And no, it isn’t gout, though plenty of port and fine stilton are to be recommended in any event.
No, the ailment here is an economic one. The EU Commission has just been lenient with Portugal: she has three years, not two, to put the deficit straight.
Just wanted to add a small note to Edward’s ongoing demographic discussion. Lance Knobel quotes Murray Feshbach, an honest-to-goodness expert on Russian demography.
If anything I would now say that I was underestimating the losses to the population of Russia in the future. The current official projection (medium) by the Russian State Statistical Agency is some 101 million in 2050. [July 2005 estimate of current population is 143 million.] My expectation is that the number will be closer to 75-80, approximately the level of worst-case scenario. The current and imminent number of deaths from HIV/AIDS is much worse than anticipated, as well as the number of deaths from tuberculosis. In addition, hepatitis C deaths will, ceteris paribus, begin to be devastating at the end of the next decade. None of these health factors were incorporated into the projection model of the Statistical Agency.
On the other hand, a company I write about is working on a hepatitis C vaccine that, if all goes well, could enter the market shortly after 2010. Still, the outlook for Russia is rough.
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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Don’t pick of a copy of Stasiland
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Business week has just popularised what was previously a minority sport: debating the ‘global savings glut’ issue. Steven Roach has already responded. Really with all this high-powered economics going on, I feel sorry for the ‘layman’, since it must be kind of hard to reach a conclusion about whether or not to buy a house, or whether to take a summer break or wipe the credit card debt instead.
The issues are pretty complex, but I think can be broken down into two main issues.
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BusinessWeek spills a lot of ink on the rise of the car industry in Central and Eastern Europe. The idea that a lot of manufacturing is headed east is nothing new, but to see the numbers and changes laid out so explicitly gives a much clearer idea of the challenges that Western societies are facing.
Volkswagen [in Germany has] the highest labor costs in the industry — close to $50 an hour for a 28-hour workweek, some 20% over the already high average wage for German auto workers. In contrast, Slovaks [at another VW factory] cost $6 an hour and work a 40-hour week, netting VW annual personnel cost savings of $1.8 billion, according to analysts at Germany’s Bank Sal. Oppenheim. If [Thomas] Schmall [chairman of VW Slovakia] needs to boost production suddenly to meet a surge in demand, the new shifts can be arranged overnight. In Germany, negotiations with unions to alter work-time models can take up to six months and cost more in overtime premiums.
Ouch.
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It has become conventional to distinguish between two groups of countries within the eurozone. On the one hand there are the older, relatively richer countries, who tend of late to have been suffering from ‘sub par’ growth. On the other hand we have the more recent, and relatively poorer, members like Spain and Ireland, where growth (and inflation) have been notably stronger.
Start Here
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In a letter to the Financial Times published last week, Michael Woolfolk of the Bank of New York makes a curious contrast:
It may end up that signing on to the euro currency will require the move to a market-based economy. This will certainly not be easy for welfare-based economies, and it may not ultimately be possible politically.
(See EuroPolyphony for the link and more info on the letter).
Now this paragraph has me scratching my head: what exactly is the difference between a market-based and a welfare-based economy?
The expression ‘global imbalances’ has become somewhat fashionable of late. But what exactly are these imbalances, and why are they important. The IMF in its most recent World Economic Outlook draws attention to two of them:
The (current) expansion has become less balanced. Growth has been stronger than expected in the United States, where the ?soft spot? proved more moderate than previously thought; in China, where activity remains buoyant despite tightening measures; and in most emerging market and developing countries. In contrast, growth in Europe and Japan has been disappointing, reflecting?to different extents? faltering exports and weak final domestic demand.
Global current account imbalances have widened. The U.S. current account deficit is estimated at a record 5.7 percent of GDP in 2004, with the effects of the depreciation of the U.S. dollar to date offset by continued strong domestic
demand relative to its trading partners and higher oil prices. This is matched by current account surpluses in emerging Asia, Japan, the oil-producing countries in the Middle East and the Commonwealth of Independent States (CIS), and?to a much lesser extent? the euro area.
Well here we have two of the more obvious of those famed ‘imbalances’ – imbalances in growth and in trade accounts – but are there more of them?