John Bruton

Opinions & Ideas

IMMIGRATION FROM AFRICA IS INEVITABLE….

EUROPE’S CHOICE IS WHETHER THIS IS TO BE PLANNED AND LEGAL, OR ILLEGAL AND DISORDERLY.

It is not immigration, but the political exploitation of immigration, that threatens border free movement within the EU.

Closing down legal migration routes has led to the opening up of illegal routes.

In 2010, 130,000 first time visas were issued to citizens of African countries by EU countries. By 2016, only a mere 30,000 visas were issued.

So denial of a legal immigration route is one contributor to illegal immigration.

African agriculture suffers disproportionately from climate change, but the human contribution to climate change comes disproportionately from the Northern Hemisphere, including from Europe.

Public opinion in some European countries is getting into a panic about immigration from outside Europe, yet these very countries are often the ones that have the least immigration.

A survey of public opinion, in 2016, found that the most negative opinions about immigration were to be found in Hungary, Slovakia, Latvia, Estonia and Romania (all countries with little enough non EU immigration).

The most welcoming attitude to immigration, at that time, was to be found in Sweden, Germany and the Netherlands (who all already have substantial numbers of non EU immigrants).

European countries have a legal obligation to provide a refuge for people who are fleeing in fear of their lives from wars. Europe has provided some shelter for refugees, but Turkey has 3 million refugees in its borders, Lebanon 1 million, and Uganda 1 million. No EU country is shouldering that sort of burden.

Europeans need to look at immigration in a different way.

Because we have decided, over the past  40 or more years, to have fewer children, Europeans will need immigration in future to maintain a proper balance between numbers at work, and numbers in retirement, unless those in retirement are to live a desolate old age thirty years from now.

In a few years time, people of working age will be in short supply.

Globally, the ratio of working age to retired, will fall from 8 to 1 today, to 4 to 1 by 2050. By 2050, the global population aged 65 or over will increase from 600 million to 2.1 billion.

This will create a huge funding crisis for governments, who will not be collecting enough tax from the diminished number of people of working and taxpaying age, to meet the promises it has made, of pensions and health care, to the increasing number who have already retired and no longer earners and taxpayers.

Opposition is principle to the arrival of young immigrants from Africa is short sighted.

This is because the working age population of most EU countries is set to decline, while its post retirement population is set to increase rapidly. Without immigration of people of working age, Europe’s diminished working age population, will imply relatively poorer health care and pensions for its ever growing retired population.

Africa has an abundant supply of what will soon be one of the world’s scarcest resources, young people.

Europe has a birth rate of 1.63 children per family. Iran and China have similarly low birth rates and the US rate is only slightly higher.

In contrast, the birth rate in Nigeria is 5.42, in Mali 5.92 and Niger 7.15.

Nigeria’s population has risen from 45 million, when it became independent in 1960, to 187 million today. By 2050 Nigeria’s population could reach 410 million. The present Nigerian economy is just not capable of finding employment for all these people.

The EU needs to work on a policy that encourages orderly and well prepared immigration from Africa, accompanied by well considered plans to integrate the immigrants into European society.

As much as possible of the preparation for European living should be done before would be emigrants leave their home countries. If Europe opens up legal routes for immigration, illegal routes will become less attractive.

Europe must develop an investment partnership with Africa.

As the European Council said last week;

“  We need to take the extent and the equality of our cooperation with Africa to a new level. This will not only require increased development funding but also steps towards creating a new framework enabling a substantial increase of private investment from both Africans and Europeans. Particular focus should be laid on education, health, infrastructure, innovation, good governance and women’s empowerment.”

 

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TRUMP’S TARIFFS

In the increasingly likely event that President Trump follows up on his steel tariffs by imposing similar tariffs on  European car imports, on so called “security grounds”, we can expect a full scale trade war to erupt, with no end in sight.

