Tag Archives: Economics

GENERATION LOST?

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WHEN Eva Valiente finished her university studies in advertising, she fired off written applications to 200 companies in Madrid. She did not get a single reply. So Valiente got part-time work with a chain of fashion shops. They sacked her when she turned 25 — she was too old for their look now, they said.
“It is illegal but the laws are weak for beginning people,” she says, with the hard-earned wisdom of a 26-year-old.
She tells of a friend who was offered a “job” in which she would work from 9am to 9pm five days a week — and get no salary for a year. Talking of the desperation of young Spaniards for work, she says “it’s for crying.”
Spain’s youth unemployment rate is a staggering 53 per cent, the highest in the 17-member eurozone. Among the jobless are Valiente’s boyfriend, a qualified lawyer who has never had work in his field, and two of her sisters: one a graphic designer who has never worked and the other a psychologist who recently lost her job. All of this in a middle-class, educated family — Valiente’s father is a doctor.
The eurozone now has a total of 3.3 million young people who cannot find work. Leading this dismal set of statistics are Spain and its fellow victim of financial crisis, Greece (52.8 per cent). With half the eurozone nations in recession, there are now enough unemployed people of all ages to make up a middling-sized country: 25 million.
There are warnings of a “lost generation” from the Organisation of Economic Co-operation and Development. In a report in July, it demanded urgent action to stop the cyclic jobless problem becoming permanent, particularly for young people. “We need to avoid the risk of a lost generation by all means,” said OECD Secretary-General Angel Gurria.
An alarming report by the World Economic Forum, Global Risks 2012, used even tougher language. It warns that with unemployment and systemic financial crises, the world is sowing “the seeds of dystopia”, defined as “the opposite of utopia, a place where life is full of hardship and devoid of hope”.
The report, based on the views of 469 leaders from industry, government, academia and NGOs, warned that rapid global changes risked producing misery for much of humanity. The risks included “a large youth population [that] contends with chronic, high levels of unemployment, while concurrently the largest population of retirees in history becomes dependent upon already heavily indebted governments.
“Both young and old could face an income gap, as well as a skills gap so wide as to threaten social and political stability.”
Declining economic conditions could jeopardise the social contracts between states and citizens and increase nationalism and populism. The Forum warned of the emergence of “critical fragile states — formerly wealthy countries that descend into lawlessness and unrest as they become unable to meet their social and fiscal obligations”.
The number one risk to global stability, according to the report? Major systemic financial failure — that is, the collapse of finance or banking institutions, or even a whole currency.
All of which leads back to Spain and its potential to wreak economic disaster upon the rest of Europe and, perhaps, the world.
Madrid does not look like the capital of a struggling nation. Its broad, proud boulevards and graceful old buildings speak of majestic confidence. Its pavements are smooth and its many public gardens green and manicured, despite a summer so hot that there have been bushfires in the provinces. Madrid does not seem to have in any numbers beggars such as the Romanies on Parisian streets, or the English homeless holding out plastic cups for coins in London.
But Spain is suffering. While Greece’s public writhing under the agonies of austerity in a recession has been the focus of headlines, this is because if the eurozone falls, Greece is likely to be the first domino. In many ways, however, Spain is the bigger worry.
Greece is a small nation and accounts for only 3 per cent of the eurozone economy. While its exit from the euro might trigger a crisis of confidence in Europe’s financial markets, the euro would have a chance of surviving it. But Spain is Europe’s fourth-largest economy and is widely considered too big to bail.
That did not stop the European Central Bank deciding in June to lend Spain up to €100 billion to help its struggling banks in an attempt to ward off a more serious emergency.
Spain is in financial crisis — and Valiente and her family and friends are out of work — because of what Spaniards call “the brick bubble”. When Spain joined the euro, credit became cheap as the European Central Bank kept interest rates low for the whole zone. Spaniards bought property, leading to a construction boom. In 2007 came the bust.
Credit tightened. People stopped buying. The value of houses plummeted, some by more than 50 per cent, leaving many people owing big mortgages worth more than the property involved. Banks found themselves weighed down with mortgage defaults and toxic assets worth a fraction of their previous value. The countryside is dotted with ghost towns, huge housing developments that remain unfinished and unsold. Federal and regional governments that had spent big as revenues flowed found themselves unable to balance budgets.
The human cost is dire. Spain now has 1.7 million households in which no one is working, and the government says it does not expect joblessness to fall below 22 per cent until at least 2015.
For Valiente and others like her, this means adult life is on hold indefinitely. She and her boyfriend would like to live together but they can’t afford it, she says in frustration: “You can’t leave home. You can’t be in a couple. You can’t be a mother. You feel like you are too old for everything, but at the same time, you have to live like you’re a 15-year-old. You live with your parents; you live like a teenager.”
This pattern of delayed adult milestones is also showing up in statistics, says sociologist Almudena Moreno Minguez of Valladolid University. “If you compare us with other European countries, Spaniards are now marrying three or four years later, on average, and having children six or seven years later.”
