On why demographics mean a near-term recovery in Greece is unlikely

Yesterday's Greek legislative election which placed a SYRIZA-dominated government in charge of the country got quite a lot of attention for a lot of things in the blogosphere. Some, like blogger Charlie Stross, wondered if SYRIZA's election might lead to a global economic shift. Others have noted ways in which the new prime minister, Alexis Tsipras, is breaking from the past, rejecting a religious oath of office as befits his atheism. Common to almost everyone, however, has been concern as to how the election of SYRIZA might change Greece's relationship with the rest of the Eurozone and the European Union. Could Greece get a better deal? Might Greece end up breaking from the bloc altogether?

I'm not at all sure that SYRIZA will be capable of this change, if only for demographic reasons. Helena Smith's recent article in The Guardian, "Young, gifted and Greek: Generation G – the world’s biggest brain drain", provides an idea as to the scale of Greece's demographic issues.

Call them Generation G: young, talented, Greek – and part of the biggest brain drain in an advanced western economy in modern times. As the country lurches towards critical elections this weekend, more than 200,000 Greeks who have left since the crisis bit five years ago will watch from overseas.

Doctors in Germany, academics in the UK, shopkeepers in America – the decimation of Greece’s population has perhaps been the most pernicious byproduct of the economic collapse which has beggared the country since its brush with bankruptcy.

“Greece is where I should be,” says Maritina Roppa, 28, a trainee doctor who left Greece three years ago for Minden, north-west Germany. “It’s such a pity that people like me, in their 20s, have had to go.”

Of the 2% of the population who have left, more than half have gone to Germany and the UK. Migration outflows have risen 300% on pre-crisis levels, as youth unemployment soars to more than 50%. Around 55% of those affected by record rates of unemployment are under 35, according to Endeavour, the international nonprofit group that supports entrepreneurship.

“It is a huge loss of human capital whose affects will only begin to be felt in the next decade,” said Aliki Mouri a sociologist at the National Centre for Social Research. “People who have been educated at great cost, both to their families and the public purse, are now working in wealthier countries which have not invested in them at all,” she added, acknowledging that even in good times Greece had difficulty absorbing the surplus of professionals its universities produced.

[. . .]

Despite the first signs of economic recovery – in November figures showed that Greece returned to growth for the first time in six years, its worst recession in postwar history – the exodus is not abating. Increasing numbers want to join the already record 50,000 Greeks estimated by the OECD to be studying abroad. Schools are being inundated with requests by students to be enrolled on courses for international exams that could prepare them for foreign fields.

“Greece doesn’t allow you to progress,” said Carmella Kontou, an aesthetician considering moving to the US. “You can’t even begin to think of having a family or achieving things that elsewhere in Europe would be considered totally natural.”

One major trend that Greece shares with much of the rest of Europe is rapidly-aging population with fertility that has been well below replacement levels since the mid-1980s. Domestically-produced human capital was already quite scarce. Immigration to Greece, meanwhile, as noted in Charalambos Kasimis' March 2012 profile "Greece: Illegal Immigration in the Midst of Crisis" has become increasingly problematic. Many immigrants who came to Greece when the country was prosperous have returned to their homelands. The plight of illegal migrants, entering Greece from across the Aegean from the Middle East and elsewhere, has meanwhile become legendary. It's worth noting IRIN News' Preethi Nallu and Bloomberg's Jonathan Stearns have noted that, while these migrants welcome SYRIZA's victory, they do so largely because they think that a SYRIZA government will help them leave for other, more prosperous, European countries.

Rokan Mondal, who says he spent six months walking from his native Bangladesh to Greece in 2008, believes Alexis Tspiras will ensure that he doesn’t have to go back.

Mondal, 23, was among a crowd of hundreds who turned out to cheer Tsipras as he arrived at Syriza party headquarters in Athens late Sunday after his election victory. He said he hopes a Tsipras-led government will make it easier for him to acquire Greek citizenship. At the moment, he has a card that lets him reside in Greece only and not elsewhere in the European Union.

“I believe I’ll get the passport,” Mondal said as he mingled with a handful of other Bangladeshis who rushed forward as Tsipras appeared. “Then I can think about Italy, Germany, Spain.”

Mondal encapsulates some of the expectation both at home and abroad that falls on Tsipras. His party, also known as the Coalition of the Radical Left, ousted the government implementing austerity, while the anti-immigrant far right party Golden Dawn placed third.