This will have disproportionate consequences for Ireland. A recent paper by the Brussels based think tank, Bruegel, estimated that 7.8% of the aggregate value added of the Irish economy comes from final products sold into the US market. This is far more than for any other EU country, and is twice the comparable figure for dependence on US sales for Germany, Netherlands and Spain, and three times that for France and Italy.

A disruption of trade links with the US, combined with the effects of a hard Brexit, could do deep damage to this country, socially and politically, as well as economically. Indeed Trumps actions change the entire context of Brexit.

The language used by President Trump about Prime Minister Trudeau after the G7 meeting was shocking. He treated the Canadian Prime Minister as if he was a domestic political opponent, not the Prime Minister of a friendly country, whose citizens have given their lives in common cause with the United States in two world wars. It contrasted starkly with the emollient language he used about the North Korean leader.

Berating allies, and flattering enemies is a low risk approach, in the short term. It is dramatic, and gets attention in ways that diplomacy never can.

The drama seems to be working well in the US Primaries, where President Trump’s allies are doing well. But trust in the United States is being undermined, and the prosperity of the developed world is being put at risk. The damage may long outlast the Trump Presidency.

The US has had trade disputes with allies before, but they have never before been supplemented by personalised attacks on foreign leaders.

The imposition by President Trump of steel tariffs, on security grounds, on the EU, Canada, and Mexico, suggests that the President believes he could not rely on these countries to continue supplying steel to the US in war time.  There is no basis in reality for such a contention, especially as regards Mexico and Canada which are beside the US.

The EU will retaliate by imposing selective tariffs on US goods, though only on half the scale of the US steel tariffs. It will also take a case against the US before a WTO (World Trade Organisation) panel. Canada and Mexico will do likewise. Given the way President Trump reacted to a difference of opinion about a mere communiqué from a G7 meeting, one can expect his language to escalate when the EU, Canadian, and Mexican tariffs begin to bite.

It could be argued that the EU, Canada and Mexico should not bother retaliating, because the US steel tariffs will do the most damage to US manufacturing industry and make it less competitive, but that is a difficult concept to communicate. So also is the argument that the US trade deficit is not due to unfair trade by others, but to the fact that Americans borrow and spend too much abroad, and are encouraged to do so by the lax fiscal and debt accumulation policies of successive US Administrations.

President Trump is now contemplating imposing tariffs on cars coming from the EU, Canada and Mexico on the same “security grounds”. He has initiated a legal process leading to that. On the narrow issue of cars, there is a difference between the rate of EU and US tariffs. The US tariff is 2%, whereas the EU tariff is 10%. That, of course, means that US consumers have cheaper cars and wider choice.

The EU could reduce its tariff on US manufactured cars to 2%, but, under the Most Favoured Nation (MFN) principle by which the World Trade Organisation  (WTO) works, that would mean that the EU would also then have to reduce its tariff on cars to 2% for all WTO members, including Japan and China.

The tragedy is that President Trump’s initiative is driven by electoral politics, not by economic reality.

He is breaking up the rules based international trading system, which the US itself established in the aftermath of the Second World War, which is operated by the WTO.

The US has a poor record in implementing WTO decisions on disputes, partly because this requires action by Congress, and the Administration can claim not to control Congress. In contrast, China has a good record so far in implementing WTO decisions.

Even under President Obama, the US was failing to appoint US judges to sit on the WTO disputes resolution panels, thereby undermining the WTO disputes resolution system. This is despite the fact that the US has won 87% of the cases it has taken to WTO panels. The disputes settlement mechanism was one of the great achievement of the late Peter Sutherland as head of the WTO.

The US sometimes feels it can get along fine without the rest of the world. Given its vast area and resources, it is understandable how it might come to think like that. For much of the nineteenth century, it acted on that basis. That illusion finally ended at Pearl Harbour in 1941.

Isolationism is no longer an option for the US. China is rising in global importance. Its economy is already as big as that of the US. It is attempting to build a global infrastructural and technological system centred on China, not the US. That is the rationale of the “one Belt One Road” initiative and of China’s plan to be the industry leader in the technologies of the future like solar power, electric cars and gene editing.

