Kevin O’Rourke links to an interesting paper by Jeff Frankel which discusses different ways recessions are measured. The standard European measurement says that when an economy falls two quarters in a row it is officially in recession (we know all about that given our official double-dip). This measurement has the advantage of being statistically clear and simple. This, though, can lead to false readings. For instance, over two years the economy declines in half of the eight quarters – leaving it much lower. If, though, none of those quarters were consecutive, then according to the European measurement, there was no recession even though output has fallen. This may be an extreme case but it shows how quirky this measurement can be.
The US has a different way of measuring recessions. According to Frankel:
‘In the United States, the arbiter of when recessions begin and end is the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER). The NBER Committee does not use that rule of thumb (Europe’s two consecutive quarters of decline), nor any other quantifiable rule . . . When it makes its judgments it looks beyond the most recently reported GDP numbers to include also employment and a variety other indicators, in part because output measures are subject to errors and revisions. The Committee sees nothing special in the criterion of two consecutive quarters.’
The problem with this approach is that there is no single definitive measurement so disputes easily arise.
I’d like to introduce another way to measure a recession. It is based on the sinking-ship metaphor. A ship starts sinking. It eventually stops and starts to rise again. While it’s rising back to the surface we can say that it is in recovery mode. However, it will remain below water until it gets back to the surface.
Similarly with an economy: an economy goes into decline, eventually stops falling and starts rising. However, it remains metaphorically below water until it returns to the point at which it had started sinking. If an economy is below its pre-recession levels it remains ‘recessed’.
Take, for instance, the US Great Depression in the 1930s. The economy tanked big time in 1929. However, by 1935 the economy had experienced nearly three years of rising GDP, employment, consumer spending and investment. However, no one then (or now) would have said that the Great Depression was over by 1935 – it was still well below its 1929 level.
In 2007, the economy was generating a little over €43,000 for every woman, man and child. As seen, according to the IMF projections, even by 2018 the economy will not have returned to the 2007 level. It won’t happen until 2019. In other words, the economy will remain under-water for 11 years – in other words, ‘recessed’.
Of course, this is GDP – which is flattered by multi-national accounting practices (profit-tourism, etc.). What does it look like when we measure GNP per capita? Here we use the Government’s own assumptions in their end-of-the-decade scenario.
When looking at this domestic measurement (with all its faults) we find that the economy will be underwater for 14 years. 14 years. We won’t find ourselves above pre-recession levels until 2022. And if that’s not depressing enough, the ESRI’s John Fitzgerald estimates that even our GNP figures are over-stated given the presence of re-domiciled multi-nationals. The real GNP figures are substantially lower which suggests that a return to the surface could take even longer based on projected trends.
Staying with the metaphor, when the ship returns to the surface what kind of shape will it be in? Even though the economy has returned to the surface, many people will still be underwater. The Government’s end-of-the-decade scenario projects double-digit unemployment by 2019. Average real wages may not return to pre-recession levels until 2020 and even later. How many will still be living in deprivation, how many in poverty, how many will have emigrated? The ship may be back on the surface, hundreds of thousands won’t be.
To give another idea of what we’re facing into, let’s use the Government’s assumptions to track the ‘jobs recession’.
We won’t return to pre-crisis levels of employment until 2024. That’s 16 years under-water.
So when we start growing again – GDP, domestic demand, employment – just remember: we will have to grow for a long-time just to get back to where everything started collapsing. In other words, the ship may start rising soon but we will be underwater for a very long time.
Hopefully, you can hold your breath.
By Michael Taft,
Like plague in the 14th century, the scourge of debt has gradually migrated from South to North. Our 21st-century Yersinia pestis isn’t spread by flea-infested rats but by deadly, ideology-infested neoliberal fundamentalists. Once they had names like Thatcher or Reagan; now they sound more like Merkel or Barroso; but the message, the mentality and the medicine are basically the same. The devastation caused by the two plagues is also similar – no doubt fewer debt-related deaths in Europe today than in Africa three decades ago, but probably more permanent harm done to once-thriving European economies.
