Thursday, October 12, 2006

A Big Step for European Policy Makers?

It could certainly seem so, at least if we measure it as awareness of a serious problem. Consequently, the EU commissioner of monetary policy affairs Joaquim Almunia will point to the possibility of an age driven crisis in a speech (report?) on Thursday. The only thing that wonders me is that Italy is not on the 'list'!? And sadly, no talk of immigration and also the discourse seems to be stuck in the old discussion about dependancy ratios and the prolongation of retirement age. Furthermore, the 'three-pronged strategy' to get public budgets back into shape seems to miss a big part of the point; how can (should) these countries do this and what will it mean for economic growth going forward?

So as I stated; points for awareness but not much more.

The FT has the story ...

'Public finances in six European Union countries are at “high risk” because of the continent’s ageing society, Joaquin Almunia, EU monetary affairs commissioner, will warn on Thursday.

Mr Almunia will say Cyprus, the Czech Republic, Greece, Hungary, Slovenia and Portugal face the biggest threat of a financial crisis in the medium or long-term. Europe’s three biggest economies – Britain, France and Germany – are at “medium risk”.

Mr Almunia will warn that the entire EU needs to do more to prepare public finances for a demographic shock. Without policy change, the average debt to gross domestic product ratio of all EU members will rise from about 60 per cent to almost 200 per cent in 2050.

Meanwhile, the effects of an ageing population could cause Europe’s potential annual growth to fall to 1 per cent, less than half the current rate.

In a report on the sustainability of Europe’s public finances, Brussels hopes to put further pressure on national capitals to run balanced budgets or surpluses in the medium-term.

In the past five years, Britain, France, Germany and Italy have run annual deficits of close to or above 3 per cent of GDP, a situation Mr Almunia believes is storing up big problems.

He will advocate a “three-pronged strategy” to put finances on a public footing, including running balanced budgets to reduce public debt at an accelerating rate.

Employment rates, at 63 per cent in 2004, should be raised towards the EU target of 70 per cent as a priority, with a particular focus on keeping older people in work

He will urge renewed efforts to reform pensions, healthcare and long-term care systems. Earlier this week he said: “The challenge is considerable and inaction is not an option. Our capacity to cope with the impact of ageing depends on our political will to apply today the necessary reforms.”

Mr Almunia says Greece, Hungary and Portugal need to strengthen their fiscal positions as a matter of urgency. Some countries face an increase in public spending of up to 5 per cent a year because of ageing. However, Germany, France, Austria, Italy and Sweden, have made “remarkable” strides in reforming their pensions systems.

Vladimir Spidla, EU employment commissioner, will on Thursday join Mr Almunia in the call for change.

He will say it should be easier for people to reconcile family and professional lives in an effort to raise birth rates and stem population decline. He will call for older people to be more readily included in the workforce and to receive new qualifications and training.'


S.M. Stirling said...

Sorta kinda late to notice this, isn't it?

The figures and trends have been obvious for about twenty years.

CV said...

Well yes Stirling ...

This would be my immediate response as well. Moreover, the idea that you can reform your way out of the problem by tweaking already existing health care and pension schemes is not adequate. In short; pushing retirement age does not cut it. Scrapping welfare benefits also seems as a nice idea but in a European context this will be difficult and in the end it does not not touch upon the real problem; i.e. all these measures are indirect to the real problem - declining populations.

S.M. Stirling said...

Estonia seems to be having some success since 2004 with the "mother's wage".

This pays the full previous wage (up to a limit of $1500 monthly, quite a lot in Estonian terms) to women who have a baby. The payments go on for over a year; the bottom level is $200 a month.

This seems, on the preliminary figures, to be prompting a fair number of women, particularly the well to do, to have a second or third child.

Estonian TFR's have gone from near 1 to about 1.5, and seem set to drift gently upwards.

This does seem, on a very preliminary reading, to be getting some results. It's expensive, of course.

CV said...

'Estonian TFR's have gone from near 1 to about 1.5, and seem set to drift gently upwards.'

Oh yes ... this is interesting Stirling; The lynxes (i.e. EU-8) are generally really interesting to watch here.

I have posted on it here ...

I was not aware of Estonia's deliberate attempts to highten TFR. This is definitely one to watch. Thanks ...

When time permits I would like to look more into the whole situation of Eastern Europe (the lynxes) and demographics.

Edward said...

"This pays the full previous wage (up to a limit of $1500 monthly, quite a lot in Estonian terms)"

I would say this is one hell of a lot in Estonian terms. I don't know estonian data, but to give an example schoolteachers in Poland can get 200 euros a month, and I doubt the Estonian numbers are that much higher.

These countries are poor, and will largely remain poor. They will be the first examples of countries which grow old before they grow rich.

