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The EU Austerity Bandwagon: All Aboard!

by Richard Lyon Thu Feb 25th, 2010 at 05:45:01 PM EST

It looks like austerity is this year's economic fashion rage. There are demonstrations and riots in Greece about it and there are also protest in France and Spain. Meanwhile to the east of the euro zone nations such as Hungary and Latvia seem to be taking their deflationary medicine more quietly.

The European Commission seems to be setting the pace and tone.

 EU lagging behind in global recovery

The European Union is being outstripped by emerging economies in its recovery from the financial crisis, EU policymakers warned today, adding that Europe's "fragile" and slow recovery poses a threat to its competitiveness.

The warning is contained in an economic report published today by the European Commission, which forecasts that the EU's gross domestic product (GDP) will grow by 0.7% in 2010 while the rest of the world's will increase by 4.5%.

Olli Rehn, the European commissioner for economic and monetary affairs, said that the strength of economic recovery outside Europe was "clearly stronger" than the Commission had predicted in its last economic forecast, published in November. He said that this was "especially" true of emerging Asian economies.

Asked whether Europe's future prosperity and economic strength were under threat because of its relatively laboured recovery, Rehn said: "We should certainly be concerned of this, and I think it's a further factor that underlines the necessity of modernising our economies."

It appears that the EU like the US is feeling the heat from Asia. China is likely the greatest threat, but India is beginning to provide serious competition in some areas.

Rehn said that the ongoing Greek debt crisis had demonstrated that poor government finances "could be a source of tension" in the EU and "could lead to higher financing costs for firms and households". He said that officials from the Commission, the European Central Bank and International Monetary Fund were in Athens helping the Greek government implement austerity measures to reduce its massive deficit, which was estimated at 12.7% of GDP in 2009. He said he expected a report from the officials by the end of Friday.

It appears that the powers that be in the EU administration think that lean and mean is the answer to the problem.

Euro in tough position but will survive-Merkel

The euro is in a difficult position for the first time but will weather the storm, German Chancellor Angela Merkel said in a newspaper interview published on Wednesday.

It was dangerous that some countries were being speculated against, she said, adding that debt-ridden euro zone members such as Greece had to tackle their own problems.

"For the first time since it was introduced, the euro is now in a difficult situation but it will stand its ground," Merkel told the Frankfurter Allgemeine Zeitung in an interview.

"I think real confidence in the euro can only be achieved on the financial markets if the problem is attacked at the roots in Greece and other states with very high deficits," she said.

Well Frau Merkel is not saying that this little unpleasantness will all just blow away. I think it becomes increasingly clear that Germany is going to do their very best to avoid anything that would look like a bailout for Greece. If they ultimately do something, they will try to put a different spin on it and make it as small as possible. If it were just Greece involved it might not be such a major issue, but there are several members of the EMU that aren't all that far behind.

The financial institutions and governments of the US and Europe have been propped up. They have not been repaired. Underlying that economic instability is the reality that the global economic landscape has been fundamentally altered over the last decade. The emerging power houses of Asia are not going to go back into the bottle. Europe simply does not have the choice of dealing with its financial problems in isolation.

Lacking a crystal ball, I'm not certain if an austerity/deflationary approach will really improve Europe's circumstances. Things are really in fairly uncharted territory. However, it does appear to be a pretty likely prediction that that is the approach that is going to be used.

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PIIGS to the Slaughter

by Richard Lyon Tue Feb 23rd, 2010 at 12:26:13 PM EST

I found an interesting article in Spiegel Online International. I have found this to be a good German news source for someone who doesn't read German. My impression is that Der Spiegel is a reasonably well respected source of news and opinion. If anyone on ET thinks that this impression is seriously flawed, I'd be very interested in hearing about it.

Can the Euro Zone Cope with a National Bankruptcy?

Here are a few excerpts that I found particularly interesting from what is a fairly long article. They are probably a bit out of context presented alone.

There has never been this much uncertainty. No one knows whether the Greeks will manage to solve their problems, whether and how other countries will come to their aid, whether the crisis can be confined to Greece or whether it will spread like wildfire among the PIIGS -- and end up tearing apart the European currency union.

All of this translates into excellent opportunities for foreign currency traders and speculators. They can either bet on a decline of the euro or a bailout for the Greeks in the form of a rescue effort by other euro zone countries. In the first case, the price of Greek government bonds will hit rock bottom, and in the second case it will rise.

These are the kinds of conditions that make it possible to make a lot of money quickly -- but with devastating consequences, because speculators amplify trends and increase risks. If they bet on a Greek bankruptcy, it will become even more difficult, and expensive, to attract fresh capital. This could lead to a national bankruptcy or the feared conflagration -- or even the collapse of the euro

It is no coincidence, however, that the speculators have not zeroed in on the dollar, the British pound or the yen. Although the United States, Britain and Japan are also groaning under the burden of their debt, the euro is much more vulnerable, for both historic and political reasons.

The weak southern countries, members of the so-called Club Med, have always been seen as problem cases. They have lived beyond their means and neglected the need to be competitive, they have built up -- partly in full view, partly cleverly hidden -- enormous mountains of debt, and they have avoided hard-hitting reforms. These conditions existed before they became members of the euro zone, and they did not improve afterwards.

The other euro countries looked the other way. Initially, before the establishment of monetary union, they looked away because they didn't want to jeopardize their political goal of a European common currency. Later, it was because they themselves were benefiting from the euro. The German export economy, in particular, was able to expand continuously, unhampered by troublesome revaluation and appreciation that would have made its exports more expensive.

At the time, politicians ignored the concerns of many economists. Now they realize that this may have been a mistake. The European agreements that define the legal framework of the currency union do not include any provisions to account for the kind of crisis the euro is currently experiencing. For that reason, there are no instruments available to combat such a crisis.

The article goes on to provide a detailed discussion of the mechanics of currency trading and esoteric instruments such as credit default swaps. What seems significant to me is that this is a German publication, not an American or British publication, that seems to view these problems as serious and significant. I understand them to be saying that they think that absent major structural changes, the future of the EMU is seriously threatened.