A wise US leader would be seeking to compete with China, by building closer economic ties with its allies, rather than using them as punch bags, in a political show designed to win votes in the Mid Term Congressional Elections.

The G7 spectacle should prompt deep reflection on this side of the Atlantic. A looming trade war makes Brexit less attractive for both the UK, AND the EU. Both need to take time out to think. It is a pity that the time limits in the Brexit process do not allow both sides to take the time to develop a wider strategic view of their mutual interests before Brexit takes place. This needs to be  reconsidered in light of the prospect of a bitter trade war with the US and the rest of the developed world.

Such a strategic review cannot be completed by next October. An extension of the Article 50 time limit for the Brexit negotiation makes far more sense this week, even than it did a month ago. Time limits create tension, whereas it is reflection we need now.

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ITALY

 

Despite the 11th hour agreement to form a new government in Rome, Italy still has the potential to send Europe into depression, if the costly promises made in the election campaign are kept, and long overdue and difficult reforms further postponed.

The Italian government debt is 130% of GDP. If the financial markets lost confidence in an Italian government’s ability or willingness to service and roll over this debt, there could be a rapid series of events leading to Italy’s exit from the euro, and widespread loss of confidence in the bonds of indebted countries.

What could trigger this?

The parties in the new Italian coalition government, 5 Star and the Lega, promised during the election

  • to reverse a recent VAT increase ( cost €12.5billion),
  • to introduce a flat tax (€50 billion),
  • to introduce a basic income(€17 billion) and
  • to scrap a recent pension reform( €8 billion).

These measures could bring the budget deficit from its present 1.9% of GDP to a staggering 7% of GDP. That would certainly create a financial crisis. It would break EU rules too.

It would also impoverish Italian voters, especially older Italians with savings . Despite years of low growth, the average Italian household still has more net wealth than the average German household. But a lot of that wealth is tied up with the Italian banks and their bonds.

Overall, two thirds of Italian government bonds are owned by Italian residents, including Italian banks, so many Italian households would be suddenly impoverished if these bonds were devalued. A sudden rise in interest rates in Italy would devalue bonds that had been issued at a lower rate of interest. Of course leaving the euro would devalue them even more.

48% of the bonds of the Italian government are held by Italian banks themselves. A loss of confidence in Italian bonds could destroy the capital base of some Italian banks. That could lead to a run on the banks, like the Northern Rock situation.

The European Central Bank (ECB) could step in to stop such a crisis. It has power to buy Italian government bonds, under its OMT programme. But the OMT programme can only be brought into operation if the Italian government has first applied for help, and has signed up to a tight austerity programme. The present Italian government would have difficulty agreeing as this would go against its election promises.

But the ECB would have to insist on the austerity measures. Otherwise, it would be simply sending good money after bad, something that would not appeal to European taxpayers who are the ultimate owners of the ECB.

For the last 10 years, Italian politicians, including the parties who lost the recent Italian General Election as well as those who won, have been blaming the constraints of euro membership, and the disciplines supposedly imposed by Brussels and Germany, for the sluggish performance of the Italian economy, and for the fact that Italian wages are still far below what they were in 2007.

But, as a recent IMF study of the Italian economy shows, the reasons for stagnant incomes in Italy are to be found in Italy itself, not in Brussels.

Since 2000, the total factor productivity of the Italian economy has fallen by 6 %, whereas productivity in Spain has risen by 2% and in France by 4%.

Since 2000, investment has risen by 10% in Spain and by 20% in France, while it has fallen by 15% in Italy.

France and Spain are in the euro too, so euro membership does not explain Italy’s under performance.

Italy’s problems derive from a number of factors.

One is the big increase in its spending and debt levels that took place in the 1980’s.

Another is the fact that its administrative and legal systems have inhibited the reallocation of Italian talent, money, and effort from less productive to more productive activities.

