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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Europe and secularism

Via DJ Nozem I was directed to a very interesting and very important article on Eurozine about European secularism and its role in shaping European identities. The text contains many useful insights and provides a wealth of discussion material. I’ll give one quote for our readers to consider and debate, emphasis mine, but please do and go read everything.

Internal differences notwithstanding, western European societies are deeply secular societies, shaped by the hegemonic knowledge regime of secularism. As liberal democratic societies they tolerate and respect individual religious freedom. But due to the pressure towards the privatization of religion, which among European societies has become a taken-for-granted characteristic of the self-definition of a modern secular society, those societies have a much greater difficulty in recognizing some legitimate role for religion in public life and in the organization and mobilization of collective group identities. Muslim organized collective identities and their public representations become a source of anxiety not only because of their religious otherness as a non-Christian and non-European religion, but more importantly because of their religiousness itself as the other of European secularity. In this context, the temptation to identify Islam and fundamentalism becomes the more pronounced. Islam, by definition, becomes the other of Western secular modernity. Therefore, the problems posed by the incorporation of Muslim immigrants become consciously or unconsciously associated with seemingly related and vexatious issues concerning the role of religion in the public sphere, which European societies assumed they had already solved according to the liberal secular norm of privatization of religion.

The sentence in bold goes to the heart of what I personally feel to be one of the main issues we are dealing with. Sure, Muslim fundamentalists who are ready to throw bombs and cause physical damage are a real threat and get plenty of media attention, deservedly or not. However, I believe the issues are much larger and much more complex. Terrorists, for better or for worse, are still a minority within a minority. There are bigger forces and trends at play here, as Eurozine points out:

The final and more responsible option would be to face the difficult and polemical task of defining through open and public debate the political identity of the new European Union: Who are we? Where do we come from? What constitutes our spiritual and moral heritage and the boundaries of our collective identities? How flexible internally and how open externally should those boundaries be? This would be under any circumstance an enormously complex task that would entail addressing and coming to terms with the many problematic and contradictory aspects of the European heritage in its intra-national, inter-European, and global-colonial dimensions. But such a complex task is made the more difficult by secularist prejudices that preclude not only a critical yet honest and reflexive assessment of the Judeo-Christian heritage, but even any public official reference to such a heritage, on the grounds that any reference to religion could be divisive and counterproductive, or simply violates secular postulates.

Hungary’s Reform Programme

Just a bit of background info to accompany Doug’s post on AFOE:

“Everybody in Hungary knows that real income will decrease in the next two years … and very significant social groups will feel their interests hurt. If this simple rejection is transformed and mixed with national radicalism and social populism, then this is a dangerous thing,” Gyurcsany (Ferenc Gyurcsany, Hungary’s Prime Minister) said.

He has said that Hungary aims to meet eurozone criteria on the public deficit, national debt and inflation by 2009 and adopt the common currency by 2013.Last week, Hungary submitted to the European Commission a revised plan to prepare for adoption of the euro. Under the plan, the public deficit would be slashed from 10.1 percent of gross domestic product GDP) this year, the highest in the EU, to 3.2 percent in 2009. Although it is an ambitious programme, some analysts have called on the government to cut spending further in social areas such as pensions, in order to tidy up the country’s shaky finances, a recipe Gyurcsany has so far rejected.

The so-called euro convergence programme, not deemed aggressive enough for some, has also sparked protests in Hungary and led to a huge drop in the government’s popularity. The reforms include ending free public university education and overhauling the state-run healthcare system that is teetering on the edge of bankruptcy, by introducing co-payments for visits to the doctor and to the hospital, among other things. The aim of the plan is to put a greater financial burden on citizens and curtail the welfare state, which is becoming increasingly hard to finance in a society that, like much of Europe, is growing older.

This information also has some relevance to the debate which is raging on this thread about reform.

Why reform has become a dirty word.

This anniversary guest post was written by the indispensable Jérôme Guillet, who normally writes for The European Tribune.

Laurence Parisot, the head of MEDEF, the French business
organisation, recently complained that:

There is one word who meaning for the public has changed in the past 25 years: “reform”. It used to be synonymous with progress, and now it means social regression.

One wonders why. Or not. As I’ve written incessantly over the past year at European Tribune (for instance here), “reform” has come to mean only one thing: less regulation of corporations, lower wages, fewer rights for workers, and weaker unions, i.e. the elimination of anything that can impede corporations’ freedom to make profits in the short term.
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New OECD Economic Outlook….

…below the fold.