Certainly the role of financial speculators is magnifying the problem. It could well be a replay of the way they used the US housing market as a roulette table. However, in the absence of real international financial regulation, that problem is not going to go away. All nations must have dealings in international financial markets. As such they are swimming in shark infested waters. As long as there serious questions about the future of the euro the sharks will taste the blood.  

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Pandora's Global Box

by Richard Lyon Sat Feb 20th, 2010 at 06:47:16 PM EST

The New York Times has just published a chart summarizing the changes in global exports over the last decade. I find it interesting and quite dramatic.

World Trade Stumbles

The chart is discussed in an accompanying article.

A Shift in the Export Powerhouses

In 1999 the leading exporters were:

  1. US
  2. Germany
  3. Japan
  4. France
  5. UK

In 2009 the leading exporters were:

  1. China
  2. Germany
  3. US
  4. Japan
  5. France

The big story here is of course about China. In 1999 it was number 9. The UK is the biggest loser going from number 5 to number 10. So much for ruling the waves.

In thinking about how things got to this point there are many things and many people that one can criticize and complain about. However, it seems impossible to me that things will ever go back to being the way they were. The people calling for a restoration of high wage manufacturing jobs to the US and UK economies are completely lost in the land of dreams.

I'm not so sure what this means for Germany and France. They have managed to more or less hold their own so far. Of course their exports are very different. It is probably easier to develop production capacity for high grade optical equipment than for Chateau Lafite.

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British Deficit Wars

by Richard Lyon Fri Feb 19th, 2010 at 12:34:51 PM EST

Last Sunday Jerome posted an article about the attack of the Tory deficit hawks in the UK.

Make the poor pay

Since then Krugman has been predicting that there would be a counter attack by a flock of deficit doves. It has finally arrived.

Top economists hit back at Tories over spending cuts

A war of words has broken out among some of Britain's most respected economists over Conservative plans to begin cutting public spending immediately if they win the general election.

More than 60 academics have issued a rebuke to the claim by George Osborne, the shadow chancellor, that a consensus of economic experts supports his policies.

This latest intervention by academics, many of whom rarely venture into political debate, was prompted by a letter in last week's Sunday Times. The letter, signed by 20 economists headed by another former MPC member, Tim Besley, called for the spending squeeze to begin this year.

This is pretty similar to the debate raging in the US on the same topic. Forceful government intervention probably prevented this crisis from turning into a full replay of the great depression. However, what we have now are essentially functioning economies that remain severely damaged, particularly in terms of employment and consumer demand. The financial moguls on Wall and Lombard streets appear to think that they have gotten all the help they need and that it is time for the governments to get out of the way and let them get back to their old games. The world looks very different from the point of view of the working public.

France and Germany also engaged in significant economic interventions and financial rescues. The debate in Germany seems to be couched more in terms of export competitiveness, but its effect on wages and consumer demand is likely to be similar. I'm not very clear on the political dynamics of the issue in France and I'd appreciate the help of anybody who can offer some information on it.

China, which was probably the most aggressive nation in applying stimulus is now moving toward a cooling off policy. All in all this is an issue for those nations that are rich enough to consider the action of significant stimulus.

The classic Keynesian view is that large government stimulus is the only solution for inadequate employment and economic demand. I have certainly always been inclined toward that view. The experience of the great depression seems to support it. When fiscal stimulus was applied things got better. When the politicians tried to turn and appease the deficit hawks, as they are now doing, they got worse again. What ultimately ended the great depression was the massive spending associated with WWII. However, in every other industrialized nation other than the US, the death and destruction that accompanied that little caper made things far worse.

I have been following Krugman's passionate arguments for an aggressive Keynesian approach to the current crisis. He is certainly an economist whose opinions and progressive values I strongly respect. However, at times I find myself wondering if he is unquestionably right. In discussing US deficits he used the example of what happened to the huge US deficit that remained following WWII. He made the point that we didn't literally pay off the debt. It was more a matter that the US economy continued to grow at such a rate that it gradually became a much smaller percentage of GDP and people stopped worrying about it. His view seems to be that something similar will happen again.

The world, particularly for the US, is a very different place than it was in 1945. Can we count on returning to that kind of growth in the face of rising global competency and competitiveness?  If we hold to values of trying to create an environmentally sustainable world, can we endure more of the fallout from policies of aggressive growth at all cost? I don't pretend to have answers to those questions and I am not ready to become a card carrying Teabagger. However, this is turning into yet another black vs white debate that I suspect may just a bit more complicated and complex.  

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Europe May Already Have The Tools It Needs

by Richard Lyon Wed Feb 17th, 2010 at 01:36:23 PM EST

I just ran across a very interesting article. It takes the position that the EU already posses the necessary legal and structural capacity to adequately deal with the monetary crisis and if necessary similar crises in other member states. It come from all places that bastion of British media The Times. The piece is by Anatole Kaletsky. It is well worth reading in its entirety. I am limiting excerpts in the interest of observing copyright constraints.

   Greek tragedy won't end in the euro's death

This argument begins with several items of unexpectedly good news, at least from the eurofederalist standpoint. The first is that the EU has the financial wherewithal, the institutional capacity, the legal mechanisms and, most importantly, the political willingness to offer unlimited support to Greece and any other stragglers in the eurozone. The idea that only Germany is strong enough financially to rescue the Club Med and, therefore, that German public opinion will prevent a bailout is eurosceptical wishful thinking.

The most likely structure for a rescue would not require any funding from Germany at all. The rescue would simply consist of a decision, approved by a qualified majority on the European Council to implement Article 122 of the Lisbon treaty.

He goes on to a detailed discussion about the borrowing powers of the EU as a whole that he thinks could be resorted to.

The extreme deflationary policies now being imposed on the weakest eurozone countries point to frightening implications. The Greek and other Club Med governments can slash their deficits only at the cost of huge falls in economic activity. Without the possibility of devaluation they cannot hope for big export gains, nor even for the capital inflows that have helped to end the slump in British property.