The arteries of the Italian economy are blocked by a sluggish parliamentary and courts system, by out of date insolvency laws, and by an over large public sector. Wages are set centrally with little regard to the profitability of individual firms. A lot of capital is tied up in zombie businesses, many state owned.

Reforms have been made by previous governments to liberalize the labour market and the professions, but these will take time to yield results, and are insufficient on their own.

Italy is a rapidly ageing society, so the proposed reversal of the recent pension reforms by the new government would worsen the situation.

On the other hand, the new government’s flat tax and basic income proposals could, if combined with radical measures to combat tax evasion, remove tax shelters and  improve work incentives, improve the overall efficiency of Italy.

Euro membership has prevented Italy from using the devaluation to restore competitiveness at the price of higher inflation. Older Italians have benefitted from this. Italian savers (mainly older people) have been protected from the devaluation of their savings, through inflation. that took place before the euro.

But the failure to free up the arteries of the Italian economy through structural reform has meant that job seekers (mainly younger people) have suffered. Many talented young Italians have emigrated, some to Ireland.

The new Italian government could tilt the balance in favour of young Italy, and attract those young people home, if it combined its popular tax and welfare plans with, much less popular but equally urgent, reforms to administration, the courts, wage setting,  insolvency and pensions.

The first big test will come in October when a budget has to be presented. That is when the new government’s real  priorities will be revealed.

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Brexit and the island of Ireland: the all-Ireland economy and the border question

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James Patrick Farrell


JP Farrell was an MP for West Cavan and later for North Longford from 1895 to 1918.

In this the centenary of the end of his parliamentary career it is right that his parliamentary service be remembered.  We should remember those who, like JP Farrell, lived for Ireland and not just those who killed or died for Ireland. Why is this?

WHAT SHOULD WE COMMEMORATE?

Commemorations are about shaping the future by selecting events from our past that provide useful guidance for the future.

We should reflect on something President John Kennedy once said.

He said a

“nation reveals itself  by the events it chooses to commemorate.”

Ireland today is a rule of law based, parliamentary, democracy. It has integrated itself with its European neighbours, by peaceful negotiation and compromise, without the use of force. It is militarily neutral, and the military power is subordinate to the civil power.

This is what we are.

Yet, if , year after year, we commemorate events in which people were killed, or where people took the law into their own hands,  and neglect what was achieved by non violent methods, we are ignoring President Kennedy’s advice. We are not reflecting what we are, or what we hope to be.

We are not only distorting our history, we are also providing poor guidance to future generations about how they should go about making Ireland a better and more harmonious place to live in the future.

That is why this event, commemorating a life of constitutional agitation and parliamentary service, is so important and timely.

SHOULD WE NOT PRIORITIZE PARLIAMENTARY AND PEACEFUL ACHIEVEMENTS?

We should instead seek inspiration from the, non violent, parliamentary  achievements of a century ago, of people like JP Farrell MP.

They include

  • the enactment of Home Rule,
  • the ending of landlordism ( a cause with which JP Farrell was particularly associated),
  • the establishment of the National University  
  • the introduction of old age pensions
  • the provision of public housing through the Labourers Acts and
  • National Insurance…

all parliamentary, and non violent achievements, in which the Irish Parliamentary Party of John Redmond, John Dillon,  Joe Devlin, and the man we remember today, JP Farrell played a big part.

If one scrutinises the record of debates in the House of Commons, now available on line, one gets a sense of the practical patriotism of the (unpaid) Irish MPs who travelled to London to represent their constituents and their country.

As we will hear from his great grandson and biographer, Dr Joseph Quinn, JP Farrell was a particularly assiduous MP.

He raised such issues in Parliament  as telephone connection to Longford, the division of estates by the Land Commission and the export of hay. He served this area very well.

He also had to overcome great hardships, being effectively orphaned at a very early age. As well as his service as an MP, he founded the “Longford Leader” newspapers and other business enterprises.

