About that coal in Kosovo

In comments to the post on Kosovo, Alex Harrowell asked the following reasonable question:

“How can you have something that’s both a “mineral resource grab” and an “economic black hole”?”

The short answer: you can, because it’s Kosovo.

Here’s why. There has been no serious investment in those mines since the Yugoslav economy hit the skids in 1986.

A modern coal mine is not a hole in the ground full of guys with picks. It’s a major industrial installation. You have huge drills, borers, grinders, driers, fans, pumps, you name it. A big coal mine uses as much power as a good-sized town. A big modern coal mine uses cutting-edge, state-of-the-art materials technology and software. It’s not guys digging coal any more. It’s guys operating and maintaining big, complicated machines that dig coal. In the United States, the majority of coal miners have four-year college degrees, and need them.
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Eurozone Economy: When Paradigms Collide

When scientific paradigms collide everyone should duck, at least that is the best advice I can offer at the present moment. The provisional German retail sales for January are now in, and they don’t make especially pleasant reading:

European retail sales dropped for the first time in 10 months in January as spending in Germany slumped, adding to signs economic growth is slowing, the Bloomberg purchasing managers index showed…..German retail sales had the biggest drop in two-and-a-half years, with its index declining to 43.9 from 55.2 in December

Now for those who have been following the German economy in recent months none of this should be particularly surprising, since as is reasonably well known Angela Merkel’s government has just upped VAT from 16% to 19% in an attempt to address the ongoing federal deficit problems. And of course, one months data never offer a complete picture. But this decline in retail consumption in Germany forms part of a much longer ongoing weakness in domestic consumption (and here), one which many were arguing had finally come to an end in 2006. Some of us, however, seriously doubted that this was the case, and hence the initial significance of today’s reading. In particular what we may be faced with are changing structural characteristics of economies as median population ages rise. In particular – and following the well-known life cycle pattern of saving and consumption – more elderly economies may have a higher rate of saving and a lower rate of consumption increase than their younger counterparts.

Some more evidence to back this point of view comes from Japan, where today we learn that household spending in December declined for a 12th straight month, dropping 1.9 percent from a year ago. Yet the Japanese economy is not in recession, and output is actually rising. As Bloomberg say:

Japan’s factory production rose to a record and household spending fell, underscoring the central bank’s concern that growth has bypassed consumers and left the economy dependent on exports.

So please note: growth appears to have by-passed consumers, and the economy is ever more dependent on exports. The same goes for Germany, and this is why I talk about paradigm collision, since the neo-classical theory of economic growth – with its core conception of ‘steady state’ growth – was never built to handle median age related changes in economic performance and structural characteristics. Something new is clearly needed.

Over the coming weeks I will undoubtedly have more to say about all this, as we get to see more of the 2007 Eurozone data, but for now let me point you in the direction of Claus Vistesen, who has been patiently toiling away trying to work through a hypothesis which, in terms of the data we are now seeing, certainly seems more in keeping with current economic realities than the view we currently see emanating from the ECB. His arguments on Japan can be found in depth here, and his latest piece on the eurozone is reproduced below the fold.
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Kosovo: Divided We Stand, United We Fall?

This is the title of a post from Seb Bytyci on his South East Europe Online blog. I reproduce the entire post below the fold.

So the UN seems set to adopt a plan which would allow Kosovo to make a giant step on the road to independence. This is hardly surprising, and frankly I see no other realistic way forward. But obviously not everyone is happy. And some of those who seem not to be happy have considerable ability to make mischief, and not the least among these, the Putin regime in Moscow.

Doug Muir and I have been blogging this week about the Serbian elections (here and here) and perhaps the biggest issue which arises from those elections is just which way Kostunica will fall. A lot depends on this decision, and this UN proposal, coming at precisely this time, may well serve to give him a sharp push in the wrong direction. Call it the law of the inopportune moment. Offering a share of power to the Radicals would constitute a major problem for Serbia, and in the medium term for the whole EU. But rising nationalist feelings, especially when they come on the back of desperation, are often hard to contain.

I would say that the biggest strategic danger is that the Serbs allow themselves to become a proxy for the ambitions, and mischief-making abilities, of Russian nationalism in the region.