This is partly because many of those aged between 25 and 34 who moved out of home a few years ago when they started work are returning because they’re unemployed and broke. Parents call them “boomerangs”, she says.
“The parents aren’t happy. There comes a point when even the family cannot support another three or four members at home.”
She says research shows that young people are feeling angry and alienated from the formal structures of society; they feel they have no voice in the deciding of public affairs. Recent improvements to welfare benefits did not include them, she says, and Spain spends less of its GDP on training and education than the rest of the eurozone.
Many Spaniards talk with disdain of the “botellones” (from the word for big bottles) — young people who gather at night in public places to drink and party because they can’t afford clubs or bars.
Moreno says, “Even worse than not investing in them, people here try to make them feel guilty. ‘You are responsible for this situation.’ It’s like they have spat them out.”
A survey of young people aged 15 to 29 asked them to rank different institutions according to how well they respected them. Moreno says, “They gave justice 3, unions 4.5 — and politicians 2.”
Their disdain for politicians is shared by their elders. Newspaper columnist Luis del Pino, who contributes to El Mundo, says Spaniards have an old saying, “Two things are bad for your health — politicians and smoking, in that order.”
He says “legal” political corruption is to blame for many of the financial problems. Regional politicians manipulated local banks to encourage finance for local projects: “They put boards of directors that oriented these savings banks towards giving credit to big construction companies who were friends of the politicians. All this subsequently collapsed.”
Four Spanish banks that have been part-nationalised because of toxic debts have at least €71 billion ($A87 billion) in bad loans on their books.
Politicians also made many political appointments to get friends and supporters on the public payroll, he says. “Mayors and ministers have a total of 17,000 ‘personal advisers’, according to my colleagues at El Mundo. That’s an €850 million expense each year.”
And some politicians also manipulated the “brick bubble” for personal profit, buying land they knew was to be rezoned and reselling it for many times the original value, he says.
But Spain also has tight labour laws that need reform. Both right-wing and left-wing economists agree regulations, generous but not all unreasonable in boom times, now serve to lock young people out of work.
Sick employees can get most or all of their wages for 18 months. Employees can only be sacked without a payout in the first year, and many long-serving staff would cost €80,000 or more to let go. Businesses stay small because once they reach 50 employees, they must have five workplace reps to bargain on wages and conditions, each of whom receive 15 paid hours a month for these duties. Companies also pay higher rates of tax once they have more than 25 staff.
Inigo del Toro Calonje lost his job as an environmental engineer with a company designing golf courses when the boom bust. Golf courses had sprung up to add value to housing developments in the middle of nowhere but suddenly his company’s clients stopped paying and Calonje, unable to find another job, decided to set up his own consultancy.
It cost him €4000 and took three months to set it up to comply with government regulations. He earns only 60 per cent of what he earned as an employee but must pay company taxes each month and is driven mad by the different environmental regulations in Spain’s 17 regions. “They punish us for trying to be independent,” he says.
He is not the only one feeling punished by “la crisis”. “Social instability is a risk because we will have a large group of young unemployed for a long, long time,” warns Almudena Moreno (pictured). “It will produce social conflict and the social structure will break down because young people don’t see any future; they don’t see any solution. What is going to happen in three or four years if we don’t find a solution?
“Here, democracy is quite young. It’s less than 40 years [since dictator General Franco died], it’s nothing. Our structures are quite weak. It’s hard to predict but if groups such as the long-term unemployed, the young people with no future and the people who have been evicted join together, their social power could be terrible, and dangerous too.”
Luis del Pino is another who can foresee potential trouble. He warns of the “amazing speed” with which the middle class, the backbone of any developed society, is disappearing.
“It would be a disaster if this led to the rise of political extremism. Franco is within living memory here. When you put several million people in a desperate enough situation, then they will hear anyone who promises them some hope, even if that anyone is the most despicable man.”
Right now, those questions are too big for most of the young jobless, for whom the main question is where to go next. Many are considering joining the tens of thousands leaving the country to seek fortune in foreign lands.
Enrique Melendez, 30, who lost his job writing for a public relations firm, is thinking about migrating to South America. It’s far away but they speak Spanish there, he says.
He is grateful to have worked at all: “At least the people around 30 had a job and lost it. At least we have had the experience of work. It’s more dangerous for the next ones coming behind us, who’ve never had a job and have no experience.”
Eva Valiente is wondering about moving too. She has two ideas; to become a cook and move to a rural town — “life is cheaper there” — or to go to England and improve her English and, therefore, her saleability. Maybe both. She cannot see anything changing for her in Madrid any time soon: “They say the crisis will go on for five or 10 years. I don’t know. Young people are very sad.”
HARD FIGURES
■ The number of people helped by Spanish Catholic charity Caritas
2007: 400,000
2011: 1 million, mostly families with children
■ Unemployment
2005: 8.7%
2012: 25%
■ On the edge of poverty
10.5 million people, 22% of the population
■ Court orders for evictions
2007: 25,943
2010: 93,636
■ Homes in which no one works
2005: 2.6%
2012: 9.1%
SOURCE: CARITAS SPAIN