John Bruton, former Taoiseach, speaking  in St Mel’s College Longford after the unveiling of a plaque commemorating the  work of JP Farrell MP at 8pm on 31 May 2018

 

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THE DAWNING REALITY OF BREXIT

At a conference last week, I heard Owen Patterson, Conservative MP and former Secretary of State for Northern Ireland, say that the UK should renege on the “backstop” agreement on the Irish border, given by Teresa May to EU negotiators.

He admitted that Irish public opinion ”hates Brexit”, yet seemed to expect the Irish government to make Brexit easy for the UK! That is naive.

At the same event, Lord Alderdice, former Leader of the Alliance Party of Northern Ireland, said the Good Friday Agreement came about because the protagonists put the emphasis on developing new relationships between the communities in Northern Ireland, rather than on detailed rules and economic questions.

It seems to me that the absence of this sort of broad thinking, in the UK about the EU,  led to Brexit. UK public opinion saw joining the EU as a business transaction, rather than as a long term relationship building exercise.

When David Cameron decided to have a referendum on leaving the EU, it did not occur to him to call a meeting of the British / Irish Intergovernmental Conference, set up under the Good Friday agreement, to explore how this might affect relations between the UK and Ireland, between North and South and, consequently, within Northern Ireland.

This was myopic. It demonstrated a lack of seriousness, which persists.

 A similar myopia affected the UK relationship with the EU as a whole. UK decision makers saw the EU in purely functional terms, rather than as a means of developing new relationships.

The UK still hopes to negotiate access for itself to the UK Customs Union and Single Market, without joining either of them, and without allowing the freedom of movement of people that all EU members grant to each other, or accepting that the rules will be interpreted by the European Court of Justice(ECJ).

This is unrealistic. Any dilution of freedom of movement would require an amendment of the EU Treaties which would require the unanimous agreement of all 27 EU states. This will not be forthcoming. The ECJ is essential to ensure uniform interpretation of market rules, especially in services.

UK politicians and opinion formers forget that the EU is a rules based organisation, with a common system for making, interpreting and enforcing the agreed rules. In this, the EU is different from other international organisations.

The Treaties founding the EU are the equivalent of a written constitution, which is hard to amend. As the UK has no written constitution of its own, it finds this difficult to accept. These differences in perspective between the EU and UK will continue to cause trouble, unless UK politicians educate their electorate about the nature of the EU.

At this stage in the negotiations, the UK is seeking to interpret Article 49 of the Joint Report, the so called “backstop”, to cover the whole UK, and not just Ireland.

The wording of the Article is as follows;

  1. The United Kingdom remains committed “to protecting North-South cooperation and to its guarantee of avoiding a hard border. Any future arrangements must be compatible with these overarching requirements. The United Kingdom’s intention is to achieve these objectives through the overall EU-UK relationship. Should this not be possible, the United Kingdom will propose specific solutions to address the unique circumstances of the island of Ireland. In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all island economy and the protection of the 1998 Agreement.”

Reading the paragraph as a whole, it is clear that it is about Ireland, not about the two islands.

In any event, there is no possibility of the other EU countries allowing the whole UK to enjoy the benefits of full access to EU markets simply by aligning its rules, but without allowing free movement of people and accepting the jurisdiction of the European Court.

The UK government is committed to having a frictionless border in Ireland and is considering two possible customs arrangements with the EU to achieve this.

One is called a “Customs Partnership”, which would see the UK collecting the EU tariffs on goods entering the UK, but destined for the EU, and then passing the money on to Brussels. It is hard to see the EU sub contracting its revenue collection to an external power over which it had no control. The Palestinian experience of subcontracting its revenue collection to Israel has not been a happy one.

The other customs option, called “Maximum Facilitation”, entails doing the customs controls, currently done at the border, remotely using technology. This technology is untried and there would be data protection and privacy concerns. It would still entail the preparation of customs declarations for all consignments of goods. This bureaucracy will add between £17 billion and £ 20 billion the business costs, or £32 per declaration, according to the UK Revenue authorities. This will make trade unprofitable in many cases.