This week a lot of people are gathered in Davos, and on the agenda somewhere is the topic of demography. Amongst those participating is demographer Nicholas Eberstadt who has repeatedly drawn our attention to the real and present danger constituted by a Russia which, on the back of low birth rates and reduced life expectancy, faces imminent demographic meltdown.

Only this week the Eastern Europe correspondent at The Economist Edward Lucas had this to say (in the Economist latest Europe.View column.

‘Forget, for a moment, the headline stories from central and eastern Europe―the pipeline politics, the corruption scandals, the treasonous tycoons. The big story in the ex-communist world is people. Too few are being born. Too many are dying. And tens of millions have changed country.’

This is the new reality of Eastern Europe, and it is one we would do well not to lose from sight, for if we do we may find ourselves getting bogged down in the detail of things whilst missing the big picture which is unfolding before our very eyes. (Claus Vistesen has an in-depth review of the world bank report to which Edward Lucas refers here).

Seb is reasonably optimistic, and understandably so given all that the Kosovars have gone through, but we should never forget the darker side of things, which lies out there in wait of us, if it can catch us unawares. In the context of what is happening right now in Russia and Serbia I would say that vigilance was the watchword.
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Serbia: That Incredible Shrinking Country

This weekend’s election results in Serbia, and in particular the gridlock state of the political process and the resilience of the vote for the nationalist Serbian Radical Party (as ably explained by Doug in the previous post), pose new, and arguably reasonably urgent questions for all those who are concerned about the future of those European countries who currently find themselves locked outside the frontiers of the European Union. What follows below the fold is a cross-post of an entry I put up earlier this afternoon on the new global economy blog: Global Economy Matters. I don’t normally like cross-posting, since I would prefer to put up original Afoe content, but my time is a bit pressed at the moment, and I feel the issues raised are important enough to merit a separate airing on this site.
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27, 491m.

Since I doubt anyone of the afoe crew will be anywhere close to a computer when it will happen later tonight, this little announcement about the latest and probably last EU-enlargement in a while will have to do for the time being.

At midnight, Bulgaria and Romania will become members of the European Union, increasing the Union membership to 27 countries and 491million people – despite numerous remaining doubts about the countries’ ability to cope with the administrational demands of the EU and the imposition of special obligations and limitations, especially regarding the free movement of labour. Thus, as with the big Eastern enlargement in 2004, some commentators have called this enlargement-round a “second class” enlargement.

Still, that the countries’ accession has caused almost no public debate is probaly a consequence of the limited economic impact the two countries can possibly have, despite low labour costs. In 2004, Bulgaria’s and Romania’s GDP was a mere 0.2 resp. 0.6% of the joint EU-27 GDP.

Then again, on New Year’s Eve, all glasses are half-full and figures like the ones just mentioned only indicate a significant growth potential. Happy New Year!

Twitchers

Torture, war, elections. Let’s talk about birdwatching for a bit.

Twitchers. The term is British. When a rare bird shows up, twitchers are people who will drop everything and rush to the scene.

They used to have phone trees, then for a while it was beepers. It’s cell-phones and e-mail now. Here is an interesting thing: if you look back to the early days of twitching, the 1960s and ’70s, you see them using an alert system that’s eerily similar to the formal regime for planespotting developed by British civil defense during WWII. Direct copy, inspiration, accident? I wonder. Does anyone here know?

Anyway. Your classic twitcher will leave job, family, or church service behind, seize camera, binoculars and notebook, jump in the car, and roar off to the copse where the black-bellied whistling duck has appeared for only the third time in Britain since 1937.
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European Energy Efficiency Plan

Sargasso, Dutch weblog and co-nominee in the recent BOB’s has a very interesting post on European energy policy, which prompted me to address the issue here as well. The point of my own post here on AFOE is not to elaborate extensively on European energy policy, I simply do not have the time right now, but simply to draw your attention to the fact that there is a European policy, the Energy Efficiency Action Plan, not to be confused with its US namesake (pdf), and to start a discussion.

The ambitious aim of the European EEAP is to have a 20% reduction in wasteful energy consumption by 2020. From the official press release:

“Europeans need to save energy. Europe wastes at least 20% of the energy it uses. By saving energy, Europe will help address climate change, as well as its rising consumption, and its dependence on fossil fuels imported from outside the Union’s borders.” said Energy Commissioner Piebalgs. “Energy efficiency is crucial for Europe: If we take action now, the direct cost of our energy consumption could be reduced by more than €100 billion annually by 2020; around 780 millions tonnes of CO2 will also be avoided yearly” he pointed out.