But first an introduction. I’m guestblogging from Amsterdam and my site can be found here. Very much honored to post at the Fistful (I would be, they’ve got visitors), although in all honesty they might be better served by a Francophone blogger.

As it is, they are grossly misunderestimated by the French part of the blogosphere (le sphère au blog?).
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Italian Elections, Now The Serious Part Starts

At the time of writing Berlusconi is still filibustering, but it seems to be simply that, rather than any serious attempt to derail the outcome of the electoral process. Meantime the financial markets are adapting themselves to the new reality.

I too am gearing myself up for what looks like being a very bumpy ride ahead. I have dusted off some of the rust from an old weblog I used to maintain – Italian Economy Watch. Many of the posts I have been putting up are simply recycled versions of material which has appeared here at Afoe, but it does at least serve the useful purpose of keeping all the posts tidily in one place. Recent posts include The Future Of Italy’s Young, Addio, Dolce Vita, Or Twilight of the Idols?, Italy Had Zero GDP Growth In 2005, Les Jeux Sont Faits, and The Italian Government Has A New Crisis.

But talking of new crisises, I fear Italy has a pretty old one (puns intended), and the ratings agencies are only just starting to get their minds round the problem.
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Les Jeux Sont Faits

Yes gentle readers, les jeux sont faits. Italy has entered the election season, and this time the game is for real. The outcome of this election, and the decisions which are subsequently taken will be important not just for Italy, but for the whole EU, and the stakes are not small ones: the whole European process is in play. (This post needs to be read in conjunction with the last one from Alex, and contsitutes the start of our campaign: Italian elections 2006. Incidentally, since none of us are in Italy, and since I for one tend to see everything Italian through a Spanish filter, if there is anyone out there in Italy reading this, and who fancies their hand at some guest blogging during the Italian campaign, then please consider yourself invited to contact us directly to talk about this.)

The starting point for getting a handle on Italian Elections 2006 is undoubtedly a blog post from the US economist Nouriel Roubini following an amazing outburst at the recent Davos forum by Italian economy minister Guilio Tremont (also see here).

Wolfgang Munchau takes up the issue in an FT article today.

There was a revealing incident at the World Economic Forum in Davos this year. Nouriel Roubini, the New York-based international economist, took part in a panel discussion during which he raised questions about Italy’s future in the eurozone. A fellow panellist was Giulio Tremonti, the Italian finance minister. Professor Roubini wrote in his web log* that his presentation “caused a stir with Minister Tremonti who interrupted me in the middle of my remarks, went into a temper tantrum and shouted: ‘Go back to Turkey!’ I happen to have been born in Istanbul.”

Perhaps one should not conclude too much from this incident, but it does show one thing: European officials are getting nervous about the future of the euro. A few years ago, no one would have raised an eyebrow.

Now Munchau’s focus is Spain, but Spain and Italy here are but two sides of the same coin, the existence of low, and thoroughly inappropriate, interest rates. In the one case it is the private individual who is hopelessly in debt, in the other it is the state. Now as Munchau states:

Italy is often mentioned as the country most likely to leave the euro. I disagree. Leaving the euro would not solve any of Italy’s problems. Since Italy’s debt is mostly euro-denominated, Italy would be facing an Argentinian-style debt crisis.”

This is undoubtedly true. Leaving the euro would clearly leave Italy facing a horrible mess, of gigantic proportions, but it ducks one key question: will Italy be able to stay inside? It may well be that Italy would never ‘choose’ to leave, but can Italy find a sustainable path to maintain its membership? That is the real question, and I, for one, have serious doubts on this, doubts which I have never really tried to hide. In the face of Italy’s inability or unwillingness to correct its course, the issue is, as Roubini himself asked in an earlier post, in the game of chicken which is now being played between the Italian state and the EU institutions who will be the first to blink? Certainly no-one here has a very viable exit strategy to hand. The latest news on the current attempts to reign in the debt is certainly far from reassuring.

So, to start the ball rolling, here are a number of the key issues as I see them:

1/. The existence of a huge and unsustainable public debt, no clear evidence that anything is going to be done about this, and the accompanying serious policy headache both for the EU Commission and the ECB.

2/. The presence of a high level of private saving, coupled with a far from dynamic internal economy.

3/. The fact that Italy has one of the lowest fertility rates in Europe which make the population pyramid unsustainable in the long term together with a lack of the real resources needed to introduce a programme of public policy to address this problem.

4/ The presence of strong xenophobic attitudes among leading members of the Berlusconi government (and here) which makes recourse to serious immigration as a paliative to the demographic problems extraordinarily complicated while at the same time making the conduct of EU foreign policy even more of a headache.