If the Greek population is set to start shrinking, with many of its most talented young people leaving their country to find work and with few people moving to replace them, I'm hard-pressed to imagine how the Greek economy can recover to pre-2008 levels of output. Where will the workforce come from? The scale of investment required to finance economic growth in Greece given the shrinking workforce does not strike me as likely to be realized. Who will provide the funds? Even if SYRIZA manages to achieve the debt renegotiation its thinkers and leaders have hoped, can it be enough?

On multicultural Cyprus

The latest stage of the ongoing Cypriot financial crisis, a haircut imposed on depositors in Cypriot banks, has been covered very extensively throughout the blogosphere and the wider news media. We can only be thankful, I suppose, that there hasn't been a general run on banks across southern Europe. (Pessimists would remind me, correctly, that there is still time.)

One thing that has come up in the coverage is the extensive international involvement in the Cypriot crisis: Cypriot banks loaned to Greece and exposed themselves heavily, British expatriates and Russian investors have complained about their losses, and so forth. It's a minor irony that Cyprus, a small island with a total population of a million people, has become so globalized. Its strategic location can be thanked for that--in 1878, as the Ottoman Empire trembled in the aftermath of the catastrophic war over Bulgaria I blogged about earlier this month, Britain took Cyprus on as a protectorate, counting on using its strategic location to help protect the Suez Canal. Evolving after the start of the First World War into a fully-fledged crown colony, old Ottoman traditions of quiet co-existence between two ethnic groups began to evolve into the seeds of ethnonational conflict.

The Ottomans tended to administer their multicultural empire with the help of their subject millets, or religious communities. The tolerance of the millet system permitted the Greek Cypriot community to survive, administered for Constantinople by the Archbishop of the Church of Cyprus, who became the community's head, or ethnarch.

[. . .]

In the light of intercommunal conflict since the mid-1950s, it is surprising that Cypriot Muslims and Christians generally lived harmoniously. Some Christian villages converted to Islam. In many places, Turks settled next to Greeks. The island evolved into a demographic mosaic of Greek and Turkish villages, as well as many mixed communities. The extent of this symbiosis could be seen in the two groups' participation in commercial and religious fairs, pilgrimages to each other's shrines, and the occurrence, albeit rare, of intermarriage despite Islamic and Greek laws to the contrary. There was also the extreme case of the linobambakoi (linen-cottons), villagers who practiced the rites of both religions and had a Christian as well as a Muslim name. In the minds of some, such religious syncretism indicates that religion was not a source of conflict in traditional Cypriot society.

The rise of Greek nationalism in the 1820s and 1830s affected Greek Cypriots, but for the rest of the century these sentiments were limited to the educated. The concept of enosis--unification with the Greek motherland, by then an independent country after freeing itself from Ottoman rule--became important to literate Greek Cypriots. A movement for the realization of enosis gradually formed, in which the Church of Cyprus had a dominant role.

What's more, after the conclusion of the Greco-Turkish War of 1919-1922 led to a near-complete separation of Greeks and Turks into their respective nation-states, Cyprus was the only remaining substantial territory where Greeks and Turks lived mixed. It may have been inevitable that after independence, conflict between the Greeks and the Turks would eventually escalate into full-fledged war, resulting in a 1974 Turkish military intervention that led to the creation of a Turkish North Cyprus separate from the internationally-recognized--and overwhelmingly Greek--Republic of Cyprus.

As noted in the Library of Congress study on the country, published in 1991, Cyprus--like many other island societies--saw substantial emigration in the post-Second World War period, directed towards the colonial metropole of the United Kingdom.

The periods of greatest emigration were 1955-59, the 1960s, and 1974-79, times of political instability and socioeconomic insecurity when future prospects appeared bleak and unpromising. Between 1955 and 1959, the period of anticolonial struggle, 29,000 Cypriots, 5 percent of the population, left the island. In the 1960s, there were periods of economic recession and intercommunal strife, and net emigration has been estimated at about 50,000, or 8.5 percent of the island's 1970 population. Most of these emigrants were young males from rural areas and usually unemployed. Some five percent were factory workers and only 5 percent were university graduates. Britain headed the list of destinations, taking more than 75 percent of the emigrants in 1953-73; another 8 to 10 percent went to Australia, and about 5 percent to North America.