Faithful – and older – New Internationalist readers will recall the dread phrase ‘structural adjustment’. ‘Adjustment’ was the innocent-sounding term for the package of economic nostrums imposed by wealthy Northern creditor countries on the less-developed ones in what we then called the ‘Third World’. A great many of these countries had borrowed too much for too many unproductive purposes. Sometimes the leadership simply placed the loans in their private accounts (think Mobutu or Marcos) and put their countries in hock. Paying back in pesos, reals, cedis or other funny money was unacceptable: the creditors wanted dollars, pounds, deutschmarks…
Anti-austerity protests in Spain
Furthermore, the Southerners had contracted their loans at variable interest rates, initially low but astronomical from 1981 when the Federal Reserve declared an end to the era of cheap money. When countries such as Mexico threatened default, panicked creditor-country treasury ministers, top bankers and international bureaucrats spent some sleepless weekends eating take-out and cobbling together emergency plans.
Plus ça change, plus c’est la même chose.* Decades later, serial crisis meetings still take place, this time in Brussels and, with minor variations, the response is identical: you only get a bailout in exchange for committing to a set of stringent requirements. These once echoed the neoliberal ‘Washington Consensus’; now they are more truthfully labelled ‘austerity packages’ but demand the same measures. Sign here, please, in blood.
For the South, the contracts said: ‘Cut back food production and grow cash-earning crops. Privatize your State enterprises and open up profit-making activities to foreign transnational corporations, especially in raw materials and extractive industries, forestry and fisheries. Drastically limit credit, cancel subsidies and social benefits. Make health and education paying propositions. Economize and earn hard currency through trade. Your prime responsibility is to your creditors, not your people.’
Now it’s Europe’s turn. The countries of southern Europe, plus Ireland, are relentlessly told: ‘You have been living beyond your means. Now pay.’ Governments meekly accept orders and their people often assume that their debt must be paid instantly because the debt of a sovereign State is just like the debt of a family. It’s not – a government accumulates debt by issuing bonds on financial markets. These bonds are bought mostly by institutional investors such as banks which receive an annual interest payment, low when the risk of default is low, higher when it isn’t. It’s absolutely normal, desirable and even necessary for a country to have a debt which will pose zero problems and generate many benefits if the money is prudently invested for the longer term in productive activities such as education, health, social benefits, solid infrastructure and the like.
Indeed, the higher the proportion of public spending in a government budget, the higher the standard of living and the more jobs are created – including private-sector jobs. This rule has been verified time and again since the correlation between public investment and national well-being was first noted in the late 19th century.
Obviously, borrowed money can also be wasted and spent stupidly and benefits can be distributed unfairly. The big family-State budget difference is that States don’t disappear like bankrupt companies. Productive, well-managed investment financed by government borrowing should be seen on the whole as A Good Thing.
The magic numbers
In 1992, European countries narrowly voted Yes to the Maastricht Treaty, which at the insistence of Germany contained two magic numbers, 3 and 60. Never allow a budget deficit greater than three per cent; never contract public debt greater than 60 per cent of your Gross Domestic Product (GDP).** Why not two or four per cent, 55 or 65 per cent? Nobody knows, except perhaps some ancient bureaucrats who were there, but these numbers have become the Law and the Prophets.
In 2010, two famous economists announced that beyond 90 per cent of GDP, debt would plunge a country into trouble and its GDP would contract. That sounds logical because interest payments would take a bigger chunk out of the budget. But in April 2013, a North American PhD candidate tried to replicate their results and found he couldn’t. Using their figures, he got a positive result for GDP which would still rise by more than two per cent per annum. The famous, if red-faced, twosome had to admit they were Excel victims and had misplaced a comma.
Even the International Monetary Fund has confessed to similar mistakes, this time on the austerity cuts issue. We now know, because the Fund was honest enough to tell us, that cuts would hurt the GDP by two to three times more than it initially foresaw. Europe should go easy, says the IMF, and not ‘drive the economy with the brakes on’. The magic 60 per cent of GDP debt limit is no more sacred than the three per cent deficit limit; yet policies remain the same, because the neoliberal hawks seize upon every scrap of dubious evidence that seems to promote their cause.