In another press-release on the same subject we can read the following:

At the same time saving energy is the easiest, most rapid and most effective way to answer the challenge of our energy dependence and reduce damage to the environment.

So, the objectives are clear: save money, help the environment and reduce our dependence on fossil fuel imports. How? The EEAP outlines these focal points (I have added a few informational links here and there):

1) Promote energy-efficient household appliances through labelling and performance requirements
2) Promote low-energy housing (pdf)
3) Render power generation and distribution more efficient
4) Further reduce CO2 emissions from cars
5) Facilitate financing of energy efficiency investments for enterprises
6) Stimulate energy efficiency in the new member states
7) Use tax tools in a carrot-and-stick fashion
8) Raise awareness and share information, both within the EU and worldwide

The big problem, as always, is mentioned at the end of the proposed plan:

Nonetheless, before any of these objectives can be achieved, political will and engagement at national, regional and local level are necessary. The European Council, European Parliament, as well as national and regional policy makers will need to renew their full commitment and establish a clear and unambiguous mandate to facilitate the implementation of the Action Plan by endorsing it and agreeing on the proposals set forth.

Nevertheless, I’d like to take a positive approach and welcome the proposed policy set forth by the European Commission while awaiting new developments in the area of alternative energy as well.

For those who are interested, please go and read the details of the EEAP in full and share your thoughts and insights with us.

The new great game

Our next anniversary guest post is written by the the great Jonathan Edelstein.

It’s starting to look like the season of referenda in the near abroad.

On September 17, less than a week from today, voters in the unrecognized republic of Transnistria, located between Moldova and Ukraine, will be asked to vote on whether to “renounce [their] independent status and subsequently become part of the Republic of Moldova” or “support a policy of independence… and subsequent free association with the Russian Federation.” The option of “free association” with Russia, which is widely considered a prelude to outright annexation, is reportedly backed by a large number of Russian-financed business and political organizations, some with long-standing presence in Transnistrian politics and others apparently formed for the occasion. In the meantime, South Ossetia, which had earlier explored the possibility of petitioning Russia’s constitutional court for annexation, has just announced its own referendum for November 12, and although Abkhazia currently denies similar plans, there are rumors that a plebiscite may be in the works there as well.

The referenda, which are rather transparently supported by Moscow, represent something of a change in policy for the Russian Federation. It’s certainly nothing new for post-Soviet Russia to attempt to maintain its influence over the countries comprising the former Soviet Union, and it has at times used Russian citizenship to cement the “soft” annexation of neighboring territories; for instance, at least 90 percent of Abkhazians and South Ossetians now hold Russian passports. Nevertheless, up to now, it has soft-pedaled the issue of de jure territorial expansion. The forthcoming vote on whether Transnistria should become a second Kaliningrad suggests that policymakers in Moscow are at least starting to think seriously about taking formal responsibility for the territories that have broken away from other former Soviet republics.

At first glance, it’s hard to see why Russia would push such a policy at the present time. All three of the breakaway republics have substantial minorities who oppose union with Russia; Transnistria is almost evenly divided between ethnic Russians, Ukrainians and Romanians, and despite post-Soviet ethnic cleansing, South Ossetia and Abkhazia retain Georgian minority enclaves. The recent wave of terrorist bombings in the Transnistrian capital of Tiraspol may well be linked to the referendum, and Russian annexation of the Georgian breakaway republics would only intensify border conflicts such as the Kodori Gorge. Nor would successful plebiscites lend a veneer of legitimacy to a Russian annexation; indeed, given the current international attitude toward non-consensual secessions from recognized states, this would only make Russia’s legal position worse by transforming it into an occupying power.

In other words, the referenda seem like a recipe for stirring up ethnic conflict within the breakaway republics, making Moldova and Georgia even more alarmed over Russian political ambitions than they already are, and creating new diplomatic and legal problems for Moscow. Which leads naturally to three questions: why now, what does Russia stand to gain in compensation for these risks, and how much should the rest of the world (and particularly Europe) care?
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