The fact that, even at this stage, the UK has not made up its mind between these options, and has not yet made a detailed proposal is disquieting.

The EU will not be bounced into agreeing a half baked proposal, presented just before the Summit,  which attempts to evade the consequences of the UK’s own decision to quit the Single Market and Customs Union.

Those decisions were taken by the Prime Minister, not by Parliament, and should be reversed.

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WHAT IS THE IRISH DEFINITION OF HUMAN RIGHTS?

ARBITRARY LIMITS BEING SET IN ABORTION  REFERENDUM DEBATE

What human rights should be protected in our constitution?

Is a right to life not the primary human right, in the sense that without it other human rights could not be exercised?

Who is human? If a baby before it is born is human, ought it have human rights?

These are the issues at the heart of the Referendum on the 8th Amendment.

In 1982, Garret FitzGerald, Leader of Fine Gael, told the party’s Ard Fheis;

“All life, whether of citizens or of people of other nationalities, whether born or unborn, should be protected by our constitution”.

This carefully worded statement was one of fundamental values, going to the heart of Garret FitzGerald’s, and Fine Gael’s, political tradition.

As one of his successors, I was often asked what Fine Gael stood for, and my answer was that the party stood for three things, for a society in which “every person counts”, for exclusively constitutional politics, and for European unity. I added that “every person” included babies before birth.

These three principles were consistent with, and flowed from one another. Protection of human life necessitated the avoidance of violent conflict in Europe, and also lay behind the party’s commitment to constitutionalism in Irish politics. Respect for human life, born and unborn, foreign or native, was at the heart of our entire approach to politics.

The idea that a constitution should protect human rights is, in fact, fundamental to our western civilization. Without a right to life, one cannot exercise any other constitutional rights. The right to life is thus the primary human right.

For example, the Irish constitution also explicitly recognises a right to freedom of expression, to one’s good name, to property and to elementary education.  But none of those constitutional rights can be exercised, if one had not first had the right to be born.

The Irish courts have gone further and have decided that the constitution creates other rights, not explicitly mentioned in the constitution, so called “unenumerated rights”.  These unenumerated constitutional rights include a right to marry, a right to procreate and a right to bodily integrity. Again, it would be impossible to exercise any of those rights, if one had not first had a right to be born.

It was also in that pro life spirit, that the Irish people also decided that the Irish constitution should ban the death penalty, even for heinous crimes. Our strong public, and private, support for life saving aid to Third World countries is also derived from the same pro life convictions among the Irish people. An avoidable death of a baby in Africa is a pro life challenge too.

Indeed, at the time the 8th Amendment was introduced, there were many who argued that it was not needed, because a child before birth would be deemed by the Irish courts to enjoy a right to life anyway, an unenumerated right so to speak, because without it, it would not be able to have to exercise the other rights to which it would be constitutionally entitled.

Unfortunately, that is not the way things have turned out. The Supreme Court has decided recently that a child in the womb has no rights at all, except the basic right to life contained explicitly in the 8th Amendment. Now even that may be taken away if a majority vote Yes on 25 May.

Abortion ends a life. Once it has happened there is no going back, no recovery. It is final.

Yes, there are tragic pregnancies, and difficult consequences flow from them. But at least there is some possibility to remedy, or alleviate, some of those consequences. But no remedy is open to the unborn child whose life is ended. It is over before it has properly begun.

The taking of the life of another, without its consent, can never be a private matter, for a woman or for a man. It is inherently a matter of public policy. Indeed, if human rights are to mean anything, any denial of the human rights of another person is necessarily and always a matter of public policy.

I have to say I have a real difficulty understanding the concept of human rights espoused by the proponents of abortion legislation.

It seems that some of them believe a baby, before birth, is not really human at all. Thus it would not have human rights, including a right to life. The idea here seems to be that, because an unborn baby is totally dependent on its mother, it is therefore not yet human, and has no human rights.