We are faced with two basic questions. The first is why did the debts of European countries rise so steeply after the crisis struck in 2007? In just four years, between 2006 and 2010, debts escalated by more than 75 per cent in Britain and Greece, by 59 per cent in Spain and by fully 276 per cent in all-time champion Ireland, where the government simply announced it would assume responsibility for all the debts of all the private Irish banks. The Irish people would henceforward be held responsible for the irresponsibility of Irish bankers. Britain did the same, though in lesser measure. Just as profits are privatized, losses are socialized.
So citizens pay through austerity, whereas bankers and other investors who bought the country’s bonds or toxic financial products contribute nothing. After the 2007 crisis, the GDP of European countries dropped by an average five per cent and governments had to compensate. Escalating business failures and mass unemployment also meant more expenditures for governments just when they were taking in less income from taxes.
The New Morality
Economic stagnation is expensive – higher expenditure and lower revenue add up to a single answer: borrow more. Saving the banks and taking the consequences of the crisis they created are the fundamental reason for the debt crisis – and consequently for harsh austerity today. People were not ‘living beyond their means’ but the New Morality is clearly ‘Punish the Innocent, Reward the Guilty’.
This is no defence of stupid or corrupt policies such as allowing the Spanish housing bubble to inflate or Greek politicians to hire masses of new civil servants after each election. The Greeks have a bloated military budget and inexcusably refuse to tax the great shipping magnates and the Church – the biggest property owner in the country. But if your bathtub leaks and the dining room paint is peeling, do you burn down your house? Or do you fix the plumbing and repaint?
The human consequences of austerity are inescapable and well known: pensioners search through rubbish bins at mid-month hoping to find a meal; talented, well-educated Italians, Portuguese and Spaniards flee their countries as unemployment for their age group approaches 50 per cent; unbearable stress is laid on families; violence against women increases as poverty and distress rise; hospitals lack essential medicines and personnel, schools decline, public services deteriorate or disappear. Nature takes the brunt as well: nothing is invested in reversing the climate crisis or halting environmental destruction – it’s too expensive. Like everything else, we can’t do it now.
We know these outcomes, the results of what Angela Merkel calls ‘expansionary austerity’ policies. This neoliberal theory claims that markets will be ‘reassured’ by tough policies and reinvest in the newly disciplined countries concerned. This hasn’t happened. Pictures of Merkel adorned with swastikas are appearing throughout southern Europe.
Many Germans think they are helping Greece – and they don’t want to anymore. In fact, virtually all the bailout money has taken a circuitous route: EU government contributions made through the European Stability Mechanism have been channelled via the Greek Central Banks and private banks right back to British, German and French banks that had bought up Greek Eurobonds to get a higher yield. It would be simpler to give European taxpayers’ money directly to the banks, except that said taxpayers might notice. Why make an ongoing psycho-drama over two per cent (Greece) or 0.4 per cent (Cyprus) of the European economy? A cynic might say: ‘Easy. To ensure Ms Merkel’s re-election in September.’
The second basic question is: why do we continue to apply policies that are harmful and don’t work? One can look at this self-created disaster in two ways. Eminent prize-winning economists like Paul Krugman or Joseph Stiglitz believe that the European leadership is brain-dead, ignorant of economics and needlessly committing economic suicide. Others note that the cuts conform exactly to the desires of such entities as the European Roundtable of Industrialists or BusinessEurope: cut wages and benefits, weaken unions, privatize everything in sight and so on. As inequalities have soared, those at the top have done nicely. There are now more ‘High Net Worth Individuals’ with a much greater collective fortune than in 2008 at the height of the crisis. Five years ago there were 8.6 million HNWIs worldwide with a pile of liquid assets of $39 trillion. Today, they are 11 million strong with assets of $42 trillion. Small businesses are failing in droves, but the largest companies are sitting on huge piles of cash and taking full advantage of tax havens. They see no reason to stop there.
