Sandy Brown Baltic Shores

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Sweden wasn’t the only Baltic area with an election yesterday. The voters of Mecklenburg-Vorpommern, in Germany’s northeastern corner, dealt a heavy blow to the ruling Social Democrat-postcommunist (SPD-Left) coalition. The SPD dropped 10 percent, but still received the largest share of votes, topping the Christian Democrats (CDU) 30.2 percent to 28.8 percent. The postcommunist (or possibly post-postcommunist, depending on how you look at these things) party, now known as the Left, rose marginally from 16.4 percent to 16.8 percent. The SPD can either attempt to continue the current coalition, which would then have a one-seat majority, or it can try to forge a grand coalition with the CDU, with all of the pluses and minuses currently on display at the national level.

But relatively mundane state politics are not what today’s headlines are about.
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Of Population Pyramids and Value Chains

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It is by now well known that the main hope for developed societies subject to rapid population ageing who wish to maintain their relative standard of living lies in increasing their collective productivity more rapidly than they increase their dependency ratio via-a-vis the older age groups. Now in the comments thread on the recent ‘Reform is a Dirty Word‘ post I ventured to say that I found it obvious that at some stage we would reach a point where the rate of population ageing was going to outstrip the rate of productivity increase (in which case relative income per capita would inevitaby start to fall). David, unsurprisingly, asked me why I thought this to be the case. I was not happy with the response I offered (which was essentially some ‘rigmarole’ about the biology of ageing which is coming in a separate post), and since that time I have been scratching my head trying to find a simple way to get this point across. Perhaps I now have one.

All you need to get to grips with what follows is a basic understanding of geometry and a vague interest in football.
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Change

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So, we have a new government, and Göran Persson is resigning as party leader. I ended up voting for the Center party, the most inoffensive of the rightwing parties. I was a little tempted to vote a blank ballot. I know this new government will do all kinds of bad things, and now I’ll be responsible. I’ve never had to vote for a party that I thought would be on the winning team before.

I can’t really think of any particular issues that defined the campaign. That might be a little troubling I guess, but there weren’t any particular non-issues either , so to speak, or a great deal of “politics as spectacle”. People weren’t too riled up, there was just a general feeling of twelve years being enough. Well, good for the voters. 16 years of uninterrupted rule by one party wouldn’t have been healthy, especially this party in this country.

More Sweden, less tidbits

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Well, I just lost a long post about the so-called Swedish model due to my own stupid carelessness the combined malevolence of Windows XP and MS Word.

Anyway, the main point was to say that the article on the subject (free for non-subscribers) in last week’s issue of The Economist was really a dishonest hack job. And my critique went roughly like this :
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Swedish Tidbits

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Nobody has stepped up to write a big piece for us on the Swedish election, which is bound to be close, but below the fold are a few potential topics from our internal discussion. Bullet points for that party conversation you’re bound to have this weekend about the election in Sweden. (And if anyone from the afoe team does write a post, or objects to publishing the bits, feel free to take this post down.)
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Risk Premium

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Think that guaranteeing depositors’ money is a dull topic? In Russia, it’s exciting enough to get the central bank’s first deputy chairman gunned down on the way from a recreational soccer game to his armored Mercedes. It’s the highest-level assassination since President Putin took office.

Andrei Kozlov, 41, was the Central Bank of Russia‘s number two official, and had spearheaded banking reform on many fronts. Just this year, he had overseen the closure of 44 banks that were accused of improprieties. He was also at the forefront of deciding which banks could purchase deposit insurance (dubiously financed institutions could not), and he was pushing to make such insurance mandatory, as I understand it is in almost every advanced economy.

In working to bring Russia into line with international standards, Kozlov made a lot of enemies. Contract killings in Moscow are almost never solved.

Inherently Left of Center?

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Romano Prodi, writing in Le Monde, claims that the European Union is inherently a left-of-center project. It’s an interesting claim–certainly one that Konrad Adenauer and Helmut Kohl would probably dispute. But certainly the European institutions have changed since either of those Chancellors’ days, and a contemporary view might lend more strength to Prodi’s views and explain the relative prevalence of anti-EU sentiment on the right side of the political spectrum.