Instead of the broadly Keynesian policies that have helped to revive growth not only in America and Britain but also in Germany and France, these weaker members of the eurozone are pursuing measures that are almost guaranteed to prolong and deepen their recessions.

This seems to be a view at fundamental variance with those expressed by people like Paul Krugman that the EU has no real alternative but to move rapidly toward greatly increased federalization on both the economic and political fronts. It is pretty clear that Mr. Kaletsy's sympathies lie in the general direction of Eurofederalism, but he seems to think that a more measured approach is both legally possible and politically practicable.

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Power Struggle At The IMF

by Richard Lyon Wed Aug 30th, 2006 at 09:47:35 AM EST

The financial institutions that came out of the Bretton Woods structure are undeniably out of sync with the economic realities of the post cold war world. Previous attempts at "reform" have resulted in patch work compromises that have done little to improve the situation. We now have an interesting conflict between Washington and Europe that highlights the current differences in international agendas.

http://euobserver.com/9/22293

The EU Observer reports


EU set to lose out on US push for IMF reform

 The EU is facing an overall loss of power in the International Monetary Fund (IMF) as the US plans to increase the voting weight of emerging states such as China in the body.

Europe currently has over a third of the voting weights of the 184-member IMF, a key international organisation which seeks to secure monetary and economic stability around the globe notably by providing credits to states with financial problems.

But the organisation is now facing reforms strongly pushed by US president George W. Bush, boosting the decision-making powers of emerging economies such as China, India, South Korea, Turkey and Mexico.

By backing Beijing's aspirations for a greater say in the IMF, Washington is primarily seeking Chinese cooperation on international economic issues, writes the New York Times.

US state secretary Timothy Adams said that China like many other fast-developing countries is "woefully underrepresented" at the IMF.

But the move is facing resistance in Europe, which traditionally holds the IMF's highest post of managing director - currently former Spanish finance minister Rodrigo Rato.

The EU's traditionally rich states particularly - such as Germany, the Netherlands, Belgium and the Scandinavian countries - are set to lose out if Washington's designs are seen through.

German national bank president Axel Weber last weekend warned against any preliminary concessions in the upcoming IMF power battle, which is set to come at a height at the body's annual meeting on 15-22 September in Singapore.

"We should find an overall package for a transparent and fair representation of all IMF member states. In this respect, EU states should not already put their own positions and claims for disposal at an early stage," said Mr Weber according to Handelsblatt.

But the EU also faces internal divisions on the matter, as the bloc's own fast-growing economies - such as Ireland and Spain - could actually profit from the power reshuffle sought by Washington.

One idea under discussion is to group European states' seats under one EU umbrella, but Mr Weber said it is too early for such a move.

"We believe a common EU external representation at the IMF is premature. For this, Europe should be much more strongly politically integrated," he stated.

But Jean Pisani-Ferry who leads Brussels-based think-tank Bruegel criticised the EU for its failure to speak with one voice, the BBC reports.

"There is a tendency in Europe to stick to the existing arrangements ... It's not a good strategy, it's a losing strategy."

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American Workers Falling Behind

by Richard Lyon Mon Aug 28th, 2006 at 11:09:53 AM EST

There is a very interesting article in Todays NY Times. There are increasing indications that the fruits of US GDP growth are not being shared with the vast majority of the American workforce. American workers have been working harder and going deeper into debt in an effort to maintain their comsumer lifestyles, but they are still falling behind.

NYT


Real Wages Fail to Match a Rise in Productivity

With the economy beginning to slow, the current expansion has a chance to become the first sustained period of economic growth since World War II that fails to offer a prolonged increase in real wages for most workers.

The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity -- the amount that an average worker produces in an hour and the basic wellspring of a nation's living standards -- has risen steadily over the same period.

As a result, wages and salaries now make up the lowest share of the nation's gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960's. UBS, the investment bank, recently described the current period as "the golden era of profitability."

Until the last year, stagnating wages were somewhat offset by the rising value of benefits, especially health insurance, which caused overall compensation for most Americans to continue increasing. Since last summer, however, the value of workers' benefits has also failed to keep pace with inflation, according to government data.

Economists offer various reasons for the stagnation of wages. Although the economy continues to add jobs, global trade, immigration, layoffs and technology -- as well as the insecurity caused by them -- appear to have eroded workers' bargaining power.

In Europe and Japan, the profit share of economic output is also at or near record levels, noted Larry Hatheway, chief economist for UBS Investment Bank, who said that this highlighted the pressures of globalization on wages. Many Americans, be they apparel workers or software programmers, are facing more comptition from China and India.

In another recent report on the boom in profits, economists at Goldman Sachs wrote, "The most important contributor to higher profit margins over the past five years has been a decline in labor's share of national income." Low interest rates and the moderate cost of capital goods, like computers, have also played a role, though economists note that an economic slowdown could hurt profits in coming months.

For most of the last century, wages and productivity -- the key measure of the economy's efficiency -- have risen together, increasing rapidly through the 1950's and 60's and far more slowly in the 1970's and 80's.

But in recent years, the productivity gains have continued while the pay increases have not kept up. Worker productivity rose 16.6 percent from 2000 to 2005, while total compensation for the median worker rose 7.2 percent, according to Labor Department statistics analyzed by the Economic Policy Institute, a liberal research group. Benefits accounted for most of the increase.

"If I had to sum it up," said Jared Bernstein, a senior economist at the institute, "it comes down to bargaining power and the lack of ability of many in the work force to claim their fair share of growth."

Nominal wages have accelerated in the last year, but the spike in oil costs has eaten up the gains. Now the job market appears to be weakening, after a protracted series of interest-rate increases by the Federal Reserve.

There are two economies out there," Mr. Cook, the political analyst, said. "One has been just white hot, going great guns. Those are the people who have benefited from globalization, technology, greater productivity and higher corporate earnings.

"And then there's the working stiffs,'' he added, "who just don't feel like they're getting ahead despite the fact that they're working very hard. And there are a lot more people in that group than the other group.

This strikes me as having considerable relevance to the other discussions on ET about the value of GDP growth as a measure of economic health.