This is not a crisis for everyone and the European leadership is no more stupid than its counterparts elsewhere. It is, however, entirely subservient to the desires of finance and the largest corporations. Certainly, neoliberal ideology plays a key role in its programme but serves especially to emit thick smokescreens and pseudo-explanations and justifications so that people will believe There Is No Alternative. Wrong: the banks could have been socialized and turned into public utilities, like other utilities that run on public money; tax havens closed down, taxes levied on financial transactions and many other remedies applied. But such thoughts are heretical to neoliberalism (although 11 Eurozone countries will start taxing financial transactions in 2014).
I am a fervent European and want Europe to thrive, but not this Europe. Against our will we have been plunged into class warfare. The only answer for citizens is knowledge and unity. What the one per cent has imposed, the 99 per cent can reverse. But we’d better be quick about it: time is running out.
Susan George is Board President of the Transnational Institute and author of 16 books, most recently Whose Crisis, Whose Future? and How to Win the Class War, on her website in June for electronic download and print on demand along with six ‘Susan George Classics’.
* ‘The more things change, the more they stay the same.’
** Public debt is money owed by a government in the form of loans obtained on the financial markets rather than other forms of lending.
Eleven lessons from Cyprus’ that could apply Anywhere
Cyprus has paid dearly, and will continue to pay a high price for several years, for the profligacy of its public sector, the recklessness of its banks, and the procrastination of its policy makers in taking corrective measures in the face of the crisis. The jury is still out on whether Cyprus has learnt its lesson, a very expensive one indeed. For other countries, Cyprus’ bitter experience holds many lessons, for which a generous tuition fee has already been paid by Cyprus.
Lesson#1: Control public finances and the size of the public sector. If you cannot trust politicians to resist the temptation of paying supporters and cronies with public sector jobs and salary raises and privileges, adopt a constitutional requirement for balanced budgets and a low ceiling on public debt. Keep the power of public-servant unions in check.
Lesson #2: Know what your bankers are doing; they may not have the country’s best interests in mind; they may not even serve their own bank’s best interests. Without effective corporate governance and strict supervision they may be gambling depositors’ money by putting all their eggs in one basket or taking unreasonable risks or expanding into markets they don’t understand. Don’t be reckless, not even careless about risk exposure. Instead, be ruthless about risk assessment and risk management. Don’t trust the central banker blindly to keep the banking sector sound and solvent, or as former President Reagan used to say “trust but verify”.
Lesson#3: Do not allow your banking sector, or any individual organisation or company to become so big that it is too big to let it fail and at the same time too big to save. You are putting yourself in a no win situation, the economy in jeopardy and sovereignty at risk. Healthy competition, diversification, and proportionality have become bywords for prudence. A banking sector eight times the size of the country’s Gross Domestic Product, as was the case in Cyprus, could neither be left to fail, yet neither could it be saved by the country.
Lesson #4: Do not give away your currency and monetary policy by joining a common currency area such as the Eurozone if you are not able to compete. Invest first in research and technology, innovation and entrepreneurship, cost control and quality management to raise productivity, cut costs, upgrade quality and produce innovative products and services that are internationally competitive. Common currency areas, especially those which do not involve transfer payments from the better performers to the laggards, ultimately benefit those who are able to compete effectively at the expense of the rest.
Lesson #5: Do not allow your labour unions to acquire such strength as to hold a chokehold on vital sectors and the economy as a whole, or destroy the flexibility of the labour market. Learn from Cyprus’ experience with the unions; don’t repeat it. The insatiable demands of the unions especially those of banking employees and civil servants have been protagonists in Cyprus’ drama. Even today, with 16 per cent unemployment and rising and the public and banking sectors buckling under the weight of wage bills and overstaffing, the unions are blocking life-or-death reforms.
