy in Benidorm was re-inventing itself from cheap package holiday destination to appeal to a wider clientele. The local savings banks were happy to finance a theme park, as well as hotels, a golf course and a nature reserve.

Twelve years on and Terra Mitica is still the world’s best theme park. For visitors, not for the Cajas who financed it. What makes it so good is partly the theme of the rides – a journey through the Ancient World, allowing a small dose of cultural education along with the thrills. More than that though, visitors can enjoy far, far smaller queues than they would at most other theme parks.

Since my children were 1 and 4 years old when the park opened, it has been a regular destination, the rides they enjoy changing gradually as they have got older. My annual season pass costs me Eur 51, and since I can visit as many times as I want, I tend to indulge the children’s appetite for frequent visits, either keeping them company for a ride or two in between cups of coffee, or simply dropping them off and heading for the gym of golf course down the road. As the chosen rides got scarier, coffee and golf started to appeal more and more.

Terra Mitica has lost several hundred million euros in its short life. It has changed ownership and management, running a profit only briefly in the halcyon days before the credit bubble burst – and is now run by a waterpark operator. I have regularly fretted that it would close down and deprive the children of one of their favourite holiday treats, but the banks are still trying to avoid writing off all their loans.

Since it ran into trouble, some rides have changed, and restaurants have abandoned all but the quickest fast food. Pondering the thinking about what to change or close, it is clear that one factor above all makes the difference – how labour intensive a ride, or restaurant is. So my wife’s favourite ‘cultural’ ride, a genteel water ride based on Odysseus’ journey round the Med, is no more, and the aerial climbing centre has closed down. As for the days when I could sit down and have a four course a la carte meal, they are a distant memory. 

The trouble is that since Spain joined the Eurozone, wages have risen sharply. And European labour laws have been imported. That’s not a bad thing, but closing down labour intensive jobs in a part of Spain with incredibly high unemployment doesn’t actually make sense. If labour costs were a bit lower, there would be demand for many more services, and the work would create its own demand.

Closing a ride on the grounds of labour cost while youth unemployment heads ever higher, hits local demand twice over – tourists have less to spend their cash on and locals just have less cash. Europe’s austerity-solution will be to reduce unemployment benefit, and raise consumption taxes. That will reduce demand even further, obviously.

The latest twist is a cut in unemployment benefit and an increase in VAT. Will that boost employment? Probably, but not at Terra Mitica. The successful businesses around here are small family-operated ones, where unemployed children with degrees in architecture help work in the family bar, for example. Here, prices have been cut. Are these businesses diligently reporting all their income for VAT? Who knows!

It all ends with the banks writing off the loans to finance all sorts of  infrastructure projects. It ends with freer labour markets and a scaled back social welfare system. It would be nice if there were an offset in the form of cheap money, or cheaper currency but at the moment neither is on offer. In the absence of either, tighter fiscal policy will result in weaker demand, higher unemployment, weaker tax receipts, reduced government spending, a lower credit rating, higher borrowing costs and on round and round the austerity carousel…