During the early 1970s, economic development, social progress, and relative political stability contributed to a slackening of emigration. At the same time, there was immigration, so that the net immigration was 3,200 in 1970-73. This trend ended with the 1974 invasion. During the 1974-79 period, 51,500 persons left as emigrants, and another 15,000 became temporary workers abroad. The new wave of emigrants had Australia as the most common destination (35 percent), followed by North America, Greece, and Britain. Many professionals and technical workers emigrated, and for the first time more women than men left. By the early 1980s, the government had rebuilt the economy, and the 30 percent unemployment rate of 1974 was replaced by a labor shortage. As a result, only about 2,000 Cypriots emigrated during the years 1980-86, while 2,850 returned to the island.

Although emigration slowed to a trickle during the 1980s, so many Cypriots had left the island in preceding decades that in the late 1980s an estimated 300,000 Cypriots (a number equivalent to 60 percent of the population of the Republic of Cyprus) resided in seven foreign countries.

Now, however, Cyprus has become a major destination for immigration. The politically most critical immigration has been in North Cyprus, where migration from Turkey--permanent and otherwise--has occurred on a politically controversial scale. Some estimates suggest that half of the population of North Cyprus, numbering something on the order of a quarter-million people, is of first- or second-generation Turkish immigrant background. This alleged high proportion was one reason why Greek Cypriots rejected the 2004 Annan plan for reunification of the island: a North that was substantially or maybe even mostly populated by immigrants wasn't a legitimate negotiating partner. Turning to the Norwegian International Peace Research Institute (PIRO), however, Mete Hatay's 2007 report "Is the Turkish Cypriot Population Shrinking?" makes a compelling case that this proportion is a large overestimate, product of authentic measurement errors and judgements of bad faith all around. I don't feel qualified to make any judgement on these figures apart from observing that a neutral third-party could be very useful.

Less politically controversial has been the substantial immigration into the Republic of Cyprus, amounting to a quarter of the total population of the European Union member-state. Attracted by the island-state's pleasant climate and (until recently) dynamic economy, tens of thousands of people have immigrated to Cyprus, from distant Britain (stereotypically retirees and other expatriates), from Balkan countries like Bulgaria, Romania and Greece, and from Russia. I've been following Russian interest in Cyprus for a bit at my blog. Suffice it to say that Cyprus' status as an offshore financial centre for Russians, its pleasant environment, and sentimental bonds of Orthodox Christianity shared with Russia helped make Cyprus a destination on par with Montenegro in the Balkans and Latvia. (Apparently the European Union is now in the process of making sure that the financial system of Latvia, slated to accede to the Euro next year, is free from Cypriot excesses.) Early in February, a Guardian report claimed that the Chinese were starting to come to Cyprus.

It will soon be carnival time in the city of Pafos on the south-west coast of Cyprus – and this year theme is China.

"Everything will be Chinese," says Pafos mayor, Savvas Vergas, in his office in the pretty, whitewashed city hall, fronted by classical Greek pillars. "Meals … folklore … Everything will be on Chinese culture."

The carnival will be a way of celebrating a most unusual boom in a country which, like others in southern Europe, has been stricken by the eurozone crisis. Property prices in Cyprus have fallen by around 15% since 2007. Yet an official survey published last month found that between last August and October more than 600 properties were sold to Chinese buyers, 90% of which were in Pafos.

"The real growth came after August because that was when the government made clear the terms and conditions for third country nationals to get permanent residence," says Giorgios Leptos, a director of the Leptos property group and president of the Pafos chamber of commerce and industry.

The opportunity to secure permanent residence in an EU member state is a huge attraction for Chinese because it offers them visa-free travel throughout the union. Almost 4,500 miles away, Lisha Tang, a young client at a Beijing property firm, is relishing the prospect.

"A house in Cyprus means travelling freely in Europe, which is great for young people," she says.

[. . .]

To obtain permanent residence in Cyprus, investors from outside the EU have to spend at least €300,000 (£260,000) on a property. They must also prove that they have no criminal record and are in good financial standing and agree to deposit €30,000 for a minimum of three years in a local bank account. Their permit normally arrives in about 45 days.

Cyprus is not the only EU state to be exploring this way of reinvigorating a stagnant property market. Last year, Ireland and Portugal also offered residency to foreigners who bought property worth more than a certain amount. In November Spain's trade minister, Jaime Garcia-Legaz, said his country was intending to follow suit in an attempt to clear his country's vast backlog of unsold homes.

Some of Cyprus' super-rich immigrants will fall prey to the bank levy.

A band of super-rich foreign tycoons who took Cypriot citizenship in recent decades – lured by a favourable tax regime – are expected to be among the hardest hit by the island's surprise deposit tax as several are believed to have been required to deposit at least €17m of their fortunes on the island to qualify for citizenship.

