Italy’s Economic Problems Under The Spotlight

As Manuel points out in the accompanying post, Romano Prodi’s resignation as Italy’s Prime Minister is a rather sudden and dramatic, but scarcely unexpected, development. The immediate political crisis may be resolved as rapidly as it appeared, but again as Manuel indicates it may only serve as a prelude for further things to come, and the fragility of any government coalition which may be put together only underlines the difficulties Italy will almost certainly have in addressing what are important ongoing economic problems. The present post will simply attempt to outline some of the main economic problems Italy faces, in order to contextualize the political problem a little.
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Dutch elections: preliminary round-up/impressions

The 2006 parliamentary elections in The Netherlands have produced some interesting results. Another centre-right coalition of CDA, VVD and D66 (before the latter blew up that very same coalition, see comments) seems to be off the table and the formation of a new coalition will prove to be very difficult what with the votes spread out more evenly over the main parties. There are now four major contenders instead of three. Prime Minister Jan-Peter Balkenende, who will probably continue to be Prime Minister, will now have to consider forming either a left-leaning coalition or risk an unworkable monster coalition. From The Guardian:

The Netherlands is facing political deadlock after the governing Christian Democrats scraped an unconvincing win in yesterday’s election and parties on the hard left and right performed well enough to impede their ability to form a government. As political leaders braced themselves for weeks of horse-trading to form a coalition, the outgoing finance minister delivered a blunt assessment of the result.

“It’s chaos,” Gerrit Zalm, a member of the Liberal (VVD) party was quoted by Reuters as saying. “The real winner is the only party that actually did not participate, which is the party of the anarchists.”

A summary round-up of the results can be found below the fold.
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Flexicurity – a working model for Europe?

Before moving in to the nitty-gritty of flexicurity; what it is and whether it can work as a universal European labour market model I should take the time to thank the AFOE team for allowing me a spell as a guest-writer here at the blog in the coming two weeks. In terms of presentation my name is Claus Vistesen and I am a Danish student at the BLC program at Copenhagen Business School. For further info I invite you to visit my personal blog Alpha.Sources, which deals with a wide range of topics of my interest.

There is a lot of talk and flurry at the moment about labour market reforms in Europe, notably in France, but also Germany has been struggling with how to reform the labour market and here as well as here.

Looking to the north we find the Nordic countries who seemingly have the best of two worlds; low uemployment coupled with a high degree of security but what is it exactly that the Nordic countries are doing, and could others potentially follow their example?
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French protests : it’s the politics, stupid!

There are some offers you can’t refuse. An invitation to join the permanent roster of Afoe is one of them. Let me first say, then, that I was initially happy and thrilled and grateful to be part of this wonderful blog. All the more so since it means that I’ll be ineligible for the Afoe Awards next year, and thus spared the humiliation of a third crushing defeat in a row. (For those of you who are scratching their head and wondering “who the hell is this guy?”, check this post)

If is say “initially”, it’s because, as the French guy of the team, I now have the daunting task of trying to explain clearly our current social row over the Contrat première embauche (First job contract) to a mainly non-native readership. As it happens, the BBC has already done a quite decent Q&A on the topic. So go read it to get the basics. And then come back here if you want my long and -I hope- not too muddled thoughts on what it all means.
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Oh We Are The Champions

Yes we are really, aren’t we. Especially if we are called Arcelor, or Danone, or Endesa, or Eni, or Enel, or Banca Antonveneta or Pekao. And what these champions have in common, and it is this which sets them so much apart from their footballing equivalents, is not the ability to win anything, but rather their capacity to lose, especially in a take-over battle from a foreign pretender. And just for this very reason it is, it seems, ok for you to include the referee in your line-up. Indeed such is the sporting prowess of these ‘champions’ that it is deemed that what they are most in need of is not the cold harsh wind of competition, but rather protection, and indeed protectionism, anything rather than face outright competition from would-be global rivals. A rare breed of champions these.

I think before I go further, I would like to draw attention to one idea which holds us all together here at Afoe:

Purity of race does not exist. Europe is a continent of energetic mongrels. – H.A.L. Fisher
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Hot Labour Anyone?