First published in The Age.

Lone, fragile future beckons the Greeks

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The crisis engulfing the country has led to violence, recriminations and widespread hatred of politicians, writes Karen Kissane in Athens.

At the beginning of last year, they were both in work. By the end of it, they were both unemployed. Now, like many young city people, Vasso Simu and Panagiotis Vovos have been forced by what Greeks call “The Crisis” to return to the simpler life on the land that their grandparents had led.
Simu and Vovos are both 31. She had been an adviser in an insurance company, he had been a computer programmer. Unemployed and with no future in the city, three months ago they moved back to his mother’s village on the island of Evia, two hours’ drive from Athens.
“We wanted a new life in the countryside,” Simu says. “We have our own garden: tomatoes, aubergines, peppers, beans, corn. We will make our own olive grove.” She works in a restaurant to earn them cash but they hope eventually to make a real living out of selling what they grow.
Meanwhile, they love the traditional life. “Every day we are swimming in the sea,” she says with satisfaction. “We get up early and collect the eggs. Right now Panagiotis is filling the ground with water and then he will fix the house of the chickens. I make marmalade and all the food for us to eat. We are very happy.”
There are not many Greeks who can say the financial crisis has led to happiness. The economy has been crippled by five years of recession, aggravated by an extreme austerity drive that has driven up taxes while public spending, wages and pensions have been slashed. Unemployment is at 23 per cent and is close to 50 per cent for young people.
The national debt is so mountainous that Greece might default on its repayments and walk away – out of the euro and back into the drachma, out of the European Union and into a lone and fragile future.
All of this is enough to make tomorrow’s Greek election, a rerun of a poll six weeks ago that failed to deliver a government, the most important since the end of World War II. It will effectively be a vote on whether Greece should continue to accept the tough terms of its financial bail-out by the “troika” of the EU, the European Central Bank and the International Monetary Fund.
This means it is also an election that Europe’s leaders are watching with bated breath. If Greece defaults or leaves the euro, there will be a domino effect across the rest of the troubled zone, with Spain, then Italy, and even Belgium and France facing investor flight and unsustainably high interest rates.
Spain and Italy endured a market storm this week as the Greek election drew near, despite the fact that eurozone leaders agreed to a €100 billion ($126.1 billion) rescue package for teetering Spanish banks.
On Thursday, Spain’s Foreign Minister warned of impending doom for the eurozone as his country’s borrowing costs reached an unsustainable 7 per cent. Jose Manuel Garcia Margallo told his wealthier neighbours: “If that Titanic sinks it takes everyone with it, even those travelling in first class.”
The threat of a Greek default is real. The main conservative contender in the Greek election, the New Democracy party, wants to change some terms of the bailout but basically supports the deal. But a left-wing party that also has a good chance of coming first, Syriza, has promised to renegotiate or even tear up the memorandum of understanding. Default even has a nickname now: “Grexit.”
A printing house is rumoured to be on stand-by to produce drachmas should they be needed. European banks and political leaders are drawing up contingency plans for an emergency. Ordinary Greeks have their own contingency plans; they are pulling up to €800 million a day out of banks to try to safeguard their savings by hiding them in their homes or squirreling them away overseas.
Greek domestic politics are always roiling but are particularly fevered now because people of all political stripes are furious with the major parties – conservative New Democracy and socialist PASOK – that have led their country to ruin. If there is one thing that unites this fractious nation, it is a withering contempt for its inept (and often corrupt) leaders.
Leo, who does not want his surname used, is a fine arts graduate, a former chief executive of a private school and most recently an icon painter who supported himself happily by painting for 20 years until the crisis struck. Two years ago, he found himself with no orders for icons and no money to pay rent. He ended up living on the streets of Athens.
He was taken in by a hostel, Klimaka, and is living there until he qualifies for the age pension in a year. He won’t be voting tomorrow.
“I do believe that my vote is valuable and [should] not to be spent on those crooks,” he says. “I am very angry with the politicians, particularly those who ruled for the last 25 years and present themselves for our votes now. They don’t accept that they are failures.”
He refused to elaborate, saying the language he would have to use to describe them would not be fit for a family newspaper.
Voters have physically attacked politicians in the street. Many demonstrations against the bailout terms have ended in violence. Last week, the rage leapt into the political arena itself with an incident that has become known as “the slap”.
Ilias Kasidiaris is a spokesman for Golden Dawn, a party described by some as extreme right and others as neo-Nazi. In a live TV debate he lost his temper after verbal goading from a female communist MP and struck her. He also threw a glass of water at another female politician. He later blamed them for having provoked him but he faces assault charges.
While prosecutors have no doubt he did wrong, comments on social media were more evenly divided. A Facebook page was set up with the title “God bless his hands” (a Greek expression that is the equivalent of “serve her right”). It gained 4000 fans in a day.
The caption below a photograph of Kasidiaris said: “Today Ilias did what all the Greeks wanted to do for a long time – slap the political system and its representatives.”
Michalis Spourdalakis, professor of political science at Athens University, says: “A man beating up a woman is not acceptable in Greece, but beating up a woman who is a politician, that’s OK. This is because [people think that] as a woman she is out of her place to be in politics, and also because politicians are hated.”
Spourdalakis says he did not believe the doomsayers who warned two years ago that the consequences of the austerity measures insisted upon by the bailout would be a disaster. He now thinks they were right.
“There has been loss of income, an undermining of the basic functions of hospitals and schools and universities – everything,” he says. “Seventy thousand small businesses have gone bankrupt. There have been very strong anti-authoritarian measures; police have been beefed up and have been very aggressive against demonstrators.
“And there’s no dialogue any more; collective bargaining has gone in this country, and it has been part of the tradition of Western democracies since the 19th century. All this has happened in just two years.”