I’m of course relying on the summary from the estimable folks at Eurotopics, but it’s an interesting thought.

Italy and the Eurozone

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John Kay had an article in the Financial Times earlier in the week, and this seems to have caused quite a ripple around the blogsphere (Eurozone Watch, Economonitor, Claus Vistesen at Alpha Sources). The article was about whether or not it was technically possible for Italy to leave the Eurozone. (Update: Sebastian has a fresh post over at Eurozone Watch Blog continuing the discussion).

John Kay’s conclusion, and it is supported by a very reasoned commentary by Sebastien Dullien at Eurozone Watch Blog (welcome Sebastain and Daniela), is that there is no in-principle technical difficulty in exit. The most authoritative piece of work on this topic that I know of comes from Harvard International financial law specialist Hal Scott. The paper was written back in 1998, and was provocatively entitled “When the Euro Falls Apart“. Despite the title the paper is a tightly reasoned piece of work whose main conclusion is that not only is euro-exit technically perfectly feasibe, in fact the mechanisms which would make this possible were incorporated from the start (in particular keeping independent central banks with their own reserves). I think those who were able to think clearly back then – and were able to use some emotional intelligence – were always aware that there were question marks over Italy’s ability to go the distance.

So the problem is not a technical one. But as John Kay indicates it *is* a political one:
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The new great game

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Our next anniversary guest post is written by the the great Jonathan Edelstein.

It’s starting to look like the season of referenda in the near abroad.

On September 17, less than a week from today, voters in the unrecognized republic of Transnistria, located between Moldova and Ukraine, will be asked to vote on whether to “renounce [their] independent status and subsequently become part of the Republic of Moldova” or “support a policy of independence… and subsequent free association with the Russian Federation.” The option of “free association” with Russia, which is widely considered a prelude to outright annexation, is reportedly backed by a large number of Russian-financed business and political organizations, some with long-standing presence in Transnistrian politics and others apparently formed for the occasion. In the meantime, South Ossetia, which had earlier explored the possibility of petitioning Russia’s constitutional court for annexation, has just announced its own referendum for November 12, and although Abkhazia currently denies similar plans, there are rumors that a plebiscite may be in the works there as well.

The referenda, which are rather transparently supported by Moscow, represent something of a change in policy for the Russian Federation. It’s certainly nothing new for post-Soviet Russia to attempt to maintain its influence over the countries comprising the former Soviet Union, and it has at times used Russian citizenship to cement the “soft” annexation of neighboring territories; for instance, at least 90 percent of Abkhazians and South Ossetians now hold Russian passports. Nevertheless, up to now, it has soft-pedaled the issue of de jure territorial expansion. The forthcoming vote on whether Transnistria should become a second Kaliningrad suggests that policymakers in Moscow are at least starting to think seriously about taking formal responsibility for the territories that have broken away from other former Soviet republics.

At first glance, it’s hard to see why Russia would push such a policy at the present time. All three of the breakaway republics have substantial minorities who oppose union with Russia; Transnistria is almost evenly divided between ethnic Russians, Ukrainians and Romanians, and despite post-Soviet ethnic cleansing, South Ossetia and Abkhazia retain Georgian minority enclaves. The recent wave of terrorist bombings in the Transnistrian capital of Tiraspol may well be linked to the referendum, and Russian annexation of the Georgian breakaway republics would only intensify border conflicts such as the Kodori Gorge. Nor would successful plebiscites lend a veneer of legitimacy to a Russian annexation; indeed, given the current international attitude toward non-consensual secessions from recognized states, this would only make Russia’s legal position worse by transforming it into an occupying power.

In other words, the referenda seem like a recipe for stirring up ethnic conflict within the breakaway republics, making Moldova and Georgia even more alarmed over Russian political ambitions than they already are, and creating new diplomatic and legal problems for Moscow. Which leads naturally to three questions: why now, what does Russia stand to gain in compensation for these risks, and how much should the rest of the world (and particularly Europe) care?
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Hungary’s Reform Programme

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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.