But dependency is part of life, and not a sound ground for denying the humanity of anyone. Babies after birth, and older people at the end of their lives, are deeply dependent too. They could not survive on their own.

But, to date, no one is suggesting they should not have human rights. If a two day old baby is human, and has a right to life, why not little girls and boys three months before they are born? What is the ethical and scientific basis for saying one has human rights, and the other does not?

I was very disappointed that the Oireachtas Committee was not asked to explore these fundamental questions of what it is to be human, who is human, and who should have human rights, before making its radical recommendations.

Without such a discussion, the referendum is premature. As a society, we must agree amongst ourselves on the basis and scope of human rights in Ireland, before making a decision to withdraw the most fundamental of all human rights from a section of our people.  We have not done that. That is why I urge people to vote “No” on 25 May.

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GREECE……..OPTIMISM BUT MUCH WORK STILL TO DO

I attended a conference organised by the “Economist” in Loutraki in Greece in the past week. I had attended a similar event in Greece in the past five years and the contrast was remarkable.

There was a palpable sense of optimism at last week’s event.

Soon Greece will no longer be subject to detailed EU supervision of its policies. Its tourism industry is thriving.

Whereas the GDP fell in every year since 2009, it rose, at last, by 2% in 2017

Some problems remain.

Government debt is still 177% of GDP, and some of that debt should be written off.

Greek banks are not lending to productive business because of a legacy of bad debts.

Insolvency procedures have been very slow and a lot of capital is trapped in “zombie” firms.

The Land Registry system in Greece is underdeveloped so a lot of Greek property cannot be sold, or used as collateral to raise a loan for investment.

There is no venture capital industry. Foreign Direct Investment is only 15% of GDP in Greece, whereas it is 305% of GDP in Ireland. Exports are only 34% of Greek GDP, whereas they are over 100% in Ireland.

Greek businessmen feel they are over taxed on their personal income. Taxation has increased from 32% of GDP in 2009, to 41% in 2017.

Although big strides have been made, tax evasion is still substantial and a lot of business is done on a cash basis. Complying with tax obligations is unnecessarily time consuming.

Public spending has been curbed. State pensions absorb 17% of Greek GDP, as against only 5% in Ireland. Meanwhile, only 12% of the unemployed get state unemployment benefits.

There is still a lot of work to be done by Greek governments. The EU can do more to help, especially by writing off debt. But Greece is not the only EU country with debt problems. So precedent setting is an issue. The new government in Italy will test the coherence of EU economic policies. Greece may have to wait.

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NINE FACTORS THAT WILL DETERMINE EUROPE’S RATE OF ECONOMIC GROWTH IN FUTURE

The growth rate in Europe, in comparison that in the rest of the world, will be determined by the following nine factors