This money is quite simply unsustainable. This is far too late for all this in the case of Estonia. The fiscal dynamics will never permit such a load, and remember the cost of having a child last much more than one year, most children are to some extent or another dependent on their parents here in Europe for nearly 30 years now.

Estonia is losing population and will face some kind of melt down. The fiscal issues posed are just one of the reasons that Estonia is not a likely candidate for the eurozone any time soon. Claus has been covering this on his blog.

This kind of policy makes a lot of sense in a developing economy during the demographic dividend stage (Southern India now, Morocco, Turkey, etc etc). In countries which can use the temporary prosperity that this boost offers to slow the rate of fertility decline. In these countries such policies should be implemented now, but we have still to convince the agencies like the IMF and the World Bank of the importance of this.

Meantime Estonia is just about to get 'wasted'. How many more such cases will we have to be witness to before someone finally wakes up?????

S.M. Stirling said...

>I would say this is one hell of a lot in Estonian terms.

-- true, but Estonia has been having very rapid economic growth since the mid-90's, well over five percent. Government revenues are klicking up nicely, and it's a good use of the money.

They're planning on keeping this and introducing more pronatalist measures in the next budget. It's very popular.

>This money is quite simply unsustainable.

-- the voters in Estonia seem to think extinction is even more unsustainable. It doesn't matter how much it hurts; it still has to be done.

>most children are to some extent or another dependent on their parents here in Europe for nearly 30 years now.

-- time to give them a hearty kick in the ass at age 18 and shout: "Out of the nest and fly!"

Europeans have been living beyond their means for some time now and need to realize that you can't vote yourself an exemption from the law of gravity.

More babies, more work, fewer benefits, and stop eating the seed corn.

Edward said...

Sterling, It's not that I wouldn't like you to be right, really I would. And I am all in favour of helping people who want to have children to have them.

But I don't see how the economics of this can work at this stage for Estonia, I think it is too late. That may sound like a hard thing to say, but I am trying to be somewhat realist here.

It is because I want to try and avoid that there be more Estonia's, Bulgaria's, Belorus, whatever, that we set up this blog. Maybe it doesn't sound like a whole bundle of anything, but it is better than sitting idly by and doing nothing. But the problem is a big one, very big, and extraordinarily complex, especially the economic dimension.

You see if you can't pay pensions, or you can't provide medicines for your elderly relatives, responsible young people really have little alternative to working outside the country (even if this means as undocumented illegals), where the wages are much higher, even doing basic cleaning work etc., and sending the money and medicines back home. This phenomenon seems to exist across the Baltics.

Indigenous population seems to be moving in the younger age groups, and Russian migrants seem to move over. Politically this might become very problematic at some point.

At the end of the day neither you nor I know enough here. When I get some time I will try and go into all this a little further and post something more substantial.

S.M. Stirling said...

Obviously, if the pension burden is too great, pensions will have to be cut.

Children are more important than old people, and if one or the other has to be left to die, then the answer is obvious.

Randy said...

There does seem to be a degree of ethnic selectivity in emigration in the Baltic States, though it varies. It's related to, among other things, the question of citizenship, and the inability of non-citizens to access the EU labour market.

Differential rates of emigration between ethnic groups doesn't seem to be a significant issue in homogeneous Lithuania, whereas it is in the much more heterogeneous and Russified Latvia.

And Estonia? Estonia does evidence something like Latvia's divide, but it has a smaller non-citizen population and moreover a relatively larger ethnic Estonian population and a Russophone population that seems to be disproportionately concentrated in underachieving areas (i.e. Estonia's northeast). Combine this with Estonia's relatively greater level of economic success and I wouldn't be surprised if rates of emigration from Estonia were considerably lower than in the other Baltic States, and were more balanced across ethnic groups than Latvia's.

S.M. Stirling:

"Children are more important than old people, and if one or the other has to be left to die, then the answer is obvious."

False dichotomy. Who says that they have to be left to die?

Anonymous said...

>>Children are more important than old people, and if one or the other has to be left to die, then the answer is obvious.

>False dichotomy. Who says that they have to be left to die?

Economics... and reality? Its not like you'd advocate tossing the old folks outside to die of exposure. But a decrease in funding/support makes it inevitable given that you're choosing to support the younger population with a limited pool of resources. Yes, the burden will fall on families and NGOs but it doesn't change the fact that there are a certain number of "dollars" to spend, but very few ways to make those same dollars yield good results. Either fund the pensions (Social Security anyone?) at the expense of the future or fund the future at the expense of the past/present. In the end, someone gets the short straw. And unless you want your country to end up as some permanent retirement community where all the youth head elsewhere, you have to tackle the issue head-on.