Thursday, August 14, 2008

That shrinking feeling

The euro-area economy

That shrinking feeling

Aug 14th 2008
From The Economist print edition

The credit crunch started in America, but Europe may yet prove the bigger victim. A first article looks at the euro area, a second (see article) at eastern Europe

Illustration by Peter Schrank

EUROPEANS might be forgiven for feeling bruised. The housing bust across the Atlantic was the trigger for the credit crunch, so justice demands that America suffer most from the fallout. But America has not so far followed the script, weathering the storms better than it expected. Its GDP suffered a tiny decline at the end of 2007, but it grew at an annualised rate of around 2% in the second quarter of 2008.

Europe is struggling to stay above water. Figures released on August 14th showed that the euro-area economy shrank at an annualised rate of 0.8% in the second quarter, the first such reverse since 2001. Nor are things likely to improve soon. A closely watched survey of purchasing managers in manufacturing and services slumped in July to its lowest level since 2001. Business confidence has turned down sharply in all of the three biggest economies in the euro area: Germany, France and Italy.

Indeed, in the second quarter GDP fell in all three countries, paring their annual growth rates (see chart). That Italy slipped is no surprise; even in brighter times for the world economy, it has struggled to maintain its growth. Meanwhile Spain’s GDP has predictably stuttered as it endures a painful shock from its burst housing bubble. More alarming is the step back by France and Germany, which seemed sturdier than their southern neighbours.

In truth, the 2.0% annualised fall in German GDP in the second quarter makes its economy seem in worse shape than it is. A warm winter allowed more construction work than usual, spurring an aberrantly large rise in first-quarter GDP. The second-quarter decline is partly a payback. Yet there are worrying signs that the export motor that drives the German economy is sputtering. Orders for German engineering goods fell in June by 5% from a year ago, according to VDMA, a Frankfurt-based industry group. Foreign orders fell by 7%.

Thomas Mayer, an economist at Deutsche Bank, detects feelings of dismay in Germany at the economy’s deterioration. After all, this was one of the few rich countries that skipped the global house-price boom. And unlike America, Germany is a supplier of global credit: its current-account surplus was a hefty 7.7% of GDP last year, according to the OECD. Mr Mayer thinks there is a belief in Germany that “we didn’t do all those bad things, so it’s not fair that we are suffering”. What is missing, he says, is any recognition that Germans profited from the credit-fuelled global boom, that “they were part of the game” as suppliers if not as consumers.

The rest of Europe was hardly immune from housing mania. House-price rises in Spain, Ireland and France during the boom years outstripped even America’s. Ireland’s housing bust may yet prove to be the most dramatic of all. Its GDP, which grew by 6% in 2007, is likely to shrink this year, according to the Economic and Social Research Institute, a Dublin-based think-tank. Ireland is too small for its economic troubles to pull down other countries much but Spain’s economy has enough heft to inflict collateral damage (see box). Spain accounts for one-eighth of euro-area GDP but until recently was generating a much larger share of consumer spending and new jobs. Now the Spanish consumer is in retreat—retail sales fell by almost 8% in the year to June—and unemployment is rising.

The Spanish collapse has hurt firms in other euro-area countries. German and Italian exports to Spain have slowed sharply since last year, according to Julian Callow at Barclays Capital. French exports to Spain are now falling. Prospects for sales outside the euro area have darkened too. America’s economy is doing well partly because it is sucking in fewer imports. Britain, the euro-area’s other main export market, is on the brink of recession.

Hopes that spending by consumers in the thriftier parts of Europe would make up for lost exports have been dashed. In less troubled times, the marked acceleration in wages and salaries in the first quarter would soon push up spending. But because of sharp increases in food and fuel prices, fatter wage packets have barely kept up with inflation, which is now 4%.

Nor has thrift yielded much reward. When the economy was strong, most consumers were cautious about saving less and spending more (the euro-area saving rate has barely budged in the past three years). Now, when fears of jobs losses are rife, they are even less inclined to splash out. Retail sales across the region fell by 3.1% in the year to June. Even if there were a desire to borrow to finance spending, banks might be unwilling to meet it. Loan growth is wilting and a survey by the European Central Bank (ECB) suggests that lending conditions are becoming stricter.