Leonidas Vatikiotis, who teaches political economy at the Varna Free University of Cyprus, says it is the most brutal austerity program imposed on a developed nation since World War II. It has shrunk the middle class and triggered “generalised poverty” and “social genocide”.
“People can’t pay the loans for their own homes; they are homeless at 50 or 60, and ashamed of it,” he says.
“In the centre of Athens we have 25,000 homeless, and usually they were in the middle class. They weren’t workers or public servants, they were shop owners or self-employed.
“Athens is a ghost city at night, with people wrapped in blankets waiting in the shadows.”
At the same time as Greeks are earning less, welfare is shrinking, with the closure of 54 hospitals and 1000 schools last year. This is a big problem in the remote mountains where sending children 30 kilometres to school in winter is dangerous. “You can’t compare Greece’s school ratio with, say, Sweden’s, because Greece has different geography,” Spourdalakis says.
The consequent loathing of establishment politics has led to a polarisation in Greek voting patterns. At the last poll on May 6, voters savaged the main parties that had supported the bailout deal, parties that had dominated Greek politics for decades, and turned instead to parties that were further left and further right.
The ultra-nationalist Golden Dawn shot to prominence when it won 7 per cent of the vote and entered parliament for the first time with 21 seats. It was buoyed by a wave of hostility towards illegal immigrants – it wants to send them “home” and lay landmines to protect borders – as well as concerns about street violence and crime. Its new status is being linked to a spate of assaults on immigrants.
But the real arm-wrestling tomorrow will be between New Democracy, which won 18.5 per cent of the vote last time (120 seats) and the new left-wing coalition Syriza, which got a close-run 17 per cent (52 seats). (In Greece, the party that wins the highest percentage of the vote is awarded a bonus 50 seats.)
The Syriza leader, Alexis Tsipras, whose coalition contains 12 parties of greens and socialists, has promised to stand up to Europe over the terms of the bailout.
He says Greeks have been duped into thinking that there is only one way out of their economic mess, “through the cruel austerity [German chancellor] Madame Merkel and the IMF have inflicted upon us”.
Tsipras has also won brownie points by attacking the corrupt political elite and crooked bankers. “Greeks who vote for Syriza are not expecting Syriza to solve all the problems,” Spourdalakis says. “They vote just in hope of a breath of fresh air and as a small step towards self-respect. There’s no way in this country we can have a troika going into every public office and telling us what to do. Greeks are insulted.
“But they also lean towards Syriza because it is not corrupt and because it supports them in the struggle against the memorandum. Syriza were there in the protests, they were tear-gassed too, they were jailed with them. That’s why they trust them.”
Polls show Syriza neck-and-neck with New Democracy, but neither is expected to win outright in the 300-seat parliament. “We are hopeful we will be the first party and confident we can find a framework to come together [to govern] with the Democratic Left and perhaps the Communist Party,” says John Milios, a professor of economics who has helped write Syriza’s economic platform.
He says the party accepts the main goal of the bailout terms: a primary surplus in the budget. “But it’s impossible to achieve the goal of growth, which is required for a primary surplus, while paying €110 billion in interest by 2020. If we follow this austerity program we would have to further reduce wages and pensions and dismantle welfare.”
Milios says the party will prevent further cuts in the income of most people, returning the minimum wage to €751 a month (it had been cut to €560) and reintroducing collective bargaining.
“We need to work out how to make the debt viable and take specific measures for stronger growth rates.” This would involve big infrastructure projects to boost employment, he says.
Big projects such as the Athens Olympics in 2004 were a large part of what got Greece into trouble in the first place. Spending on stadiums and roads gushed on the strength of easy credit, but public revenues, strangled by tax evasion, did not keep up with the outgoing torrent.
Business and citizens did their bit, too. They borrowed lavishly for consumer goods and for property, which ballooned into a bubble that burst, leaving many over-burdened with debt that outstripped their assets.
At least the disaster has not stripped Greeks of their sense of humour. A young man dressed up for a carnival party this year in a black dinner suit and hired himself a fancy car for the evening. He told other guests: “I’m coming as the 1980s!”
Many are now reassessing their values along with their budgets. Fay Vernikou, 29, and Kostas Hatzipanagiotis, 31, are another young couple who fled to the island of Evia when they foresaw hard times.
He used to work for a publishing company and she was a primary school teacher in Athens. They were not unemployed when they chose to move three years ago, “but you could see what was coming”, Hatzipanagiotis says. “It was the time of the first austerity measures.”
He says Greeks had the mistaken idea they could be consumers without first creating anything. He is trying to become more self-sufficient, including by growing his own food, but confesses ruefully that he is struggling to wean himself off TV and the internet.
“The crisis is our fault as much as anyone else’s fault,” he says. “Sometimes Greek society is hoping for a fairy godmother. We always put the blame on politicians but we also played a part.”
He won’t be voting tomorrow because he doesn’t think elections make a difference: “People need to organise into small groups and set up co-operatives to change our lives. We shouldn’t expect politicians to solve anything.”
Milios also thinks the current crisis brings as its flip side an opportunity for change, but while Hatzipanagiotis is thinking small, he is thinking big.
Milios sees the mess as being about the failure of Thatcherism and neo-liberal policies that gave too heavy an emphasis to markets and business, and not enough to the human needs of society.
If Greece can force a renegotiation of its loan terms, it creates space for a discussion “about a different kind of society, one based on social needs and not on the interests of the few or the maximisation of profit as a prerequisite of accomplishment of any goal”.
He also sees his party’s stance as a spur to the saving of the euro. Many economists believe it will survive only if the European Central Bank guarantees the debt of all members and issues European bonds to raise money for them. This option is fiercely resisted by Germany and its Chancellor, Angela Merkel.
But her party is expected to do badly at the next German elections, Milios says. “We expect that the whole European structure will change. I think we are playing a role as the initiator of this process.”