Billionaires attracted to the island by the controversial citizenship scheme, designed to court super-rich figures, include Norwegian-born oil tanker tycoon John Fredriksen, Israeli internet gambling entrepreneur Teddy Sagi, and Alexander Abramov, the Russian steel magnate who chairs FTSE 100 group Evraz.

Cyprus's then interior minister, Neoclis Sylikiotis, explained the rules to local newspaper Cyprus Weekly in 2010: "Cypriot nationality is given in special cases, following approval from the council of ministers … on the basis of specific criteria, including the applicant being over 30, having no criminal record, owning a permanent home in Cyprus and travelling to the island."

Further criteria include depositing at least €17m with a local bank over five years, direct investments of €30m, or registering a large business on the island.

Between 2007 and 2010 some 30 foreign nationals, mostly Russians, were reportedly granted Cypriot citizenship. Most prominent among them was Abramov. "Mr Abramov is considered to be offering high level services to the Republic of Cyprus, taking into account his business activities," explained Sylikiotis. "Therefore, reasons of public interest justify his naturalisation as a special case."

Whether or not any of this immigration will survive in the aftermath of the bank levy is open to question. In the case of Russia, initial outrage seems ready to lead to disengagement for stabler economic climes. A resurgence of Cypriot emigration, perhaps from both halves of the island, can't necessarily be excluded. I wonder what contingency plans the United Kingdom might have.

The Shortgage of Bulgarians Inside Bulgaria

Oh, there's a hole in my bucket, dear Liza, a hole......

Wenn der Beltz em Loch hat -
stop es zu meine liebe Liese
Womit soll ich es zustopfen -
mit Stroh, meine liebe Liese

According to Angela Merkel, speaking in the German city of Mainz in mid February,  European countries struggling with the fallout of the euro-area debt crisis have much to learn from East Germany’s experience with economic overhaul following the fall of the Berlin Wall. In the main she was speaking about the need for reform, something on which we can all agree. “At the beginning of the 21st century", she said, "Germany was the sick man of Europe and that we are where we are today also has to do with reforms we carried out in the past. That’s why we can say in Europe that change can lead to good.”

But there was one tiny little detail she forgot to mention. During the post unification period East Germany's population went into melt-down mode. New York Times Columnist Nicholas Kulish put it like this:

Unemployment in the former East Germany remains double what it is in the west, and in some regions the number of women between the ages of 20 and 30 has dropped by more than 30 percent. In all, roughly 1.7 million people have left the former East Germany since the fall of the Berlin Wall, around 12 percent of the population, a continuing process even in the few years before the economic crisis began to bite.

And the population decline is about to get much worse, as a result of a demographic time bomb known by the innocuous-sounding name “the kink,” which followed the end of Communism. The birth rate collapsed in the former East Germany in those early, uncertain years so completely that the drop is comparable only to times of war, according to Reiner Klingholz, director of the Berlin Institute for Population and Development. “For a number of years East Germans just stopped having children,” Dr. Klingholz said.

The newspaper Frankfurter Allgemeine Zeitung reported recently that although 14,000 young people would earn their high school diplomas this year in Saxony, only 7,500 would do so next year. Since 1989, about 2,000 schools have closed across the former East Germany because of a scarcity of children.

Now this situation is quite serious, and needs a long term solution, but it is not as serious as what is currently happening to Latvia, or Bulgaria, or a number of the other former communist states. Unless, of course, the lesson Angela would like to draw our attention to is that East Germany managed to salvage something from what would otherwise be population wreckage by sneaking in under the shelter of another state, with a centralized system of support for pensions and health care. Somehow I doubt it, but perhaps this is what we need to think more about. The EU needs a pan European health and pension system, to distribute the burden equitably. This is the conclusion I reached during my last visit to Riga. It isn't just a Euro related issue, it is to do with having a unified labour market, with people able to move to where the jobs exist, and the pay is better. For years people complained about the absence of labour mobility in the EU. Now we have it, the flaw in the institutional infrastructure is obvious.

Young people are moving from the weak economies on the periphery to the comparatively stronger ones in the core, or out of an ever older EU altogether. This has the simple consequence that the deficit issues in the core are reduced, while those on the periphery only get worse as health and pension systems become ever less affordable. Meanwhile, more and more young people follow the lead of Gerard Depardieu and look for somewhere where there isn't such a high fiscal burden, preferably where the elderly dependency ratio isn't shooting up so fast.