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Globalization and Terrorism

by Richard Lyon Sat Aug 26th, 2006 at 06:17:54 PM EST

The new chairman of the US Federal Reserve gave a speech this week that raises some interesting although highly speculative questions in my mind.

Toronto Star


U.S. Fed chief warns of threats to globalization
Bernanke praises potential benefits
Says pace slowed by protectionism

Federal Reserve Board chairman Ben Bernanke urged policy makers yesterday to resist pushing for protectionist measures that would crimp globalization and the increased trade and higher living standards he said it can spur.

"Further progress in global economic integration should not be taken for granted," Bernanke said in prepared remarks to an economics conference sponsored by the Federal Reserve Bank of Kansas City.

"Geopolitical concerns, including international tensions and the risks of terrorism, already constrain the pace of worldwide economic integration and may do so even more in the future," he said.

Bernanke's remarks come as trade tensions have heightened between the United States and China and global trade talks have recently stalled.
Americans have grown increasingly anxious about the potential to lose their jobs to competitors in China and India, two quickly emerging economic giants.
Against that backdrop, U.S. policy makers -- as politicians have done through the centuries -- may be tempted to enact protectionist measures that would seek to slow globalization. But that would be unwise, Bernanke said.

Such protectionist feelings have cropped up through history when people feel that the increased global competition threatens their jobs and their livelihoods, he said.

Much of this is what you would expect from a major representative of the Washington Consensus neo-liberal approach to managing the process of globalization. However, it's the part about terrorism that got me to thinking. So, I put on my thinking cap which some people might choose to describe as a tin hat.

At this point I find it useful to think of TERRORISM as encompassing not only actual and potential acts of political violence but also the politics and hysteria that surrounds those acts. Disruption of various processes is a likely objective of the people who are attempting to pull off acts of political violence. It's a classic guerrilla tactic intended to provoke an extreme reaction. So far there haven't been enough actual such acts of violence to even create a blip on the radar of international economic and trade relationships. However, the various responses of governments to the potential threat may well that the potential to create economic disruption. It seems to be enough to get the Fed's attention.

Trade of tangible goods and commodities is dependent on some form of physical transportation. It is controlled by legal barriers to entry. Those make it fairly feasible to increase security for cargo shipment. That might result in some increase in shipping cost but it doesn't seem likely to significantly disrupt the flow of goods. It is the technological developments in telecommunications that are radically altering a variety of relationships in the international service sector.

There have been several things to come to light about efforts to monitor international telephone conversations and financial transactions. It seems reasonable to assume that here is a good bit more going on that we don't know anything about. So far most of the public discussion about these activities has centred on civil liberties issues. Those are real and valid concerns. However, there may also be some significant financial issues involved. If these activities remain secret in the name of security, there is no assurance that they will be limited to people who might have links to known terrorist organizations. Global financial networks have become a vast and powerful apparatus. Having access and control of them raises all sorts of possibilities for intervention and manipulation as well as the possibility of just screwing them up by incompetent meddling.

I have long been inclined to think that an effort to control the international flow of energy resources is a major agenda of the current military occupations in the Persian Gulf and Central Asia. History has seen several waves of globalization. They have all been disrupted and redirected by major political and economic events such as wars and recessions. We may well have a front row seat for the next episode in that saga.  

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Midlife Crisis for the European Union?

by Richard Lyon Wed Aug 23rd, 2006 at 05:20:29 AM EST

From The Guardian.
Germany may block new EU members

Germany may block new EU members  

Germany is threatening to derail the planned entry of Bulgaria and Romania to the EU on January 1, forcing its postponement for a year as fears grow over Europe's capacity to absorb new members.

Yesterday Horst Köhler, the German president, urged the two countries to overcome clear deficits in their judicial systems and in the fight against corruption ahead of a final "monitoring" report by the European commission next month on their progress towards meeting the political criteria for entry.

Germany, along with Belgium, Denmark, France and Ireland, has so far failed to ratify the accession treaty for Bulgaria and Romania and Mr Köhler indicated it would wait until after the commission report on September 26 to start the parliamentary process. Ratification is due by December 31 at the latest.

(More discussion below)

From the diaries (with format edit) - whataboutbob

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The Search For A Sugar Daddy

by Richard Lyon Sun Aug 20th, 2006 at 01:38:06 PM EST

The US media is preaching the gosphel that there will be a way out of the present energy crisis without the pain of belt tightening. The Washington Post takes us on the exotic road to Rio.
http://www.washingtonpost.com/wp-dyn/content/article/2006/08/19/AR2006081900842.html


Brazil's Road to Energy Independence
Alternative-Fuel Strategy, Rooted in Ethanol From Sugar Cane, Seen as Model

Record oil prices have made the world's energy landscape a darkly foreboding place this year, inhospitable to optimism and celebration. Except in Brazil.

It has been something of a banner year here, full of milestones. The government predicts that for the first time in its history, Brazil will achieve energy equilibrium, exporting as much oil as it imports. The production of sugar cane-based ethanol is expected to reach an all-time high. And just three years after the introduction here of flex-fuel vehicles -- cars that run on either ethanol or gasoline -- several major automakers predict that such vehicles will represent 100 percent of their production by the end of the year, eliminating gas-only models.

Sugar cane-based ethanol is one reason why the government predicts that for the first time in its history, Brazil will export as much oil as it imports.
Sugar cane-based ethanol is one reason why the government predicts that for the first time in its history, Brazil will export as much oil as it imports.

Since President Bush this year emphasized ethanol as one possible solution to U.S. oil dependence, Brazil has become a destination of choice for curious U.S. lawmakers and venture capitalists searching for a crystal ball in which to glimpse America's future. Ethanol is not solely responsible for Brazil's newfound energy independence -- domestic oil exploration has exploded in recent years -- but it has replaced about 40 percent of the country's gasoline consumption, according to Caio Carvalhal, an analyst with Cambridge Energy Research Associates in Rio de Janeiro.

There is a lot more to this article and it makes interesting reading. There are certainly many questions about the soundness of this approach, but I think it offers a pretty likely notion about the direction policy is likely to take in the immediate future.