First published in The Age.

D-days for the Europe experiment

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LONDON

It wasn’t supposed to be like this. The euro was supposed to make trade quick and easy. The new, integrated Europe was supposed to contain Germany and protect France and cement the place of the old world in international affairs. And globalisation – well, that was supposed to open up markets and make everyone richer.
But the 10th birthday of the euro passed uncelebrated on January 1, like the birthday of a disgraced relative who has brought shame on the family name. The leaders of the European Union spent much of last year at one another’s throats behind closed doors and smiling frostily in public, barely keeping up appearances. And globalisation, some now say, has become Europe’s economic doomsday machine.
If last year was rough, with no fewer than 15 failed summits, each falsely trumpeted as the saviour of the euro zone, 2012 is destined to be even tougher. Take it from the leaders.
In their New Year addresses, the French President, Nicolas Sarkozy, said Europe was “without doubt [in] the gravest [crisis] since the second world war”, and the German Chancellor, Angela Merkel, said 2012 “would no doubt be more difficult than 2011”.
The managing director of the International Monetary Fund, Christine Lagarde, went further. She warned that if Europe failed to sort out its debt crisis, it could trigger “retraction, rising protectionism and isolation. This is exactly the description of what happened in the 1930s and what followed is not something we are looking forward to.”
Depression and mass unemployment? A spike in fascism and race-hate? Could it be that the rampant looting and arson of London’s August riots, and the months of street protests in Spain and Greece, are but a taste of what is to come?
Because the truth is Europe, including Britain, might not be suffering under temporary austerity measures. Prolonged economic decline may be the new reality as wealth and power shifts from the old world to the emerging economies of Asia.
Questions are being asked about how Europe’s democracies can thrive – or even survive – when its governments cannot hold out to their people the promise of a return to the prosperity of the past. The same goes for the European Union; support for the “European project” is at risk of falling at the very time its leaders most need to push for greater unity.
Sixteen million people in the euro zone are unemployed and voters are becoming angry and disaffected as austerity bites. In Greece, poor people who are diabetics cannot get insulin, cancer sufferers are missing out on drugs and even paracetamol is in short supply. The Greek Orthodox church this week reported cases of parents abandoning their children into care because they could no longer afford to support them.
In Britain, 2.85 million unemployed means the welfare bill has rocketed and austerity is expected to last at least a decade. The Coalition government now wants to means-test benefits for people with cancer and young people with disabilities – moves the Labour opposition is resisting, arguing people made payments to support those benefit schemes and should not lose them when they are most in need.
Schools, hospitals, police, defence and councils are being slashed. Anxiety is morphing into long-term pessimism: almost two-thirds of Britons believe this generation of children will have a lower standard of living than their parents.
The British are known for their stoicism in the face of hardship but this is not like World War II, when everyone was in it together. In Britain, as across much of Europe, there is resentment over the rise in inequality. For a family with three children earning £35,000 ($52,000), with both parents working, real household income has fallen by £3150 compared with 2010-11.
But, as ordinary workers see the pension age extended to 67, jobs disappear and workplace rights eroded, an estimated 2800 bankers in London are each earning more than £1 million a year.
For some, pessimism has spiralled into utter despair. Across Europe, the number of people committing suicide has jumped. Figures published in The Lancet show the British suicide rate increased 8 per cent between 2007 and 2009. The Greek Parliament reported its national suicide rate rose by 25 per cent in 2010.
Stephen Platt, a professor at Edinburgh University who has been studying suicide behaviour for 30 years, told The Guardian he fears a decade of unusually high suicide rates. “If you look at the research literature about suicide and economic recession, it’s pretty clear that there is a relationship,” he says. “The idea of a lost decade is quite possible.”
The West launched globalisation as a way to open markets and increase competitiveness – and it did both. But what was perhaps not so well foreseen was the degree to which capital and manufacturing jobs would move to countries with cheap labour. As billions of low-paid workers have been absorbed into the world economy, and productivity has risen due to technology, jobs have stagnated in Europe. Asia makes, and is booming; Europe borrowed, in order to consume, and is now going bust.
The American political scientist Francis Fukuyama questions whether democracy can survive the resulting decline of the middle class. Writing in this month’s Foreign Affairs magazine, he argues the lightly regulated form of globalised capitalism has created new wealth and rising middle classes, with democracy in their wake, all over the developing world. But in the West, he says, it is eroding the middle-class social base on which liberal democracies rest.
In the same magazine, the professor of international affairs at Georgetown University, Charles Kupchan, argues globalisation is producing a widening gap between what electorates are asking of their governments and what the governments are able to deliver. Voters want them to respond to the fall in living standards and growing inequality, he says: “Globalisation has handsomely rewarded the winners but left losers behind.”
But he points out democracies have less control over outcomes in a globalised world. Traditionally, countries in economic trouble devalue their currencies to make their exports more competitive. The 27 nations of the euro zone, though, cannot do this individually; their currency is shared, and the euro’s settings are fixed by the European Central Bank.
So the only answer to date from Europe’s leaders has been to cut back and back, creating an age of austerity with no end in sight. As markets and voters watched in dismay last year’s agonised, ham-fisted talks over saving the euro, the standing of European institutions fell.
In Britain, pressure is rising on the Conservative Prime Minister, David Cameron, to leave the union, with half the nation’s voters and many of his own MPs wanting out.
There are now openly Eurosceptic parties in Finland, France and the Netherlands, and many voters perceive European institutions as foreign rather than shared. Their disaffection could fuel a retreat to isolationism and nationalism, which might be only a step away from xenophobia.
Kupchan says generational change is also taking a toll of popular support for European integration: “Europeans with memories of World War II see the EU as Europe’s escape route from its bloody past. But younger Europeans have no past from which to flee … current leaders and electorates tend to assess the EU through a cold – and often negative – valuation of costs and benefits.”
It is probably not in voting booths that Europe’s future will be decided, but in financial markets. It is not political analysts but economists who are being asked to cast the runes on the odds of the EU surviving in its present form.
Professor Douglas McWilliams, chief executive of Britain’s Centre for Economics and Business Research, earlier this month forecast a 60 per cent probability the euro zone will start disintegrating this year and a 99 per cent chance it will collapse entirely within the next decade. A BBC poll of leading economists put the chances of a break-up at between 30 and 40 per cent.
Any fracture would probably begin with the exit of Greece, which would come suddenly and without fanfare in order to prevent a run on its banks. Once Greece was gone, lairy investors would turn a harsh eye on Italy, which is also carrying high debt. If they refused credit to Italy and the huge Italian economy collapsed, the European Union in its present form would fall. The result: currency chaos and massive unemployment, possibly a depression. That kind of suffering risks resurrecting Europe’s old bogy, race.
Toughing it out with the EU will also be hard. Europe’s banks are suspected to be carrying large amounts of toxic debt. French and German banks might need to be bailed out to compensate for write-downs on sovereign debt, or even nationalised, as happened in Ireland. Either way, money will be tight for a very long time.
The architects of the EU always envisaged there would be crises over the euro and thought the crises would impel closer integration. The union’s true believers insist that is what happening here – if Sarkozy and Merkel can pull it off.
But Merkel is already hamstrung by domestic politics, with Germans furious at bankrolling bailouts for their neighbours, and Sarkozy is facing an election this year, so he must also have more of a weather eye out for local politics than usual. Already it is proving difficult to wrangle the rest of Europe into line, with Hungary and the Czech Republic warning they will join no new deal that means losing control of their tax policies.
Through that sliding door to an alternative reality – one in which the EU pulls closer over joint taxes and spending, which would stabilise the euro – we might one day see a “United States of Europe”. But right now, no one is offering odds on that happening.

First published in the Sydney Morning Herald.

Another generation of Irish forced to leave their homeland

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Ireland was the Celtic Tiger of the ’90s but has been reduced to a mewing kitten. Like so often in the past for so many, the answer is emigration. Karen Kissane reports.

