Can demography explain Portugal’s growth slump before the crash?

The above still comes from a recent Financial Times video entitled “Portugal’s Brain Drain”, which can be found here, and which I encourage everyone to watch. The issue being raised revolves around the current acceleration of emigration from countries on the EU periphery, largely towards the EU core. Typically the emigrants are young educated people who can’t find work. There is nothing especially surprising in this, since the tendency has long existed for people to move from more depressed areas to economically more dynamic ones. The exodus from Detroit in the United States immediately comes to mind. Or Scottish people getting on the bus to make the fateful journey from Edinburgh or Glasgow to London. The Schengen accord simply extends this process which used to take place within nation states to single market zones, or currency unions. But does this extension have consequences for the participating states which were not anticipated at the outset, and are these consequences all benign?

In addition, this time round in an important sense something is different since these movements are occurring in the context of a long and difficult economic adjustment, indeed one could almost argue that the people leaving form part of that adjustment. What’s more it is hard to accept that this is the kind of adjustment that countries like Spain and Portugal really need. Renovation in these countries implies these people and their talent are injected into the local economy to dynamise it, and not shot out the side like water from a high pressure hose with holes in it. So the big question I want to ask here is whether the economic programs which are being implemented in these countries take sufficient account of the demographic impacts they are inducing, and of the fact that the population loss involved – which most likely will become permanent – is going to cast a long shadow over the history of the countries concerned. Continue reading

As Good As It Gets In Latvia?

For Maurice Pialat, champion of the marginal centre.

“This raises a final question, which, while not central to the issues of this paper, is nevertheless intriguing: How can a country with a low minimum wage, weak unions, limited unemployment insurance and employment protection, have such a high natural rate [of unemployment]?”

“To summarize, the actual unemployment rate is still probably higher than, but close to the natural rate of unemployment. Latvia may well want to take measures to reduce its natural rate, but the recovery from the slump is largely complete.”
Boom, Bust, Recovery Forensics of the Latvia Crisis, Olivier Blanchard, Mark Griffiths and Bertrand Gruss

With these words three IMF economists (hereafter BGG) effectively signed off on their study of “what just happened on Latvia” and, they hoped, drew to a close a debate which has been going on now for some 6 years. In fact, far from closing the debate, what they may have done is effectively extend it into new terrain, since these apparently harmlesss words – “the recovery from the slump is largely complete” – have far reaching implications, as does the methodology they use for reaching it. These implications reach well beyond Latvia, and even far beyond the Baltics and the CEE in general, despite the conclusion that everyone seems to be reaching that Latvia was just a “one off”. Possibly without intending to do so, they have drawn onto the clinical investigation table issues which have been mounting  up in the theoretical lumber rooms of neoclassical growth theory for some time now, issues which begin to assume a paramount practical importance in the context of our rapidly ageing societies. What, for example, do we understand by the term “convergence” these days? And if “steady state” growth can no longer be understood as implying a constant growth rate (trend growth in developed economies is now systematically falling) should we be considering the possibility that headline GDP growth will at some point turn negative, even if GDP per capita may continue to rise, due to the fact that populations are steadily starting to shrink. And if the answer to the former question is “yes”, then what are the implications of this for the financial system, for the system of saving and borrowing, and for the sustainability of legacy debt? Not little questions these, but ones which will need to find answers and responses in countries like Latvia over the next couple of decades. Continue reading

Is The Perfect Always And Everywhere The Enemy Of The Good?

Against a backdrop which offers an eerie parallel with events which took place somewhat to the North more than 30 years ago, Catalonia is now threatening to separate from Spain. In so doing the region seems to be putting at risk both the future of the host country and beyond that the outlook for the Euro currency and the process of European unification. Continue reading

In Spain Simply Doing Nothing Is Not An Option!

The recent IMF proposals to help stimulate growth and job creation in Spain at least deserve serious consideration.

In a blog post which sought to defend the recent IMF proposal to for a social compact involving a 10% reduction in Spanish wages and salaries, the EU Economy and Finance Commissioner Olli Rehn cited a line from Bob Dylan – “Something is happening here, but you don’t know what it is”. Continue reading

Spain – The Recession May Be Ending But The Crisis Continues

What follows is an interview I did over the summer with the Madrid based publication The Local.

Let’s start with the basics: what are Spain’s current economic problems?

Spain’s economic problems are a knock-on effect of the end of Spain’s property boom. The collapse of the property market led to a drop in incomes, depressed demand for goods and — slightly — lower wages.
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The Czech Economy That Didn’t Bounce?

The Czech republic has been making the news recently. On the one hand the country has been on the receiving end of massive, devastating floods, while on the other the country’s government was brought to the brink of collapse (and beyond)  by the resignation  of Prime Minister Petr Necas following the arrest of one of his most trusted aides on corruption charges. After the deluge I suppose.

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The Second Battle Of Thermopylae

According to legend and some historians, by making a stand in the Thermopylae pass 300 brave Spartans valiantly saved the day for the entire Greek army in the face of a Persian force of overwhelming strength and manpower. More than 2,000 years later some 11 million Greeks might be considered to have carried out a rather similar operation by single handedly facing-off a massed horde of frantic global speculators on behalf of the entire Euro Area population – at no mean cost to themselves in terms of wealth, employment and general well-being. Or at least that is the conclusion which could be drawn from reading through the latest self-critical review issued by the IMF dedicated to the lessons which can be learned from the to-date handling of  the country’s deep economic and social crisis. Continue reading

The Real Experiment That Is Being Carried Out In Japan

The future never resembles the past – as we well know. But, generally speaking, our imagination and our knowledge are too weak to tell us what particular changes to expect. We do not know what the future holds. Nevertheless, as living and moving beings, we are forced to act.John Maynard Keynes

Discussions of the population problem have always had the capacity to stir up public sentiment much more than most other problems.
- Gunnar Myrdal

Last Thursday the yen broke through the psychological threshold of 100 to the US dollar. On Friday the slide continued (see chart), even dropping very close to 102 to the USD at one point before strengthening slightly on the run in to the G7 finance ministers meeting. Continue reading

Does Portugal Have Its Own “Shortage Of Japanese” Problem?

In a number of posts recently I have highlighted the impact of declining workforces on economic growth (here, for example, or here, or here) and the way the policies persued to address the Euro debt crisis are having the impact of  accelerating the movement of young people away from the periphery and towards the core (here, or here) thus accelerating the decline in their working populations and exacerbating their growth problem. This issue has been already highlighted strongly in Japan’s ongoing crisis, and has to some extent come to be known as the “shortage of Japanese” problem following Paul Krugman’s memorable use of this expression to explain  why Japan’s economic performance seemed so poor to so many. Continue reading

The Suitcase Mood

Suitcase mood is a Russian website with travel and tourism content. The term is also a popular expression widely used within Russian culture to describe the state of mind which grips a voyager on the brink of a journey. The mood is often associated with a ritual which involves the departing person sitting, sometimes accompanied by family or friends, in the vicinity (when not actually on top of) the packed suitcase, ostensibly to try to remember if there is anything they have forgotten to take and bid loved ones farewell. Sometimes, however,  the phrase can take on a different, and rather darker, meaning. It can be used to describe someone who is fed up with the status quo, has become footloose and decided they simply want out. “This will never change,” might be the thought, “I’m leaving”. In my mind’s eye I even see the person having the thought seated on their suitcase adopting the posture of Rodin’s thinker, turning over and over again whether they are doing the right thing, even while those around them vent their sadness in a bath of tears and alcohol. Or maybe I have just been watching too many Russian movies. Continue reading