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***European Income Gap

by Richard Lyon Fri Aug 18th, 2006 at 06:41:27 AM EST

In light of resent discussions here about the issues of labor migration between EU countries I decided to undertake a small research project. Like water flowing down hill, it is a relative difference in income and economic opportunity that provides a primary incentive for workers to relocate from one area to another. The larger the size of that gap the greater the flow of migration is likely to be. This is a situation that has occurred many times in history and has often been accompanied by significant cultural and political upheaval.

Historically and presently there is a sizable economic gap between the countries in northwestern Europe and those to the east that were under Soviet control during the cold war. When several of these countries were admitted to EU membership there was considerable concern that giving their citizens immediate full access to western labor markets would produce unmanageable economic problems. The treaties were negotiated on the basis of allowing western governments the option of delaying full integration. The theory was advanced  that as a result of having some access to other EU markets and by being the recipients of economic development funds the gap would be narrowed and unmanageable disruptive migrations avoided. Sounds nice.

I decided to take a stab at looking at what has actually happened over the course of the past two years. I collected per capita income figures from the World Bank for the years 2003, 2004, and 2005. This involved transcription from different PDF files so I don't have a single tidy link for the data. I decided to use the PCI for the UK as a basis for comparing change for the new member countries. It is one of the more prosperous western economies and it has opened its labor markets to the new members with a resulting influx greater than anything that was anticipated. There is data on 7 of the 10 countries admitted in 2004 and then data on Bulgaria and Romania which are scheduled to be admitted in 2007.

From the front page - whataboutbob

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The Kurdish Pot Boils Over

by Richard Lyon Thu Aug 17th, 2006 at 10:20:55 PM EST

I have long thought that the threat of an independent Kurdistan was something that Turkey and Iran would be inable to live with. It is one more Pandora's box that was opened by the invasion of Iraq. This article from the Guardian sounds like the pot may be comming to a boil.

Guardian Report


Turkey and Iran have dispatched tanks, artillery and thousands of troops to their frontiers with Iraq during the past few weeks in what appears to be a coordinated effort to disrupt the activities of Kurdish rebel bases.

Scores of Kurds have fled their homes in the northern frontier region after four days of shelling by the Iranian army. Local officials said Turkey had also fired a number of shells into Iraqi territory.


Although fighting between Turkish security forces and PKK militants is nowhere near the scale of the 1980s and 90s - which accounted for the loss of more than 30,000 mostly Turkish Kurdish lives- at least 15 Turkish police officers have died in clashes. The PKK's sister party in Iran, the Kurdistan Free Life Party (Pejak), has stepped up activities against security targets in Kurdish regions. Yesterday, Kurdish media said eight Iranian troops were killed.

Rostam Judi, a PKK leader, claimed yesterday that no operations against Turkey or Iran were being launched from Iraqi territory. "We have fighters across south-eastern Turkey. Our presence in Iraq is purely for political work."

Frustrated by the reluctance of the US and the government in Baghdad to crack down on the PKK bases inside Iraq, Turkish generals have hinted they are considering a large-scale military operation across the border. They are said to be sharing intelligence about Kurdish rebel movements with their Iranian counterparts.

"We would not hesitate to take every kind of measures when our security is at stake," Abdullah Gul, the Turkish foreign minister, said last week.

The US is also to appoint a special envoy to find a solution to the PKK problem, but that may not be enough. Ilnur Chevik, editor of the New Anatolian newspaper in Ankara, said: "There is huge public pressure on the Turkish government to take action." But he doubted whether Turkish forces would mount a full-scale invasion."The build-up of troops is designed to say to the Americans and the Iraqis, the ball is in your court." Tehran was also taking advantage of the situation, he said, "to show Turkey that it was taking action against its shared enemy, while the US, Turkey's ally, has done nothing".

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Central Asia straying from the path of righteousness

by Richard Lyon Wed Aug 16th, 2006 at 10:39:12 PM EST

An interesting article in The New York Times about the changing political winds in Central Asia.
http://www.nytimes.com/2006/08/16/world/asia/16kyrgyzstan.html?_r=1&oref=slogin


KARA-SUU, Kyrgyzstan -- A series of recent incidents, including the killing last week of a popular religious leader by government security forces in this restive southern border town, has many here calling into question the pro-Western orientation of Kyrgyzstan.

Expectations that the Central Asian nation would lead its neighbors toward a pro-Western -- and especially pro-American -- alignment crested after it ousted its president in March 2005. The so-called Tulip Revolution was part of a wave of "colored revolutions" that overthrew leaders aligned with Russia in Georgia and Ukraine and swept into power pro-Western administrations.

But in July, Kyrgyzstan expelled two American envoys, the first expulsion of American diplomats from any Central Asian country. The United States responded by ejecting two Kyrgyz diplomats.

Last week, the Kyrgyz government repatriated five Uzbeks with United Nations-sanctioned refugee status whom Uzbekistan's authoritarian government wanted to try in connection with an uprising last year in the Uzbek city of Andijon, in which hundreds of people were killed by government security forces. The decision was denounced by the Office of the United Nations High Commissioner for Refugees as a "shocking" violation of Kyrgyzstan's international commitments.

On Aug. 6, Kyrgyz and Uzbek security forces killed an outspoken imam, Rafiq Qori Kamalov, in his car as he drove down a street in the city of Osh, near the Uzbek border. He and two people with him were accused by the government of being members of a shadowy British-based organization called Hizb ut-Tahrir, which is banned by most Central Asian countries. The organization advocates a caliphate, or a unified Islamic government, over all of Central Asia, but says it is nonviolent.

A government spokesman, acknowledging the killings, said munitions and a map scrawled with the word "jihad" were found in the vehicle.

To experts on the region, the events seemed to be part of a deliberate policy shift by the Kyrgyz government.

Traditionally, small Central Asian nations like Kyrgyzstan have tended to balance binational relationships rather than cast their lot with one nation over another. But increasingly, say Western diplomats and political analysts here, Kyrgyzstan seems to be embracing Russia and Uzbekistan at the expense of its relationship with the United States.