DUBLIN

EVERY culture has its own spectre of hardship, says economist Alan Barrett. For Germans, it is the hyper-inflation of the Weimar Republic and its destruction of families’ hard-earned savings. For the English, it is the rationing during and after World War II, which left some in that generation still prone to hoarding every time headlines cause alarm. For the Irish, it is landlessness.
Their folk memory turns on the stories of the potato famine of the 1840s, when starving people were evicted from their homes by English landlords and died by the roadsides with grass stains around their mouths.
Even today, says Professor Barrett, of Trinity College, Dublin, “in the social collective consciousness, losing your property and eviction are the worst things that can possibly happen.”
This has led to a national preoccupation with property ownership, agrees Professor Piaras Mac Einri of Cork University, “We have an obsession with land. Owning your own land is the biggest thing you can do.”
Which partly explains what has happened with traditionally frugal, hard-working Ireland. In the 15 years to 2008 the country boomed, proclaimed as “the Celtic Tiger”. On a surge of prosperity and optimism, and turbo-charged by low interest rates, Ireland spent billions building roads, luxury hotels, golf courses, and a gleaming, futuristic, €600 million (A$783 million) international airport, T2. The Irish also borrowed heavily to buy into a feverish local property market.
Barrett, who is on secondment from Ireland’s Economic and Social Research Institute, says: “If you asked anybody what was the big benefit of the Celtic Tiger, I think a lot of people would have answered that for the first time ever, if you were born in Ireland you could assume that you could live and work in Ireland for the rest of your life.”
But the Celtic Tiger is now a mewing kitten. Last month marked the first anniversary of Ireland’s humiliating bailout by the troika of the European Central Bank, the European Commission and the International Monetary Fund, without which it would be bankrupt. Ireland has also just suffered its fourth consecutive austerity budget, this time one that provides an “adjustment” of
€3.8 billion through increased taxes and slashed spending. It follows cuts of €4 billion last year.
The Irish are talking about unemployment tripling to 14.5 per cent with 450,000 now jobless, about the way houses have lost half their value and about the big cuts to salaries and social services that make life harder. But there is another painful Irish spectre that is not getting as much airplay — forced emigration.
Emma and Eoin Monaghan are typical of those hardest hit by the crash. They have regretfully decided that they must leave the country if they and their children are to have a future. He is 35 and works as a thermal insulator; she is 29 and works part-time as a make-up artist. They have two children, five-year-old Jamie and baby Maleah, nine months, and live in a Celtic Tiger-era housing estate at Donabate, on the edge of Dublin.
They did what they thought was the responsible thing and bought a house before they had children, at a time when prices were rising fast, because they feared they might not get into the market at all if they dithered.
“The day we actually bought, there was a big queue,” Emma says. “They said if you didn’t bring your deposit within 24 hours you would lose your place. We were so frightened that we wouldn’t even get on the property ladder.”
They were conservative, for the time; they took a mortgage of 100 per cent, when all around them people were borrowing even more than that to add on a car, or a renovation. Between 1998 and 2008, Irish banks borrowed €300 billion to fund loans for property speculation, which amounted to 2½ times the country’s gross domestic product.
In 2008, the Irish government offered to guarantee six banks, thinking they had a temporary liquidity problem. But the banks were close to insolvent, and the guarantee has cost the Irish people many billions more than expected.
Now that the property bubble has burst, with busted banks close to being nationalised and the nation crippled by a ruinous €144 billion debt, Emma and Eoin are left with a house that is valued at €150,000 less than they paid for it. About 100,000 Irish families are in trouble with their mortgages, and most of them are in negative equity too, which means they can’t sell and start again. One senior economist estimates that 25,000 families could lose their homes by 2013.
Construction employed 286,000 people at the height of the boom but that has shrunk to only 100,000 now. “I have never been out of work but now it’s looking likely,” Eoin says. “I was with this firm for nine years and it went bang.” He has contract work that will see him through to Christmas but after that, nothing.
The Monaghans know at least five families in their social circle who are emigrating; three are already gone. “People are panicking now; they are just jumping ship,” says Eoin. Emma adds: “We both have work at the moment, but we are saying we should go before it gets too bad.” Their preferred destination is Australia, which Eoin loved when he worked in Sydney several years ago.
It would be difficult to leave their families, Emma says, “But we have got to think of the kids and their future. There really is nothing, no kind of opportunity here.”
About 40,000 Irish nationals have left the country in the 12 months to last April, along with 36,000 people of other nationalities.
“Emigration” is a dirty word in Irish politics. Politicians prefer to paint it as young people spreading their wings. “It’s not really emigration if you want to go and experience Bondi beach,” Irish Finance Minister Michael Noonan tells The Age.
It is true that because it is a small country (Ireland has only 4.5 million people), many voluntarily travel to see the world or improve their CVs. Karen McHugh migrated to Germany for several years when only three of her class of 250 engineering graduates found jobs in Ireland. “Irish people . . . know that we don’t have enough of a population to sustain ongoing growth, so people get used to travelling for work,” she says. “It’s part of our psyche.”
McHugh is now back in Dublin and managing director of technical recruiting firm JobContax. She finds engineers and other specialists for overseas projects, including several in Australia.
“I came back because there was work here again,” she says of her return. But now she sees even highly qualified, experienced people scrabbling for a job. When her website was mentioned on the national broadcaster, it received 4000 hits each day of the following weekend.
“People are sick of the government, they feel they are being screwed over taxes — a lot of people have had enough,” she says.
But they also feel anguish about family separation.
“People who have got elderly parents — that’s the biggest wrench.”
Emigration has long been the Irish escape at times of greatest hardship. More than 2 million people fled the country during the Great Famine of the 1840s; half a million in the 1950s; and 200,000 during a downturn in the late 1980s. The Irish diaspora — of emigrants and their descendants — now vastly outnumbers the Irish at home and is estimated at more than 70 million people.
Critics say this history has taught Ireland’s policymakers to rely, like Aesop’s lazy donkey, on a lightening of the load through emigration whenever times get tough. A study of 90 young unemployed people by the Youth Council of Ireland this year found that 70 per cent thought they would emigrate and many believed the government was relying on it.
“It’s a handy way for them to export the problem and to cut the costs [of welfare payments],” says one. Another says: “I am sure it is built into the economic projections for the next five years because there doesn’t seem to be any meaningful policies being developed to help young unemployed people.” Youth unemployment is running at 24 per cent.
Macdara Doyle, a spokesman for the Irish Congress of Trade Unions, says: “The jobless figures have not risen to Spanish levels [where youth unemployment is 40 per cent] because people are leaving. We’ve had [whole] classes of newly trained teachers heading to the southern hemisphere, of newly graduated nurses being recruited en masse by [Britain’s] National Health Service. And thousands more are leaving quietly.”
Minister Noonan says three out of five of his children are abroad, “and none of them would regard themselves as emigrants . . . It’s certainly not a matter of policy for the Irish government [to rely on emigration]. It’s a consequence of the recession.”
Professor Mac Einri, director of the Centre for Irish Migration Studies at Cork University, says there is forced emigration and that it is a political safety valve, as well as “a declaration of the failure of the independent state. We haven’t managed to create an economy that works in a way that creates jobs for these people. There’s a huge sense of inchoate, subterranean bitterness here”.
Noonan says many who leave will be back, and Mac Einri confirms that about half of those who left in the 1980s later returned, bringing with them the skills to start Ireland’s own software industry. Google and Twitter have set up large bases in Ireland.
He points to the nation’s other strengths, which compare well with the turmoil of its bailout companion Greece: a young and well-educated workforce, excellent infrastructure, social and political stability and the ability to collect taxes effectively. Indeed Ireland has obediently swallowed the troika’s bitter medicine of austerity and is the poster child for bailout nations.
BUT, while exports of many kinds are doing well — Ireland produces the entire world supply of Botox — the domestic economy is flatlining because consumers are too frightened to spend.
It is a struggle for Ireland to get back on its feet given its huge interest bill. Even the tough-love Noonan, who has overseen the budget cuts, says Ireland needs a “haircut” to reduce its debt. Economists warn privately that the current figures would mean austerity for at least 10 years, strangling domestic growth.
And then there is what one senior official calls “the mood music” of the euro-zone crisis. “We are sitting here doing our best but if the whole eurozone collapses, Ireland is completely screwed,” says Alan Barrett.
A recent report from Ireland’s Economic and Social Research Institute warned that Europe faced another Great Depression if it did not resolve the crisis, and that Ireland’s forecast pick-up next year had now reversed, with a prediction of another 22,000 unemployed.
Emma and Eoin Monaghan don’t need that warning. They see emigration as the only way they can carve out choices for their family. “We are trying to take control of our future, rather than just existing,” Emma says.
If they can work their way through the bureaucratic tangle, they will soon be farewelled at Ireland’s gleaming new airport by tearful mothers like one featured recently on an Irish TV documentary. She hugged her daughter and her two grandchildren and watched them go through the gates to a new life in Canada.
“I just feel we are exporting our kids,” she said, wiping her eyes. “We are bringing them up, educating them and then giving them away. My grandchildren too — it’s two generations.”
For her and many like her, Ireland has again become, in the bitter words of writer James Joyce, “the old sow that eats her farrow”.