No wonder business confidence is flagging and companies are pulling in their horns. Until recently, capital spending was one of the main drivers of economic growth. Firms were keen to invest on the back of healthy profits, solid foreign demand and hopes of a pick-up in consumer spending. Despite the credit crunch, banks seemed content to offer loans to companies for buildings and equipment, even as they recoiled from lending to households. But now loans to companies are slowing as well—a sign that firms are cutting back. Stronger wage growth and high commodity prices have squeezed profits, and export order books are suddenly thinner.

The economy’s downward lurch puts the ECB in an awkward spot. It raised its main interest rate to 4.25% on July 3rd to show that it was serious about controlling inflation, which is well above its target ceiling of 2%. The rate-setters’ fear was that inflation would persist if firms and households used today’s rate as a benchmark for future wages and prices. They are right to worry. In Italy and Spain, wage growth is picking up even as unemployment rises, because of contract clauses allowing workers to be compensated for higher-than-expected inflation.

The good news is that the drop in oil prices may mean that euro-area inflation has peaked. But it will start to fall back only towards the end of the year. The ECB will be reluctant to cut interest rates until it is sure that the inflation danger has passed. By then, the euro-area economy may already be in recession. Mr Mayer reckons that the ECB will attempt to revive it by cutting interest rates to 3.25% next year. But until then, it is hard to see what else might lift growth. Many Europeans will feel that they deserved better.

Wednesday, August 13, 2008

A Bridge between Virtual Worlds

Monday, August 11, 2008

A Bridge between Virtual Worlds

Second Life's new program links virtual environments.

By Brian White

The first steps to developing virtual-world interoperability are now being tested between Second Life and other independent virtual worlds, thanks to the launch of Linden Lab's Open Grid Beta, a program designed for developers to test new functionality. The beta program will allow users to move between a Second Life test grid--a set of servers simulating a virtual world--and other non-Linden Lab grids running the OpenSim software. OpenSim is an independent open-source project to create a virtual-world server.

The discussion of linking together today's virtual worlds is not new, but this is the first running code that demonstrates previously hypothetical approaches--another tangible sign that Linden Lab is serious about interoperability. "We are still early in the game. The point of the beta is to give the rest of the development community the chance to try the protocols themselves," says Joe Miller, Linden Lab's vice president of platform and development. More than 200 users have signed up for the beta program, and currently 15 worlds have been connected.

In order to test virtual-world interoperability, a person needs at least two virtual worlds. For Linden Lab, theOpenSim project was a natural choice. It began in January 2007 at the nexus of two open-source projects--one to reverse-engineer the Second Life server APIs, and the other Linden Lab's open-source viewer initiative. The goal of the OpenSim project is to build a virtual-world server that supports the Linden Lab viewer or a derivative.

Today, there is a flourishing OpenSim community with 26 registered grids hosting approximately 2,300 regions. While this is certainly a small number compared with the 28,070 regions that make up the Second Life main grid, it still represents a significant number of independent virtual worlds. The open-source nature of the project, combined with the number of participants and the shared support of a common viewer, make OpenSim-based worlds ideal for interoperability tests.

Interoperability is the future of the Web, says Terry Ford, the owner and operator of an OpenSim-based world called 3rd Rock Grid. Ford is also participating in the program. "It may be [in] OpenSim's future, or maybe another package will spring up, but just as links from a Web page take you to another site, people will come to expect the ability to navigate between virtual worlds," he says.

Ford is Butch Arnold in Second Life, Butch Arnold in 3rd Rock Grid, and Butch Arnold in theOpenLife grid, and that's kind of the point. No one wants to have as many avatars as they do website accounts, but there is a fundamental difference between accounts, which hold data like a shopping cart, and avatars, which contain data regarding a person's virtual-world appearance. IBM's David Levine, who has been closely collaborating with Linden Lab on the interoperability protocols, says, "You don't care if your shopping-cart contents in your Amazon account [are] the same as other shopping carts. However, if you were moving region to region and had very different assets in each, that would be a problem."

Yet many efforts to let users share their avatars on the Web have not been successful. Levine says that the Open Grid Protocol has a chance because it is less ambitious. "We are not trying to do it across the entire Web. The focus is on the Linden main grid and a set of broadly similar grids."

To use the beta program, a participant starts an application called a viewer, the best example being the Second Life client. The viewer renders the virtual world and provides the controls for the avatar. Just like using a Web browser to log in to a website, the viewer is where a log-in request is initiated.