"The Kyrgyz aren't acting in as haphazard a way as it looks," said Michael Hall, Central Asia project director for the International Crisis Group, an independent policy analysis group. "Given the demands and conditions from the United States, the Kyrgyz are simply thinking it is more in their interest to play along with Russia and Uzbekistan, neighbors that can make life difficult for Kyrgyzstan in the long term."

Here in this border area dominated by ethnic Uzbeks, anti-government hostility runs deep, and a traditional, politically engaged Islam is an increasingly powerful force. But elsewhere in the country, admiration for the government of President Kurmanbek Bakiyev seems to be growing, while the American presence continues to dim.

"There's unhappiness with the economic situation, especially in the south," said a political analyst with a Western-backed civil society organization. "But while the Kyrgyz may want a government that is more progressive and is doing more, things are also stable and people seem to have accepted by and large that Bakiyev is in charge." The analyst asked not to be identified because he was not authorized to speak to the news media.

Like its Central Asian neighbors, Kyrgyzstan is a country with a Sunni Muslim majority whose government discourages religious fervor and has a history of clamping down on organizations that espouse a mixing of politics and Islam.

Kyrgyzstan has been hesitant in the past to collaborate with Uzbekistan, which has shown little regard for human rights in its pursuit of what it labels Muslim militants. "What's new this week is the cooperation between the Kyrgyz and Uzbek security forces," said the political analyst.

The Persian Gulf is the obvious battle ground over oil and power. However there is another important struggle to the north that touches on the borders of Russia and China. The republics of Central Asia are among the most remote and unfamiliar places on earth. However, they are becoming important pieces on the chess board.

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***UK ban on next wave of EU workers?

by Richard Lyon Wed Aug 16th, 2006 at 09:17:33 AM EST

More controversy on the migration of workers from the new EU member states from The Guardian:
Reid pushes for ban on next wave of EU workers


Plans to deny Romanians and Bulgarians full rights to work in the UK are being considered by John Reid. Both countries join the EU in January and the potential influx of workers is causing divisions in cabinet.

The home secretary, supported by the work and pensions minister, John Hutton, is understood to be considering a temporary ban. But the Foreign Office wants Britain to keep its open-door policy for EU workers.

The ban is opposed by the Europe minister, Geoff Hoon, who believes it might be a breach of undertakings to the countries, due to join the EU less than 15 years after breaking their ties with the Soviet Union. Mr Hutton is understood to feel that Britain is not ready politically for another potential big influx of EU migrant workers - especially since the number from Romania and Bulgaria could be large, owing to their relatively undeveloped economies and 8% unemployment.

A leaked paper from the Home Office minister Joan Ryan warned of "enlargement fatigue" and that the "enough is enough" argument was winning.


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***Europe Worker Pool: Shrinking?

by Richard Lyon Mon Aug 14th, 2006 at 03:50:30 AM EST

Here's an interesting perspective on the European employment picture from the Associated Press.

Europe Faces A Shrinking Pool of Workers

With almost 5 million people out of work, Germany's labor market might seem a manager's dream when it comes to filling jobs - easy pickings from a sea of desperate applicants. Not so for entrepreneur Martin Hubschneider when he needs top talent for his software firm in Karlsruhe, Germany.

He's got to look far and wide, searching for the skills needed to develop the complex customer relations programs his CAS Software AG sells.

"For a year now, it has been harder to find employees in the information technology field, particularly highly qualified ones," Hubschneider said.

Bosses like Hubschneider are confronting a paradox: In a country with unemployment of over 10 percent, there is a deepening shortage of skilled workers in some industries. Rich European nations like Germany and France have been cracking down on immigration in reaction to concerns about joblessness, but many economists say western Europe needs precisely the opposite approach: Attracting foreign labor to offset a graying population.

more below...

From the fron page, with title and format edit ~ whataboutbob

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Letting The Genie Out Of The Bottle: India And The Service Economy

by Richard Lyon Thu Aug 3rd, 2006 at 09:44:13 PM EST

I just came across an interesting article that George Monbiot published about three years ago in The Guardian.

http://www.guardian.co.uk/india/story/0,12559,1067377,00.html


The jobs Britain stole from the Asian subcontinent 200 years ago are now being returned

If you live in a rich nation in the English-speaking world, and most of your work involves a computer or a telephone, don't expect to have a job in five years' time. Almost every large company which relies upon remote transactions is starting to dump its workers and hire a cheaper labour force overseas. All those concerned about economic justice and the distribution of wealth at home should despair. All those concerned about global justice and the distribution of wealth around the world should rejoice. As we are, by and large, the same people, we have a problem.

Globalization is a word that became popular not too many years ago, however it refers to a process that has been going on for several centuries.


Britain's industrialisation was secured by destroying the manufacturing capacity of India. In 1699, the British government banned the import of woollen cloth from Ireland, and in 1700 the import of cotton cloth (or calico) from India. Both products were forbidden because they were superior to our own. As the industrial revolution was built on the textiles industry, we could not have achieved our global economic dominance if we had let them in. Throughout the late 18th and 19th centuries, India was forced to supply raw materials to Britain's manufacturers, but forbidden to produce competing finished products. We are rich because the Indians are poor.

The industrial revolution began in England where moved from agriculture into the factories to produce manufactured goods. It spread across the Atlantic to North America. There was a mass exodus of European labor that flowed with it to fill the jobs that were created. Over the past 25 years the manufacturing base in the UK and the US has been shifting to Asia in search of lower wage workers. In a reversal of the 19th century the jobs are going in search of the workers. Manufacturing employment with its premium wages has become an ever smaller portion of the work force. In the US it has dropped from 25% of the workforce in 1980 to less than 12% at present.

It has become the conventional wisdom of the economics establishment that an expanding service economy will replace these manufacturing jobs. The neoliberal creed of free trade that expands the global economy is presented as a win win situation for everybody. Disgruntled manufacturing workers have been told to go back to school and get some computer skills.