I am sufficiently concerned about this issue, which I think ultimately endangers possibilities of economic recovery all along the periphery, to have created a dedicated facebook page, campaigning for one single issue - that the EU Commission and the IMF give a greater priority to trying to measure these flows, and understand their consequences. I am simply asking that they pressure EU member states to improve their statistics gathering, treat the issue as a priority, and identify an indicator to incorporate in the Macroeconomic Imbalance Procedure (MIP) Scoreboard. Really it doesn't matter whether you are in favour of austerity, or against it, feel more Keynesian than Austrian, or vice verse, all I am asking for is that this problem be taken more seriously, measured and studied.

Bulgaria The Classic Case?

Really there has been a before and after to the financial crisis, at least insofar as awareness of the demographic dimension is concerned. Really, before the onset of the crisis very few people really attached much importance to the question. Since the arrival of the European sovereign debt crisis, and the fiscal cliff debate in the United States, awareness has grown that population ageing probably will slow economic growth, and that previous expectations about levels of pension and health care provision may have been way too optimistic. The latest example of this has been Nobel Laureate Paul's Krugman's comments on how Japan's demographics may be influencing its growth rate. In a tellingly graphic expression he explains that the root of Japan's ailment might be that the country is suffering from a growing "shortage of Japanese".

Once you realise that population shortage may be a problem in Japan, you start  wondering where else it might be one. And then, once you begin to look you start seeing the issue springing up like mushrooms all over the place. In Bulgaria for example.

According to the 2011 census, Bulgaria has lost no less than 582,000 people over the last ten years. In a country of 7.3 million inhabitants this is a big deal. Further, it has lost a total of 1.5 million of its population since 1985, a record in depopulation not just for the EU, but also by global standards. The country, which had a population of almost nine million in 1985, now has almost the same number of inhabitants as in 1945 after World war II. And, of course, the decline continues.

As well as shrinking the population is ageing. In 2001 16.8% of the population were over 65. Just 10 years later the equivalent figure had risen  to 18.9%. Naturally this means the median population age is rising steadily. It is precisely part of my argument that this surge in median age over 40 has important consequences for saving and borrowing patterns at the aggregate level, patterns which have not yet been adequately measured and identified. Thus the macroeconomic dynamics of a country change. The impact of these changes has not yet been incorporated into the traditional models most analysts use in forecasting.

 Naturally the workforce itself is in rapid decline.

The causes of Bulgaria's rapid ageing and shrinking population problem are twofold, low fertility and emigration. This is what makes the country look more like the old DDR and less like Japan. In fact Bulgaria's situation is an extreme case of what is happening in many East European countries, especially Romania and the Baltics. If you want another reference point, Ukraine would be in this group, but even worse, since it is even outside the EU. 

Details of migrant numbers are scarce, and at best hedgy. The data we have is surely a significant underestimate, as the OECD pointed out in its latest country migration report:

Figures on declared emigration show an increase from 19 000 in 2009 to 27 700 in 2010. However, actual outflows are considered to be much greater, based on immigration statistics of th e main destination countries. Spain, the most important destination country in recent years, recorded 10 400 Bulgarians entering in 2010, 7% more than in 2009. Outflows of Bulgarian citizens from Spain also increased in 2010, to 7 600 from almost 5 000 in the previous year (+52%). The number of Bulgarians in Spain increased by 14 500 in 2010, and a further 13 000 in 2011. There are no consistent data for Greece, the second main destination of Bulgarian immigrants in recent years, but it seems that the stock increased less in 2010 than in previous years. 

Remittances data gathered by the World Bank give the general picture. Basically there was a large surge following the severe crisis of the late 1990s, and since that time the level of payments has only weakened slightly, on the back of the severity of the crisis in the main destination countries.

Bulgaria is also pretty much what the old DDR would look like if it hadn't fused with Western Germany, namely it much more similar to Hungary than it is to Japan (in the sense I discussed in this post) as it has a significant negative balance on the net international investment position (though not as large as Hungary's), which means as well as being quite poor it is totally unprepared for rapid population ageing (since the text book way to sustain pension and health benefits in a context of increasingly weaker headling GDP growth is normally thought to be to draw down on overseas assets).

Bulgaria  also bears comparison with Hungary for the way it has carried out a rapid correction on its external position. This is due largely to remittances and services exports, since the goods balance is still in deficit. But still, the turnround is impressive.

As elsewhere exports have performed very strongly.