Karen Kissane travelled to Dublin as a guest of the Irish Government.First published in The Age.

Power to the people

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Karen Kissane asks if ordinary people will benefit as promised from the splitting and sale of Victoria’s power system.

DIENEKE WALKER got a warm letter from Citipower when it took over the electricity supply to her home last October. She was a “Dear valued customer” and her power was to be delivered in “an efficient, professional and caring manner”.

The owner of a small business in a different Melbourne suburb was not so lucky. Her new power company merely sent her its first bill, addressed to “Dear Sir,” along with a demand for a $1700 security deposit. Failure to pay, it said, would result in disconnection without further notice. Such are the vagaries of life after the death of the SEC.

The five new power companies into which its retail arm has been divided are meant to be like gladiators in the ring – pitting their ability against each other, fighting for acclaim in the form of higher profits and better services. But the game is rigged, at least until the year 2000; it is only then that ordinary householders will be able to choose which one they will use. Right now each company has a monopoly in its own local area, a captive market. The businesswoman who got the letter of demand could not vote with her feet and switch to Citipower. “There was nothing she could do about it,” says Ms Walker, who heard the story in her work as a policy officer with the Consumer Law Centre.

Big companies will soon be able to win cheaper power deals by playing suppliers off against each other; in fact, suppliers will probably go all out to win them as customers. But, even after the household market is freed in 2000, will power companies bother chasing small customers when the big money is with commerce and industry? What will the free market do for little guys? Or should the question be, what will it do to them? Dr John Ernst, associate professor in the department of urban and social policy with the Victoria Institute of Technology, says they will face higher power bills, less willingness to negotiate if they run into trouble with payments, more environmental problems and many more disconnections. Privatising the power supply, he says, “is the reverse of the Robin Hood principle. It’s stealing from the poor to give to the rich”.

Dr Ernst spent four years in the UK researching his book, The Social Impact of Public Utility Privatisation and Regulation in Britain, recently published by Open University Press. He says: “People will say to you, particularly in business and consultancy forums and bodies like the World Bank, that privatisation is an outstanding success. You have to ask, by what criteria? “Usually it’s by the amount of money retrieved from the sale, the amount of foreign investment it’s brought into a country, whether big business got lower power prices, whether the industry became more efficient – its success is looked at in terms of how many people have lost their jobs. Very rarely is the measure in terms of ordinary consumers, particularly those on low incomes. If you used those criteria, there wouldn’t be a privatisation in the world which was completely successful.”
Dr Ernst says that in Britain, power prices went up, not down. One academic estimated bills are 25 per cent higher than they would have been if the state had kept its monopoly. After water was privatised, some households’ bills doubled or tripled.

Officially, power disconnections in Britain have decreased, but this does not reflect what is actually happening, he says. People who had trouble paying bills were forced to buy smartcards that entitled them to the use of a certain amount of power; now they disconnect themselves, sitting at home in the cold and dark if the card runs out and they have no money to buy another that week, or that month.

Meanwhile, the British Medical Association has expressed concern that an increase in the number of water disconnections has revived diseases that had all but disappeared, such as typhoid and dysentery.

“Competition is being promoted as all-good, but it can have adverse effects,” Dr Ernst says.

Where, in all this, is the potential for a better deal for ordinary Victorians? The new companies, the Government argues, should respond quicker to calls for service, be more flexible about payment and offer energy-efficient programs. The Treasurer, Mr Stockdale, predicts that prices will probably fall below the ceiling that the Government has put on tariffs until 2000.

Dr Michael Porter is an economist with the Tasman Institute, one of the consultancy groups that advised the Government on reshaping the industry. He believes Victoria’s privatisation will work much better than Britain’s. There, he says, the power system was sold off to two big companies, too small a number to force real competition; the results of its water privatisation are clouded by the fact that Britain had to upgrade to European Community standards for its water
supply at the same time as it was sold.

“The reason for setting up five distribution companies – we originally explored the merits of three – is solely from concern for household customers,” he says. “This way, if there is one mover and shaker, it will drive all prices down and others will have to match it.” Why should they match it when their domestic customers have no choice but to stay with them anyway? “There are plenty of players who will find it in their interests to drive the process of change.”
But that has not yet happened in New Zealand, according to David Russell, chief executive of that country’s Consumers Institute. He told a Trade Practices Commission conference in Sydney earlier this year: “Many of the more than 40 energy companies are aggressively competing for large customers. Undoubtedly these are leading to the trimming of prices in this market sector. However, the real possibility then arises of energy prices increasing for small consumers who are still captured by the local supply company monopoly.