There seems to be a probability that service jobs on average may pay somewhat less than manufacturing jobs. However, you could make the argument that they usually entail less physical stress and hazard, so there is some balancing out as long as they exist. However the catch is in those computer skills.

During the bubble economy of the 1990s there was much talk about the NEW ECONOMY that somehow worked by new and different rules. There would be an indefinite expansion of higher and higher paying service jobs produced by the glories of the NEW TECHNOLOGY and the world of the Internet. Funny thing about bubbles, they always burst.

The very technology of computers and telecommunications made some very fundamental changes to the relationships between humans and their work. It was possible to completely replace unreliable homo sapiens on many task. Those that still required some human participation could increasingly be performed in just any spot on the globe that happened to be connected to the Internet.

India was well positioned to take advantage of these developments. They had a good educational system and as a legacy of British colonial occupation a large number of people who were highly proficient in English. The cost of living was third world standard so people could take jobs for far less pay than would be required in the US or UK and still experience a substantial improvement in their standard of living.

Information technology was the first area to develop. Then came customer service call centers. Indian workers were coached in American or British accents and worked nights. They are now expanding into fields such as medical technology, financial services and paralegal services. There are office buildings in New York and London where when you enter the lobby instead of a live receptionist you find a computer screen that is connected to a pleasant young woman  in Bangalore. Things have reached the point that Indians who have the legal right to work in the US or UK have decided to return to India. The job opportunities are better there. While the pay is lower, the cost of living is even lower.

As Mr. Monbiot pointed out there is a certain historical justice for the Anglo-Saxons in these developments. However, it would be a bit premature for continental Europeans to wallow in Schadenfreude, outsourcing seems to be catching on all over. France has its colonial legacy in Francophone Africa. When someone in Dijon calls the bank to discuss an error on their account it is becoming increasingly like that they will actually be talking to a person in Senegal. Many services such as information technology and medical technology are not especially language specific. Indian outsourcing firms are targeting Germany as their next growth market.

The schizophrenic hypocrisy of the various WTO negotiations has provided fuel for many diaries and will doubtless provide for many more. There is a basic reality about traditional trade in agricultural produce and manufactured goods. It is subject to control of governments. Except for the odd smuggler governments can impose tariffs on imports  or restrict entry out right. The present politics of doing that are asymmetric to say the least, but it can be done. It is possible that increasing energy cost will make some forms of international trade impractical. What is different about services performed over the Internet is that they are much more difficult to control. Some countries attempt to censor certain content with decidedly mixed results, but it would be almost impossible to prevent the transaction of ordinary service business without entirely cutting yourself off from the global telecommunications network. Nobody can afford to do that.

This is a prime example of why I am increasingly inclined to think that the process of globalization is not fundamentally controllable. There are winners and losers. There are unemployed programmers in Silicone Valley while many people in India are living far better than they ever have before. There are certainly multi-national corporations who are raking in profits from these developments. However, for most ordinary workers it really is a crapshoot.

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***Where Blow The Winds In Eurasia?

by Richard Lyon Thu Aug 3rd, 2006 at 07:28:21 AM EST

I found an interesting news item that seems to have gotten little or no coverage in the American and European media, from DNA India: India, Russia, China join hands

Prime Minister Manmohan Singh, Chinese President Hu Jintao and Russian President Vladimir Putin met for a trilateral summit meeting, the first of its kind among the countries, and discussed a gamut of issues, including strategic cooperation and economic development.

The summit was held on Monday after the conclusion of the outreach session of the G8 St Petersburg summit and the three leaders exchanged views on cooperation among the three countries, said Chinese officials.
At the summit, Hu said China, Russia and India, who have set up bilateral strategic partnerships among themselves, exerted vital influence on international and regional affairs. There is great potential for the three countries to cooperate in a number of fields such as economy, energy, science and technology, Hu said. "We should make full use of these advantages to deepen the strategic cooperation among us," Hu was quoted as saying by Chinese officials. (More below the fold)

From the front page, with format edit ~ whataboutbob

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NATO In Lebanon - Serious possibility or red herring?

by Richard Lyon Mon Jul 24th, 2006 at 03:20:13 PM EST


Israel has proposed a NATO peace keeping force for Southern Lebanon. The proposal was greeted enthusiastically by John Bolton at the UN. It appears however, that this proposal was made without consultation with the European governments that would have to supply the troops.

Israeli bid a surprise to NATO


With NATO straining to fulfill its commitment in Afghanistan and facing new demands from the United Nations to send troops to Sudan, Israel's proposal that NATO provide a buffer zone along the Israeli-Lebanese border surprised members of the alliance Sunday.

Amir Peretz, the Israeli defense minister, told the German foreign minister, Frank-Walter Steinmeier, that Israel would welcome a NATO force, saying that the Lebanese Army was too weak to do the job.

Diplomats said it was also a clear signal to the UN that its force in the area was of limited importance since it had failed to disarm Hezbollah fighters or protect the border since Israel withdrew from Lebanon in 2000.

At NATO headquarters in Brussels, there was a measured official response to the Israeli request.

"There has been no political discussion about the alliance's role in the crisis," said the NATO spokesman, James Appathurai.

Unofficially, Peretz's request caught NATO by surprise. Its secretary general, Jaap de Hoop Scheffer, spoke last week with his UN counterpart, Kofi Annan, about the increasing violence in the Middle East, and there was no mention about what kind of role NATO could play, if any.

"We got the distinct impression that the UN would be prepared to adapt its mandate, making it more robust," said a NATO diplomat who insisted on anonymity because the issue was so sensitive among all 26 member nations. "We wonder why Peretz raised the idea now."

The United States has already responded favorably to the request. John Bolton, the American ambassador to the United Nations, said Israel's request would be taken seriously

It appears that France is getting a bit concerned about NATO mission creep.


France, which historically has had close ties with Lebanon, would oppose NATO assuming a big role in that part of the Middle East, NATO officials said.

France had opposed, but failed to stop, NATO from expanding "out of area" beyond its traditional base of Europe to Afghanistan in 2002, in Sudan, where the alliance is involved in airlift operations, and in Iraq, where it is training military officers.