  1. the age structure of Europe’s working population. Most EU countries have more elderly populations than the global average and this, inevitably, reduces Europe’s relative growth potential. Older populations tend to resist the use of innovative technologies. The burden of large retired populations will lead to higher taxes on the working age population, which could lead to tax evasion or investment flight. An older population will tend to use Europe’s housing stock less fully, creating housing pressures for younger people.
  2. the educational level of its population. Generally speaking, the educational level of Europe’s population is above average and this increases Europe’s growth potential. Questions do arise as to the appropriateness, from an economic growth potential point of view, of some of the education provided. Digital skills will be very important in future, as will financial literacy. The educational efficiency of Europe’s universities will come in for scrutiny, as will the astronomical cost of university education in some elite universities in the US.
  3. whether the structure of the economy and of the labour and capital markets allows human, technological and financial resources to be reallocated relatively easily from low to high growth sectors. This is a problem that has been tackled in Greece. But some wealthier economies, like France and Germany, have a distance to go is clearing the arteries of their economies. Structural rigidities contribute to Germany’s historically low propensity to import, which has contributed to the imbalances in the euro zone
  4. whether there is a possibility of relatively easy technological “catch up” in a  particular European economy. A country, like Greece, which has been held back by financial problems, should have significant catch up possibilities. Central European countries are already experiencing catch up, but this will be limited by their demographic and emigration problems. Countries using mature technologies may face difficulties competing with new market entrants.
  5. a successful strengthening of the governance system of the euro zone could give a boost to confidence. Countries, like Germany and Netherlands, will only agree to this, if countries with weaker banking systems have either cleaned up their banking systems, or if the risk sharing is limited in a way that requires financial markets to recognise that some sovereign bonds are riskier than others.
  6. regional policy can help growth, but it can also inhibit it.  Tilting infrastructural spending in favour of more remote regions may lead to sub optimal use of limited resources. Younger people all over the world are tending to gravitate towards big cities for social reasons, and it may be that this trend cannot be arrested. This is reflected in expensive housing in some areas and empty houses elsewhere. Regional policy priorities will tend to be set on the basis of political priorities, which may not yield the best economic rate of return. On the other hand, more spending in more remote regions may have environmental and tourism benefits, which are harder to measure.
  7. transformative combinations of technologies ( eg. artificial intelligence, machine learning, enhanced connectivity, new forms of human machine interaction) may lead to a rapid spurt in growth in areas which can adopt them. But some existing jobs may be displaced and income inequalities increased. Simultaneously encouraging new technologies, while mitigating the inequalities they bring, will be a major challenge for states, given the ease with which capital can move from country to country. If one country increases its taxes to mitigate inequality, better off people will move to other countries with lower tax rates.
  8. future trade policy. Brexit has the potential to introduce major uncertainties and barriers within Europe. President Trump’s “America First“ policy could lead to a trans oceanic trade war, which is a symptom of the growing military competition between the US and China. Rejection of rule based international trade could stop economic growth in its tracks.
  9. migration pressures. Immigration can increase economic growth, but it can also lead to severe social friction and political upheavals. African agriculture needs new export opportunities in Europe, if Africans are not to seek to emigrate to Europe in increasing numbers. There is a trade off between trade policy and migration policy. Anti immigrant identity politics is a high emotional appeal, but could prove to be economically destructive for Europe

This list of factors that influence relative rates of growth shows that economic growth comes at a cost. Some societies may decide that they do not want to pay those costs, and opt for a lower rate of growth.

 

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SICILY, ANOTHER OFFSHORE ISLAND

I have just finished reading “Sicily, a Short history from the Ancient Greeks to Cosa Nostra” by John Julius Norwich.

A former British diplomat, Lord Norwich has also written a comprehensive history of the Byzantine Empire, and other historical and travel works, concerning the peoples of the Mediterranean.

Sicily, like Ireland, is an offshore island of Europe, but its history has been more varied.

A thousand years ago, Sicily was much more prosperous than Ireland.

For over the two thousand years it was at the crossroads of the known world. It was a key to the control of the Mediterranean.

Not surprisingly it was fought over many times, by the Greeks, the Carthaginians, the Romans, the Arabs and the Normans. All left their mark on the architecture of the island.

The Greek influence is still predominant on the eastern side of Sicily, and the Arab in the west of the island. Greek was the predominant language in Sicily until the sixth century.

In more recent times, the Habsburg and Bourbon dynasties fought the control Sicily.

At times Sicily was part of one political unit with Naples, at others it was independent.

Garibaldi started his military campaign to unify Italy in Sicily, and the Americans started their invasion of Europe in Sicily in 1943, an event which led to the fall of Mussolini.

Al these stories are told in a colourful way by Lord Norwich, who brings the characters of the protagonists vividly to life.

In ways, the history of Sicily is the history of Europe seen from a southern angle.

Sicilians have suffered from their strategic location. Outsiders interfered so much, that Sicilians never developed a sound, predictable and efficient political and civic system of their own. This weakness left a space for the growth of organisations like the Mafia.

In some respects, Italy, as a whole, faces a similar challenge today of building a lean state, that can govern economically, without avoidable delays or fuss.

 

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