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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Meanwhile in an EU Candidate State

From Lebanon’s Daily Star:

Turkey on Monday appointed a general who is expected to adopt a tougher line toward EU negotiations to replace the head the country’s powerful military, who was widely considered a moderate. The change in leadership, which was widely anticipated, comes as Turkey is insisting that Washington do more to crack down on Turkish Kurdish rebels operating out of bases in northern Iraq…

Buyukanit raised eyebrows this year by praising a soldier subsequently jailed for a bombing believed to be aimed at stirring up unrest in the mainly Kurdish southeast. The bombing triggered riots in the region and a parliamentary inquiry.

Analysts say Buyukanit’s no-nonsense views have been shaped by the time he spent in the southeast during the 1990s, heyday of the separatist Kurdistan Workers Party (PKK) which is now seen as weakened but far from defeated.

“Buyukanit is more pro-American, more security-minded than Ozkok. He is not against the Europeanization of Turkey but he is more influenced by nationalist tendencies,” said Hussein Bagci of Ankara’s Middle East Technical University.

“He will be much tougher in the fight against the PKK.”

Hmm…

Security-minded is what one would usually expect a general to be, but the key question will be how broadly he defines the interests of Turkish society. Has he kept up with changes, or will he try to turn the clock back?

I’m not at all sure that “no-nonsense” is the proper way to describe someone who advocates purely military solutions to Kurdish issues in Turkey. In fact, that view is full of nonsense, as much of the 1980s and 1990s demonstrate.

And just what a “tougher line toward the EU” means is another question. The EU line (and the NATO line, for that matter) is that civilian governments control the national military, full stop. The fact that the political views of a Turkish general are a matter of interest is itself a sign of the distance still to go for Turkey. Questions like this are a normal part of accession — Greece’s military junta ended its rule just seven years before that country joined the EC; there were worries early on about Poland’s military (a legacy of Col. Pilsudski in the inter-war era); Spain and Portugal probably had to address the issue as well, given Franco and Salazar.

Bears watching.

The HRC is dead, long live the HRC?

The UN has elected a brand new Human Rights Council to replace the discredited Human Rights Commission. Why was the old HRC discredited? Well, basically and officially, because several of its members were known to violate human rights and/or to protect their own interests. It is only logical. However, who will be taking a seat in the new and improved HRC? Right, some of those very same countries that were known to violate human rights: China, Cuba, Pakistan, Russia and Saudi Arabia.
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Wolfgang Lutz and the Low Fertility Trap

Back in July I published a post about Austrian demographer Wolfgang Lutz’s hypothesis that those countries which sustain total fertility rates below 1.5 for any length of time may have fallen into a self-reinforcing low-fertility trap. Old Rottenhat (Ray to his friends) argued in comments that I had explained the reasons for the existence of low fertility but that I had not justified the idea that this was a ‘trap’. Old Rottenhat was right, and taking advantage of the fact that Lutz himself has now given a fuller outline of the hypothesis at the recent Postponement of Childbearing in Europe Conference (see presentation) I will now try and remedy this lacuna.

So here finally Ray, is your reply: I hope it is something which indeed goes beyond the obvious.
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Slowed or stalled?

Taking a break from the German elections, I ran across this recent article over at Radio Free Europe. Short version: EU accession for the Western Balkans (Croatia, Bosnia, Serbia, Macedonia and Albania) is stalling.

All of these five states would like to be part of the EU, but — with the partial exception of Croatia — none of them are particularly welcome. The EU appears to be going through a period of “accession fatigue” in general. The “No” votes in France and the Netherlands, though not directed specifically at these countries, have definitely created an atmosphere of doubt and uncertainty.

Furthermore, many of the countries of the Western Balkans are — there’s no way to be polite about this — unpopular. A recent Eurobarometer poll shows that more people oppose membership for Bosnia (43%) than support it. Only 40% of Europeans support EU membership for Serbia, while 44% oppose it. And for Albania, those numbers are a depressing 36% for, 50% against.

Obviously this could change over time. Again with the exception of Croatia, all of these countries are at least a decade away from membership. So opinions might shift. Still, the poll numbers suggest that there’s not much popular support within the EU for even starting the process.

Looking at the potential members one by one, below the flip.
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Austria Would Prefer Not To

Earlier this year, Eurobarometer started asking members what they thought about future EU expansion. The results (which can be found here, as a pdf) were pretty interesting.

52% of Europeans support membership for Croatia, while only 34% oppose it. (War criminals? What war criminals?) And 50% support membership for Bulgaria. But only 45% support Romania coming in. Which is a bit embarrassing, given that the EU has already firmly committed to Romanian membership, even if it might be delayed for a year.

Still, the Romanians can take comfort; they’re well ahead of Serbia (40%), Albania (36%) and Turkey (dead last, with 35% of Europeans supporting Turkish membership and 52% against).

