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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Premature Evaluation: Albion’s Seed

Why is America the way that it is?

Wrong question, the author of Albion’s Seed would say. America isn’t any one way, and hasn’t been since the very beginning of European, particularly English, colonization. David Hackett Fischer puts the core of his argument straight into his subtitle: Four British Folkways in America. He identifies four distinct migrations from Britain, and to a much lesser extent Ireland, that shaped American culture and regions down to the present day. These migrations were fairly coherent in origin, destination and religion. Understanding these origins will help understand cleavages in the contemporary United States, and it will help understand America as a whole.
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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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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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La Febbre

A couple of weeks back I had the pleasure of seeing Alessandro D’Alatri’s recent film La Febbre (Fever). As the reviewer says (Italian link), this is a ‘normal’ (everyday) film, not a great one, even if it does include one or two memorable moments, like the scenes shot along the river bank, which were (and I imagine this is not entirely unintentional) rather reminiscent of some which are to be found in the unforgettable L’Albero Degli Zoccoli from that giant of Italian cinema Ermanno Olmi.

La Febbre è il classico film italiano, che vuol raccontare una storia normale, di tutti i giorni, e che per farlo non trascende dai canoni della buona creanza del plot, e da quel pizzico di amara critica sociale che lo rende molto politically correct.”

(La Febbre (the fever) is a typical Italian film, the kind of film which tries to tell a simple, ‘normal’ story – an everyday one – and which in order to do this stays well within the bounds of what is normally thought to be an acceptable plot structure, and then, following the recipe, there is added just enough social criticism to make the film a highly politically correct one.)

My point of interest in this post, however, is not really the film itself, but rather the film as a reflection of something else: the disenchantment and frustration that many young Italians seem to feel with contemporary Italian society, and the impact that the evident failure of Italian civil society to adjust to Italy’s contemporary social and demographic reality may have on the future evolution of Italian economy and society.
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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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Immigration Under The Microscope

With the arrival of Romania and Buglaria as full members of the EU the issue of migration is once more attracting a lot of attention. Stefan Wagstyl recently had an FT piece which gave a fair overview of the kind of debate which is presently going on in the UK, where the substantial (and largely welcomed) movement of large numbers of migrants from Poland and other Eastern Accession countries has now lead to an ongoing reflection over whether a repeat performance with its origins in the latest member countries would be considered so desireable. Immigration obviously has the capacity to bring out both the best and the worst in us, often at one and the same time.
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Italy’s Supply Constraint

The OECD estimates the current potential capacity growth rate of the Italian economy at 1.25% a year. Actually I suspect even this very low number is over-optimistic. Growth since 2002 has been as follows: 2003 – 0.1%: 2004 – 0.9%: 2005 – 0.1%. To be sure forecast growth for this year is somewhat higher, at 1.4%, and optimists are expecting this to be more or less repeated next year. But I suspect this outcome is unlikely simply because the global economy now seems to be slowing (and in particular the ever important US economy),so the strongly advantageous situation of 2006 is unlikely to be repeated, while next year the Italian government has promised to introduce an important package of spending reductions which are bound to negatively affect growth, at least in the short term..

But why is potential growth capacity in Italy so low?
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State of the World Population

I’ll keep this brief since there are some excellent guest posts just a little bit further on down the page just waiting for you to read and comment on. I’m not sure whether this is more about form or content, but the UN has a supremely interesting and readable report out today, as part of its State of the World Population programme, entitled A Passage to Hope, Women and International Migration, and whatsmore the report is presented in an extremely blog-like format, as I say highly readable and with the content readily available. And as if that wasn’t enough, the ‘traditionalist’ Financial Times (traditionalist in terms of content, not in terms of format) actually has a hyper-link to the report itself inside its article (bravo FT!). People often ask what kind of importance and influence blogs have, well sometimes I feel you only have to cast your eyes around a little bit.

On the substance front the contents of the report are obviously very relevant to our recent debate about Sub-Saharan migration to Spain. Indeed on the SotWP homepage you can find a link to a fascinating first person account by a Burkinan migrant (Adama) of his convoluted 3 year journey up through Mali, Algeria and Morocco, before finally reaching Spain via the Canary Islands. Clearly in migration terms people like Adama are the pioneers (anthropologists tend to call them the ‘heroes’, those who blaze the trail) who struggle against all adversity to find land and establish themselves (and tragically many do not make it all the way). What the arrival of Adama means is that many more will inevitably come behind, following a network logic which I have attempted to describe in the previous post.

But the new UN report isn’t about Adama, it is about the relatively new phenomenon of female-lead migration. Obviously the report highlights the situation of sex workers et al, but I would like to underline the fact, which is absolutely evident here in Spain, that the welfare services in Southern Europe at least simply cannot handle the rapid population ageing which is taking place without the massive arrival of female care-workers from outside the EU. The later economic development of Southern Europe and the comparative underdevelopment (not to say virtual non-existence in many cases) of institutional care make this inevitable.

One last thing while I am here, we have often talked about the economic growth imbalances which comparatively small migratory movements are causing between and within countries. The outward migration of skilled and highly educated workers from Germany is one such case, while the regional tensions which might arise inside Spain is another. Well today Randy McDonald has a timely and very interesting post about how oil revenues and subsequent economic growth differential in Alberta have produced a migration and fertility phenomenon which may well change the face of Canadian politics as a linguistic divide becomes a growth-model and socio-political one. Finally (the last thing after the last) anyone interested in looking into earlier European ties with Senegal (now being renewed) might like to glance at this link that Randy sent me on Senegalese participation in the European revolution of 1848, or read about the fate of one group of Senegalese soldiers who fought on the allied side in WWII, as described by Senegalese director Sembène Ousmane in his film Camp de Thiaroye (my input). And for those who still want to ask what all these Senegalese may have to offer the future Europe we are collectively building, maybe I could recommend the little known but excellent work of the Senegalese group Orchestra Baobab.

A Face That Launched A Thousand Ships

An unlikely Helen, Spain’s deputy prime minister, Maria Teresa Fernandez de la Vega, that’s for sure. Yet outside a few thousand years difference in timing the two seem to have been cut out for one and the same the same historical role: urging the boats to go back. Indeed the only thing which really separates them might be the magnitude of the problem to hand, since Coalición Canaria president Paulino Rivero suggested this weekend that what might be involved were not a mere 1,000 ships, but anything between 10,000 and 15,000 currently being built along the Mauritanian and Senegalese coastlines.

Joking aside this post is about tragedy, a human tragedy. According to the NGOs who are involved some 3,000 people have already died in attempting to make the hazardous crossing, a crossing which was actually completed over this weekend by a record 1,200 people in 36 hours.

As well as tragedy the post is also about folly, the folly of those economists who think low fertility isn’t an important economic issue. This opinion was recently expressed by respected US economist Greg Mankiw, (on his blog) who described the very idea that it might be as ‘wrong headed’ and, to boot, suggested that a poll of the world’s top ten economists would draw a blank on names who thought that low fertility was among Europe’s major economic problems. I am sure Mankiw is right about the poll, and this is why I use the expression ‘folly’. So what do I mean?
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