5/ A long and complicated history of corruption at many levels of private (and here) and public life (and here), and a complete lack of infomational transparency in dealings with the EU.

6/. The presence of a heavily ‘familiaristic’ approach to public policy which prevents realism and objective debate in looking for solutions to Italy’s long term structural difficulties.

7/. The existence of a strong sense of denial inside Italy itself about the scale of the problems and a real and present willingness to blame the euro itself for all the problems.

This list of headaches is undoubtedly long enough already, and undoubtedly more topics could quickly be added, they do howvere form a starting point for a full and frank dicussion of the problem. Let the games commence!

The Pébereau Report

According to the French writer Rabelais debt and deceipt are almost invariably inextricably linked. So it is appropriate that it should be a French banker – Michel Pébereau – who takes it upon himself to try to bring this harsh reality home to a French public which still seems excessively steeped in the finer details of the arts of self-deception. Pébereau does not mince words: over a quarter of a century century French public policy has accumulated for itself a national debt has neither supported economic growth nor reduced unemployment. The debt is “asphyxiating” and unless the State acts to reduce its spending now France will “lose control of the financial situation” before the end of the decade. Indeed so stark is the picture Pébereau paints that French economy minister Thierry Breton, on reading the report, was moved to comment: “Unbeknownst to them, our children are already financing part of our standard of living.”
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Something Worries Me About Peter Bofinger

Really I realise I have been remiss in another important sense. I have long assumed that in fact the decision to reduce deficits was taken due to the coming fiscal pressure from ageing. This certainly was the background to the discussion. However now I look at the details of the SPG this area is not mentioned (as far as I can see) and the other – the free rider and associated – is the principal consideration.

So those who criticize the bureaucratic and infexible nature of the ECB are in the right to this extent. Of course the underlying demographics *should* be part of the pact, but that is another story.

I find myself in a tricky situation, since I am deeply sceptical that the euro can work, and now after the French vote even more so, but since it has been set in motion, the best thing is obviously to try and make it work (even while doubting). So I am thinking about all this. Obviously I should try and write a longer post making this clearer.

The SGP was adopted at the Amsterdam Council 1997. A history of the implementation of the pact, and a summary of the debate over the new pact can be found here. The Stability and Growth Pact was designed as a framework to prevent inflationary processes at the national level. For this purpose it obliges national governments to follow the simple rule of a balanced budget or a slight surplus.

Now if we go back to the origins of the pact, to the communication of the European Commission on 3 September 2004, you will find the following:

“As regards the debt criterion, the revised Stability and Growth Pact could clarify the basis for assessing the “satisfactory pace” of debt reduction provided for in Article 104(2)(b) of the Treaty. In defining this “satisfactory pace”, account should be taken of the need to bring debt levels back down to prudent levels before demographic ageing has an impact on economic and social developments in Member States. Member States’ initial debt levels and their potential growth levels should also be considered. Annual assessments could be made relative to this reference pace of reduction, taking into account country-specific growth conditions.”

Now curiously I have found nothing in Bofingers argument which seems even to vaguely recognise this background.

A good starting point for this topic would be the conference “Economic and Budgetary Implications of Global Ageing held by the Commission in March 2003.

The European Council in Stockholm of March 2001
agreed that ?the Council should regularly review the
long-term sustainability of public finances, including the
expected strains caused by the demographic changes
ahead. This should be done both under the guidelines
(BEPGs) and in the context of the stability and
convergence programmes.?

This document on the history of EU thinking on ageing and sustainability is incredible.
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Clues

This is not an analytical “perspectives” type post. Just a number of bitty threads that seem in one way or another worth noting (small pieces loosely joined). They could basically be grouped together under the following headings: photos, suicides, explosives and origins.

Maybe I should also point out the obvious: that living in Spain while coming from the UK gives me a rather unusual perspective on what is happening. I lived the days surrounding the Madrid bombings intensely, now I am doing the same with London (where I had my home for many years). In some ways I can’t help but see this in terms of similarities and differences.

The big difference is of course in the government reaction, and the way that this is transmitted to a wider public. The British official reaction is one of ‘containment’ in every sense of the word. I think this is a good approach, since I think that excessive shock and panic only serves the purposes of the terrorists. The overall sensation was that London was as prepared for this as it could have been, and that many of those working in the crisis management and emergency services areas were following through on already well rehearsed roles.

Things in Spain couldn’t have been more different.
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