This post has one sovereign virtue: apart from in the current sentence it will not refer, either directly or indirectly, to the Catalan Statute. The topic it does deal with however is probably equally vital for the future of Spain. The issue is Spain’s housing boom, and the role of immigration in fuelling it. Two facts above all others stand out: Spain is currently ‘enjoying’ the longest and deepest housing boom (in the current round) among all the world’s developed economies (see this useful article from the Economist, or this one from Business Week), and Spain is also enjoying sustained rates of immigration which – at around 2% of the population per annum, may well be the most intense ever experienced in a developed economy. For purposes of comparison I could point out that Spain’s net migration rate of 17.6 per thousand in 2003 contrasts sharply with that recorded for the old European Union 15 for the same year – 5.4 per thousand – and is even well above the level recorded by Germany in the early 1990s – a maximum of 9.6 per thousand in 1992 – or by France in the early 1970s. So there is a housing boom, and there is immigration, the question is, what is the connection?
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UK and German Retirement Policies Compared

As we all know raising the participation rates of older workers is both essential and a core component of the Lisbon Agenda, so here’s a timely report from the Anglo-German Foundation for the Study of Industrial Society comparing policies directed towards older workers in the UK and Germany. More salacious material to stimulate all you policy wonkers out there. (Hat Tip to David from North Sea Diaries). Looking at the table on page 3 the UK seems to have been a good deal more successful in acieving these objectives over the last decade. In both coutries male participation rates in the 55-64 age group has actually gone down since 1990, with the increase for the group as a whole being a matter of increasing female participation. On the other hand the UK has managed to reverse the 1990 – 2000 downward male trend and between 2000 and 2004 55-64 male participation went up, something which it noticably didn’t do in Germany.

The report concludes that the primary deficit concerning active labour market policies for older unemployed in Germany is the lack of specific targeting of this group both in active job placement and training. In the UK, the scope of active measures is rather limited both with regard to the kind of measures � New Deal 50 plus/New Deal 25 plus � and the level and duration of funding………In the UK � despite a more socially inclusive stance recently � funding of job creation and a broad application of training measures has not taken place so far, given the low intervention character of labour market policies. In Germany, in the wake of recent labour market reforms, a shift in paradigm towards a more activating approach to job placement has been implemented.

Polish Plumbers Arrive In Denmark

The EU Observer has a piece on a row which has blown up in Denmark over some ‘new arrivals’ from Poland. The issue is itself interesting since there has been a good deal of talk in recent weeks about flexibility in the Danish labour market and the idea of ‘flexicurity’:

Danish trade unions have accused the Polish embassy in Copenhagen of encouraging Polish construction workers to ignore the collective agreements that regulate the Danish labour market….

They argue that the Danish labour model is being undermined but their opponents believe that the Danish trade union model itself undermines the EU principle of freedom of movement.

The Polish embassy website had informed Polish workers interested in coming to Denmark that they should comply with regional and national agreements on salaries and working conditions, but also points out they are not under legal obligation to do so.

This would mean that Polish workers could technically work for under the agreed minimum wage – making them more attractive than Danish workers.

Why Finland?

I just put up a post on the economic situation of Finland. Now I am putting another. Why the sudden interest? What is there about the Finnish economy which could be of interest to more people than the five million or so who actually live there?
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Merkel’s Reform Agenda

Angela Merkel has an interview in the Financial Times today. Unfortunately the transcript is subscription only. This is a pity, since to some extent she defines the kind of Europe she would like to see:

In an interview with the Financial Times, Angela Merkel, leader of the Christian Democrat Union, on Wednesday issued a clarion call for economic reform in Europe based on countries borrowing successful policies from one another. ?If I look at Scandinavia, for instance, I see we still have a long way to go in decoupling our social security system from labour; if I look at central and eastern European countries, I see I still have a long way to go in reforming my tax system; and when I look at the UK, I see I still have much to do to make my labour market more flexible.?

Ms Merkel’s references to central European countries and to the UK are striking, since the former are identified with low corporate taxes and in some cases, such as Slovakia with a ?flat tax? system. The deregulated UK labour market is often demonised by continental European politicians as alien to the European social model.

Her remarks provide clear backing for Tony Blair, prime minister and current holder of the EU’s rotating presidency, in his campaign to put economic reform at the centre of the EU’s effort to reconnect with European voters after their rejection of its planned constitution in France and the Netherlands in the past two months.

The big difficulty I see with her proposals is that they will put more of the burden of financing government on consumer taxes (VAT), and this will not help Germany lift domestic consumer demand which is one of the ‘big issues’.

Morgan Stanley economist Elga Bartsch, who I have in the past maligned somewhat here on this blog, has a pretty fair and balanced summary of the CDU reform programme here.