The log-in request is sent to the agent service, which stores things like the avatar's profile, password, and current location. As part of the beta, Linden Lab has implemented a proprietary version of the agent service running on a test grid. The avatar service now contacts the region service for the right placement of the avatar in the virtual world.

The region service is basically the Web server of virtual worlds. It is responsible for simulating a piece of the virtual landscape and providing a shared perspective to all avatars occupying the same virtual space. A collection of regions is called a grid. Linden Lab has proprietary code running all the Second Life regions. The OpenSim project provides source code that, when built, allows anyone to run his or her own region service.

From that point on, there is a three-way communication between viewer, agent service, and region service to provide the user's in-world experience. When the user wants to move to another region, he issues a teleport command in the viewer, and the same process happens. But in this case, the user is not required to log in again, even if the destination region is running on a non-Linden Lab server.

Last fall, Linden Lab formed the Architecture Working Group (AWG), which is the driving force behind the Open Grid Protocol--the architectural definition of interoperability. The team decided that the first step was to focus on the areas of log in and teleport. "We started with authentication information and being able to seamlessly pass the log-in credentials between two grids run by different companies," says Levine. "Many people ask me, 'Why did you start there?' Well, you can't do all the rest until you get logged in."

Miller says that in the next 18 months, a user can expect to see a lot of activity in the area of content movement. "How do I move content that is mine, purchased or created, between worlds safely and securely? The AWG has a lot of great thoughts on how this could work," he says.

Brian White writes a virtual world blog, Virtual White: An Exploration of Virtual Worlds.

Linking worlds: Two avatars, Brian White (left) and Butch Arnold, meet in 3rd Rock Grid, an independent OpenSim-based server. 
Credit: Brian White

Tuesday, August 12, 2008

Commanding Your Browser

Tuesday, August 12, 2008

Commanding Your Browser

A new interface bypasses the mouse for some complex tasks.

By Kate Greene

The beauty of today's search engines is their simplicity. Type a few keywords into an empty box, and see the 10 most relevant results. This week, Mozilla Labs expects to launch a similar interface for its Firefox Web browser. The new interface, called Ubiquity, lets users carry out all sorts of complex tasks simply by typing instructions, in the form of ordinary sentences, into a box in the browser.

For example, to e-mail a paragraph or picture from a Technology Review article to a friend using Ubiquity, simply select the text or image, press a keyboard shortcut to reveal an input box, and type "e-mail to Max."

"You just type in things that feel natural to you," says Chris Beard, vice president and general manager of Mozilla Labs. Ubiquity, which is based on the Javascript programming language, will open an e-mail client and paste the highlighted text or image into a message. It will even guess which Max in an address book the snippet should be sent to, based on previous e-mailing patterns.

Credit: Technology Review

The idea, says Beard, is to make it easier to find and share information on the Web while avoiding cumbersome copy-and-paste instructions. Traditionally, if you want to e-mail a picture or a piece of text to a friend, look up a word in an online dictionary, or map an address, you have to follow a series of well-worn steps: copy the information, open a new browser tab or an external program, paste in the text, and run the program.

A common work-around is to use browser plug-ins--tiny programs that connect to other applications and can be added to the browser toolbar. For instance, StumbleUpon, a Web service that lets users bookmark and share interesting Web pages, offers a plug-in for Firefox so that new sites can be added or discovered with a single click. But adding multiple browser plug-ins takes up valuable screen space.

Ubiquity aims to eliminate both tiresome mouse movements and the need for multiple browser plug-ins.

The idea isn't unique to Mozilla Labs. Researchers at MIT have published work on a similar interface, called Inky. Another project, called Yubnub, allows people to quickly perform different online operations, such as searching for stock quotes, images, or items on eBay using the same text field.

What distinguishes Ubiquity is that it's being released as a Mozilla Labs project, which immediately makes both the program and its underlying code available to people eager to test the interface and contribute design and programming ideas to improve its functionality. Also, notes Mozilla's Beard, Ubiquity is highly customizable. From the start, the interface will come with built-in instructions or "verbs," such as "e-mail," "Twitter," and "Digg," but Beard expects people to add many new ones.

The project is being released in an early form--version 0.1--so it's not expected to work perfectly straightaway. Also, Beard doesn't assume that it will change the way people interact with their browser overnight. "Most people in the world will continue to use mouse-based interfaces," he says. But a language-based interface like Ubiquity could ultimately supplement the mouse, much as shortcut keys already do, he says.