France sees those developments as turning NATO into a toolbox for the Americans at the expense of preserving some European identity of the alliance.

Hmmmm? Would somebody pass the freedom fries.

Germany of course has its own "special relationship" with Israel.


Germany, too, would be reluctant to join the force because of its special relationship with Israel as a result of the Holocaust.

When asked about Germany joining such a NATO mission, Chancellor Angela Merkel replied: "At the moment, it is not on the agenda."

In an interview with a German public television channel, ZDF, Merkel said it was in Germany's interests to strengthen the government of Lebanon and that meant disarming Hezbollah.

"The government in Beirut needs help," she said.

There have already been protest from Arab/Islamic spokesmen over a NATO presence in Lebanon.


Another issue facing NATO would be its image. According to an alliance official, a NATO-led force would be considered American, not European, even though Bolton said the Bush administration had not considered contributing U.S. troops to such an international force.

It probably would be commanded by a U.S. general, fueling Arab suspicion that it was pro-Israeli.

Here's my theory. Israel and the US probably know that the NATO proposal is a non-starter. By making it they are attempting to put the monkey on the back of the Europeans who are criticizing their invasion.

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Foxes In The Hen House

by Richard Lyon Sun Jul 23rd, 2006 at 05:30:43 PM EST


During the generation of the cold war US foreign policy viewed the global south primarily as a chessboard in its battle with the USSR. Neither side had much interest in some poor third world country unless they thought the other side had an agenda there. With the collapse of the USSR, this game came to an end and the global south took its place on the sidelines of the neoliberal globalization game. Washington was no longer worried about courting their affections as they had no effective alternatives to doing its bidding.

The US neocons have dusted off the rhetoric of the cold war in their efforts to promote their current adventures. Worldwide Islamic terrorism under the control of Al Qaeda is being employed as a replacement for the worldwide communist menace under the direction of the USSR. However, this present day Hollywood extravaganza isn't playing nearly as well as the 1950's version.

China has demonstrated a remarkable ability to remain focused on its economic development with truly dramatic results. At one point they were reluctant to engage in any open confrontations with the biggest customer for their manufactured goods, the US. However, there seems to be a steady shift in that situation. The growth of their own internal markets has begun to make them less export dependent and there is a steady growth of trade with the rest of the world. They seem to have grasped the notion of diversification quite well.

Their relations with various counties in the global south have attracted relatively little attention in the US and Europe. They have developed classical economic relationships of an industrial nation seeking trade and natural resources. They have been very willing to use foreign aid and political support to secure favourable arrangements. Their position as a permanent member of the UN Security Council with veto has been an attractive advantage in dealing with regimes that are out of favour with the US. The third world has acquired an alternative.

From today's New York Times it looks like reality is starting to dawn that the rest of the world doesn't stand still while the US becomes bogged down by putting more and more of its eggs in the basket of the quagmire in the Middle East.

U.S. Cuts in Africa Aid Said to Hurt War on Terror


The Bush administration and Congress have slashed millions of dollars of military aid to African nations in recent years, moves that Pentagon officials and senior military commanders say have undermined American efforts to combat terrorist threats in Africa and to counter expanding Chinese influence there.
Since 2003, Washington has shut down Pentagon programs to train and equip militaries in a handful of African nations because they have declined to sign agreements exempting American troops from the jurisdiction of the International Criminal Court in The Hague.
But the policy, which was designed to protect American troops, has instead angered senior military officials, who say the cuts in military aid are shortsighted and have weakened counterterrorism efforts in places where the threat of international terrorism is said to be most acute.

There is of course some difficulty in reliably determining which of the multiple warring factions in African conflicts qualify as genuine Al Qaeda franchised operations. However, the scriptwriters at the Pentagon and the CIA are likely keeping a little list.

Some military officials also argue that the aid cuts have given China an upper hand in what they describe as a modern Great Game -- a battle for influence in Africa between the powers, similar to the 19th-century rivalry in Central Asia between the British and the Russians.
Specifically, the officials cite the millions of dollars the Chinese government has spent on infrastructure projects and military training in Africa to help lock up government contracts for natural resources like oil, timber and metals.
"It's hard to compete with China because of the agility they have in obtaining contracts and then starting projects very quickly without worrying too much about human rights," Gen. James Jones of the American European Command, which has military responsibility for most of Africa, recently told a Senate panel. "So we have our work cut out for us."

While it's never possible to completely separate a nation's economic objectives from it's political objectives, it seems likely that economics have come first for China until recently. However, they have reached a tipping point in their level of trade.

China has substantially expanded its presence in Africa in recent years. According to the Council on Foreign Relations, China's trade with Africa doubled to $18.5 billion between 2002 and 2003, and the figure exceeded $32 billion in November of 2005. China has overtaken Britain to become the continent's third most important trading partner. But it is the impact on counterterrorism efforts in Africa that most alarms military officials.

Lord Salisbury must truly be turning over in his grave. This will likely come as a bitter pill for the sizable portion of the British establishment that thinks that the UK should continue to be the guiding moral force in Africa. The current efforts of the Archbishop of Canterbury are a good case in point.
There are similar developments occurring in Latin America with China making trade deals and Chavez buying military hardware from Russia. None of this is likely to result in global upheaval tomorrow. However, as the US pours the lives of its men and women, its money and whatever goodwill it had left down the rat hold of the Middle East. It is increasingly isolated with its partner Israel.

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WMD Redux

by Richard Lyon Wed Jul 19th, 2006 at 09:20:23 PM EST

There has been a spate of news articles today saying that US and Israeli intelligence have been taken by surprise at the sophistication of some of the rockets that Hezbollah have been using. It is alleged that these more advanced weapons have been supplied by Iran and that they raise the possibility that Iranian weapons development is further along than they thought.

This is all coming from basically the same people who assured us that they knew all about the Iraqi WMDs. We know how that turned out. I smell spin. The US and Israel have been trying to stampede the rest of the world about Iran's nuclear development program without much success. Crying wolf worked so well last time. Let's do it again.

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