Where this gets interesting — in a Eurovision-y sort of way — is when you start to break it down by country.
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A modest proposal for CAP reform

I’ve been in Canada for the last month, getting in my last family visit before settling in to the serious business of either going back to school or collecting unemployment checks. My family is large – Great-Grandpa had 25 children, and Grandpa had 9 – so it takes a while if you go to see my family. Ours is a large, disorganised, occasionally frightening clan who, depending on pure whim, identifies itself as either German-Canadian, Dutch-Canadian, Russian-Canadian or Ukrainian-Canadian. Our tribal language is an obscure dialect of Low Saxon (Platt for the actual Germans out there) spoken primarily in Paraguay, Mexico, Central America and Saskatchewan, and whose most famous speaker is, arguably, Homer Simpson. It’s a long story, don’t ask. It not being much of a literary language, we all just say our ancestors spoke German – the liturgical language of my clan’s particular sect.

In contrast to Europe and the US, Canadians are a lot less disturbed about asking people about their ethnic identities or expressing some loyalty to them. I guess the main reason is that Canada has never really pretended to be a nation built atop an identity, but rather a place where an identity of sorts has slowly built up from the existence of a nation. There is no Canadian myth of the melting pot, and as our soon-to-be new Governor General has demonstrated, no serious demand for nativism in public office. Michaëlle Jean, who is slated to be the powerless and unelected Canadian head-of-state when the Queen is out of the country – e.g., practically always – when she is sworn in on the 27th, is no doubt the most attractive candidate we’ve ever had for the office. And, like her predecessor, she is a former CBC/SRC reporter and talking head.

Ms Jean and I share an endemically Canadian charateristic: We both can and do identify ourselves shamelessly as several different kinds of hyphenated Canadians. She is French Canadian, but that’s hardly strange. She is also Franco-Canadian – Ms Jean has dual citizenship with France, making her the first EU citizen to be Governor General of Canada and the first French citizen to be acting head of state of Canada since 1763. But more unprecedentedly, she is Haitian-Canadian and – as logically follows – African-Canadian.

Yes, Ms Jean is black, and furthermore in an interracial marriage. Well, that’s Canada for you. America puts black folk in squalid emergency shelters, we put ours in Rideau Hall.
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China Trade With EU

I’m not very happy with the ‘US Trade Figures‘ post I put up last Friday. I think it’s a glorious mess. The key to the problem is that I tried to deal with two – interrelated but disinct – topics at once: the euro and China trade. So today lets ignore the euro (which has once more resumed the downwards drift, even as I write) and take a bit of a closer look at where we are – in trade terms – with China. (Btw: the planet has finally returned to its orbit, and Brad Setser has an analysis of the US trade data here).

The big item in this weekend’s news is, of course, the agreement reached with Beijing on textiles. The EU textile industry will now have three years to adapt, but since textile manufacturers don’t appear to have taken too much advantage of the ten previous years, it is hard to know whether this will serve any useful purpose. Doubly so, since it is not yet clear how the calculations will be made, and I have the distinct impression that much of the recent surge in imports will now, in effect, be consolidated.

Be that as it may, what about the broader issue?
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Just In Time?

Tony Blair inched home to a historic Labour third term in the UK last week. But looking at the changing tempo of the British economy over the last couple of months, you could be tempted to ask: was this a case of ‘just in time’ electioneering?

At the present time there seems to be a general consensus that Blair will back down during this parliament, and that the natural heir apparent is Economics Minister Gordon Brown. However if Blair won the election despite the Iraq war, and thanks mainly to economic prosperity, we could ask ourselves whether changing winds of fortune might not make the heir rather less apparent when the time for handing over actually comes.
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Is this the resolution?

Ten days on, and we may be close to a resolution of the crisis in the Ukraine. There’s definitely been some agreement between Kuchma, Yuschenko, Yanukovich and the mediators (Solana, Adamkus, Kubis and Kwasniewski) but, as ever, the devil is in the details. The basic points seem to be that there will be a revote, there will be constitutional reforms before the vote occurs, protestors will stop blockading government buildings and an all-party working group will implement changes based on the rulings of the Supreme Court.

The questions that remain to be answered though, are:

  • What form will the revote take? The full election, or just the second round? Will new candidates be allowed to stand, and will existing ones be barred from standing? Will more observers be allowed in for the elections, and will Yuschenko’s other requirements, such as limiting absentee ballots, be accepted?
  • What form will the constiutional reforms take? The general opinion seems to be that the Prime Minister and Cabinet will gain powers from the Presidency, but is this to weaken a potential Yuschenko Presidency? And will the reforms address the regional issues?
  • Where do the protestors go now? Blockades are over, but will some remain on the streets to keep the pressure on?
  • Finally, what will the Supreme Court actually rule and when? It seems the election process can’t really begin until its deliberations are completed?
  • As I said, reaction seems to be mixed amongst both the media and the bloggers as to whether this is the end of this stage of the crisis, or whether it still continues. See the Kyiv Post, PA/Scotsman, Le Sabot, Foreign Notes, Notes from Kiev and SCSU Scholars for more.

    In related news, The Argus notes that while the events in Ukraine may have inspired protestors in Tajikstan Uzbekistan, while attention’s been focused elsewhere, Russia is demanding Abkhazia reholds its recent election.

    Finally, I’ve received a report from Tarik Amar, who reported from Ukraine on John Quiggin’s blog last week. He’s been talking to the people in the tent city and you can read the full thing below the fold.
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