But again to no real avail, since domestic demand is deflating so strongly that the economy struggles to find air...... and growth. In this sense it is hard to agree with the IMF Executive Directors when they state in their latest Public Information Notice, following conclusion of the Fund's 2012 Article IV consultation,  they "broadly agreed that the currency board arrangement has served Bulgaria well". If allowing a country to drift towards long term melt-down is doing well, I would hate to see what something which they thought was an impediment would do! Some thing is rotten in the state of Denmark, and that something isn't being identified or dealt with.

Naturally part of the problem is that the flow of credit has dried up.

But the other part is surely the one Krugman identified in Japan, the growing shortage of Japanese (sorry, Bulgarians). It is hard to see how you can get serious retail sales growth in a population that is shrinking so rapidly. The end result is that the economy grew steadily into the global crisis, and subsequently has stagnated. This stagnation isn't simply conjunctural anymore, it has become structural, as the decline in domestic demand associated with ongoing deleveraging and population ageing and shrinkage precisely offsets the positive impact of all that export growth.

Not everyone is convinced, of course. The IMF expect the Bulgarian economy to return to a rate of growth of between 3% and 4% after 2014, but looking at the demographics and comparing it with what we are seeing elsewhere that seems pretty unrealistic. What is the expression Christine Lagarde would use? "Wishful thinking" perhaps?

In any event, in the short term the country looks set to significantly underperform any such rosy expectations. FocusEconomics Consensus Forecast panellists expect the economy to expand 1.4% this year. In 2014, the panel expects economic growth to reach the impressive rate of 2.4%.

Growing Political Discontent

 Since Bulgaria is a small country, and a poor one to boot, most of the above had been going on virtually unnoticed by the rest of the world. Then last week the Bulgarian government suddenly resigned en bloc. The immediate cause of the crisis which lead to the resignation was  the continuing rise in energy costs, a rise which was largely blamed on the Czech provider CEZ. To appease the street protestors the government has now initiated a procedure to revoke the company's licence, a move which has started to raise concerns about institutional protection in the country.

According to the report in Bloomberg:

Bulgaria’s State Financial Inspection Agency started a probe into CEZ’s Bulgarian units last year and submitted a report on Feb. 8, saying that CEZ ‘‘evaded requirements of the Law for Public Tenders,” the Energy and Economy Ministry in Sofia said on Feb. 18. The ministry asked the authority to conduct a similar investigation into the local units of Austria’s EVN AG and Prague-based Energo-Pro, it said. Bulgaria sold seven power distributors in 2005 to EON SE, CEZ and EVN before joining the European Union. EON sold its Bulgarian companies to Energo-Pro in 2011.

Czech Prime Minister Petr Necas was not slow to respond:

“I regard the statements by Bulgarian officials about CEZ and other foreign companies as very non-standard and see the whole issue as highly politicized because of the approaching parliamentary elections,” Necas said. “I expect Bulgaria, as a member of the European Union, to stick to its international obligations, European law and its own laws on protection of foreign investments.”

Naturally energy prices are not the only issue. The population is tiring of austerity, and living standards that don't rise even as unemployment does.

One symptom of this is that Bulgaria's government sacked Finance Minister Simeon Djankov at the start of last week. Djankov was closely identified with austerity policies, and it isn't hard to read his departure as an attempt to curry favour with voters in elections which are due this summer.

Having said that, the country's government debt at under 14% of GDP is incredibly low, so there is room for flexibility, if it wasn't populist flexibility. The real issue is that simply spending more this year, or next, won't fix the underlying problem, and that problem is unlikely to be addressed until it is recognized as a problem by the institutions responsible for economic policy formulation. As someone once said, de-nile is not only a river in Egypt.

This post first appeared on my Roubini Global Economonitor Blog "Don't Shoot The Messenger".

Postcript

 According to wikipedia: "There's a Hole in My Bucket" (or "...in the Bucket") is a children's song, along the same lines as "Found a Peanut". The song is based on a dialogue about a leaky bucket between two characters, called Henry and Liza. The song describes a deadlock situation: Henry has got a leaky bucket, and Liza tells him to repair it. But to fix the leaky bucket, he needs straw. To cut the straw, he needs a knife. To sharpen the knife, he needs to wet the sharpening stone. To wet the stone, he needs water. However, when Henry asks how to get the water, Liza's answer is "in a bucket". It is implied that only one bucket is available — the leaky one, which, if it could carry water, would not need repairing in the first place.


The origin of this song seems to go back, oddly enough, to the German collection of songs known as the Bergliederbüchlein. Ironically Henry's Q&A with Liza fits the quandry facing the countries on Europe's periphery and their lack of constructive dialogue with their core peers about the roots of their problems to a tee.