“While the opportunity exists to compete for the business of small users, many are not going to bother. The administration (involved) in dealing with thousands of small customers throughout the length and breadth of New Zealand is simply not economic. I have spoken to a large number of companies who all said they wouldn’t be interested in chasing the small users who live outside their geographic area.”
Price is not the only issue for ordinary Victorians. The old SECV tried to keep supplying homes unless payment fell severely behind. As a state monopoly, it was also free to be green; it tried to limit the demand for electricity and subsidised the use of renewable energy such as solar and wind power. What will happen to such priorities with private companies, whose main duty is to their shareholders, to profit and to developing the market? Gavin Dufty, a policy officer with the Victorian Council of Social Service, expects disconnections to increase dramatically under privatisation; he says they skyrocketed in the last 12 months of the SECV when it was under orders to run more commercially. In August ’93, 1882 Victorian households had their power cut off; in the same month this year, it rose to 2924. Of this August’s cases, 2012 were reconnected in the same name, which meant they were battlers, not bad debtors, Dufty says; the bad debtors were the 912 who skipped the premises.

“In this whole privatisation debate, one thing has been completely forgotten,” Mr Dufty says. “Electricity is one of the things you need to participate in society; it defines our standard of living, like education, health care, housing. Everyone needs light, hot water, warmth, a refrigerator to keep their food cold. With privatisation they are taking this need and handing it over to people who are totally money focused.” Environmentalists, meanwhile, are concerned that companies run for profit will be more likely to cut corners on problems such as emissions and discharges. In the US, California’s Pacific Gas and Electric Company has responded to the prospect of competition by slashing its spending on energy conservation programs by 64 per cent, or $100 million. And, says Peter Kinrade, of the Australian Conservation Foundation: “The industry’s sole focus will be on generating as much short-term income as possible, which means selling as much as possible at the lowest price possible, which means less emphasis on energy efficiency.”
Dr Porter, on the other hand, argues that if private companies are more efficient in their use of power, and the way they balance the load at different times, the environment will do better.

The negative side-effect that would be most noticed by ordinary Victorians would be power failure. John Legge, a research associate in innovation and entrepreneurship at the Swinburne University of Technology, does not oppose privatisation but he is worried about the breaking up of the state’s generators into six different companies.

The result, he predicts, will be the brown-outs and black-outs all too well known to Americans.

Mr Legge, an engineer, helped build stage one of the Hazelwood generating station. He says that in the US “whole states regularly brown out”. The private companies that hold local monopolies simply lower their voltage when their generators are not up to the task of, say, running thousands of air-conditioners on a hot day: “It’s very expensive to put in that extra bit of power that’s only used a few times a year. It’s not worth their while.”
He says that from a technical point of view, generation works best as a cooperating system, not as an array of competing generating stations. “It is the nature of the beast. The (new) English power system would have collapsed if the regulatory authorities had not just ignored the fact that the two power companies collude, talking to each other in ways that are technically illegal to make sure there are no sudden shifts in load.”
Dr Porter argues that this is not a problem: “We live in networks – televisions, faxes, phones. That means you need quality interconnections, not that everything needs to be in one giant monopoly.” Mr Legge says that analogy does not work; part of the telephone system can collapse without affecting other exchanges, for example, but one collapsed generator could topple the electricity system throughout the state.

Whether privatisation will bring satisfying new freedoms or a whole new range of problems, or both, only time will tell. One thing is certain: with a sale value today of $10 billion, the power industry, once gone from government hands, will never return to them.

First published in The Age.

Women slipping back – professor

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KAREN KISSANE – Adelaide.

High unemployment was devastating women’s progress and sending them back to the level of the 1950s and 1960s, Professor Helen Hughes told the Women, Power and Politics conference in Adelaide yesterday.

“Sure, women have become board members and university professors, but so what?” she asked. “That’s not what matters to the majority of women.

“All through Europe, you’ve had greater representation of women, but a high proportion of women has been cut out of the economy, so they’re back to the conditions of the ’50s and ’60s. (The consequences) of this will show up in the next 20 years unless we can fix it.”
Professor Hughes, a fellow at the Institute of Applied Economic and Social Research, said Australia had become a low-wage country with long working hours.

It used to have the third-highest income per person in the world, but had now slipped to 18th. With the recessions, women had “fallen out of the workplace”.

“Women have a lower workforce participation rate here than in most industrialised countries,” she said. But historically, it was only through employment that they got equal rights.

Professor Hughes, who worked with the World Bank for 15 years, said she knew of no country in which women had made gains without economic growth as a precondition.

“I have worked in (international) development for 30 years, and the evidence is that improved health for women, improved access to education, improved income, only come with economic growth as it is formally measured,” she said.

Professor Hughes said the second key to women’s continued advancement was education to equip them for paid work, but she said that “women in Australia and other countries are being denied access to education at the trade level.”

First published in The Age.

Trade deals a bad deal for women – professor

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Free trade agreements and the opening up of world markets were dangerous for women and other disadvantaged groups, a Canadian academic, Professor Marjorie Griffin Cohen, told the Women, Power and Politics conference.

Professor Cohen, an economist and professor of women’s studies at a Toronto university, said these changes were putting women out of work, causing the cutting of social services relied upon by women and families, and dramatically curtailing the ability of governments to make decisions for the public good.

Professor Cohen said agreements such as the one between the United States and Canada (Nafta) allowed large corporations so much power that the democratic process was being subverted. She said that in Canada, government plans for plain packaging of cigarettes and the setting up of a state car insurance system were dropped when American corporations threatened to sue for the billions they would lose in current and future income from the move.

She said that Nafta, the (North American Free Trade Agreement) required the permission of trading partners before a new public program could be set up. It also insisted that companies in the trading partner country be compensated for any losses they might incur. “Any government that decided it wanted a national day care program or a dental scheme would be discouraged by trade enforcement of prohibitively expensive compensation to US providers of those services in Canada,” Professor Cohen said.

“The wishes of people as expressed through the actions of elected democratic governments are being superseded by international trade rules. It is becoming increasingly irrelevant politically what economic and social issues parties decide to pursue.

“Women, minorities and the disadvantaged are confronting a very nasty political reality: this is the experience of even less democratic participation than we have had … Real decision-making power will elude us as the seat of power itself shifts.”
Professor Cohen said that half a million Canadian jobs had disappeared since the introduction of Nafta, many of them belonging to women in industries such as clothing and textiles. She predicted that the Canadian public health system would collapse by 2000 because Canada no longer had generic drugs but had to use much more expensive brand- name pharmaceuticals.

The conference will tomorrow debate whether to condemn “economic fundamentalism”. It will also consider recommending the establishment of an International Equity Association, linking women’s groups that believe the present international economic order will create “growing gender inequity and the loss of civilised society”.

First published in The Age.