Lesson #6: Do not buy the economic tale about natural monopoly, or the social tale about the need to provide affordable services to the poor, or the political tale about sectors of national or strategic importance. State enterprises such as Cyprus Airways or semi-public organisations such as CyTA and the Electricity Authority, have proved to be little more than another vehicle to tax the citizen, to allocate positions and favours, and to share the loot among the political parties, while the customer citizen is stuck with exorbitant bills due to greed and inefficiency.
Lesson #7: Beware of easy credit, bubbles and pyramid schemes. The economic history of the world is littered with stories of economic collapses and catastrophes caused by “ingenious” schemes of buying into easy and quick riches. In Cyprus, first there was the rapidly rising stock prices of the late 1990s inflated by easy credit which in the span of a few years led to collapse and the loss of fortunes by many people. It has been labelled “the stock exchange scandal” and, though nobody was punished, the stock market never recovered, despite the institutional reforms.
Then it was the real estate bubble: inflated by easy credit, property prices kept rising at 20-30 per cent a year; yet no one expected them to stop rising much less to collapse. This came to be known as the “real estate bubble” which burst a couple of years ago. Property prices are now continuing to fall steadily increasing the number of unsecured loans. Another bubble kept gathering steam since the early 2000s and accelerated since we joined the eurozone. The financial and banking bubble was built on high deposit rates of interest, poorly secured lending, attraction of “offshore” companies and reckless investments in Greek bonds and global expansion without risk assessment; it collapsed under its own weight and it is still in a coma.
Lesson # 8: Do not deviate from the iron rule that ties the growth of wages to the growth of productivity; measure public sector productivity, and assess and pay civil servants accordingly. If you earn and spend more than you produce on a long-term basis you are not building a sustainable economy. Sooner or later the economy will collapse, sooner if it is hit by a global economic crisis, as in the case of Cyprus. With the meddling of political parties, the pressure of the labour unions, and the support of parliament, wages and benefits in the wider public sector rose well above productivity, contributing to budget deficit and increased taxation on the private sector, sinking the economy into deeper recession.
Lesson #9: Save for a rainy day. Build an emergency fund, the size of your GDP, as a security against uncertainties, world economic crisis and generally the vagaries of markets and nature. Save in good years for the bad years. If you spend the unusually high revenues in good years on salary raises and overstaffing as well as marginal and unproductive show-off projects, you increase the state’s financial obligations for bad years too without having the means to meet them and you set yourself for deficit spending, escalating debt, and a need for a bailout (or a bail in).
Lesson# 10: Anticipate problems and challenges and formulate alternative strategies. Act early and proactively while you still have time and resources, while the problems are still manageable and you can still set your own terms. Always have a plan B ready. Delays and procrastination carry a heavy price: the problem becomes that much bigger and more pressing, while you lose any bargaining power you may have had to influence the terms of support when you finally resort to it. Cyprus learned this lesson the hard way.
Lesson #11: Establish strong alliances but never forget that in international politics there are no friendships, only shared interests. While this was known since ancient times and was repeated many times in modern history, Cyprus almost blindly counted on its friends and allies in the EU to show their solidarity and run to its rescue. Instead, they were quite unsympathetic administering bitter medicine or “tough love”, as some of us see it. Even our blood brothers, the Greeks, officially have shown little empathy, despite the help from our side in their moment of need. Our interest and theirs in this juncture did not coincide.
Other countries in the European south and beyond should heed the lessons of the bitter experience of Cyprus with its banking and fiscal crisis that brought down its economic edifice, like a house of cards. Avoiding Cyprus’ mistakes can make the difference between a sustainable economic model or a casino-type economy with easy riches alternating with economic collapse.
Dr Theodore Panayotou is director of the Cyprus International Institute of Management (CIIM) and ex-professor of Economics and the Environment at Harvard University. He has served as consultant to the UN and to governments in the US, China, Russia, Brazil, Mexico and Cyprus. He has published extensively and was recognised for his contribution to the work of the Intergovernmental Panel on Climate Change won the Nobel Peace Prize in 2007. Contact: email@example.com
Michael Noonan the Minister of Finance said
Ireland is emerging from its economic crisis, Finance Minister Michael Noonan has declared in this opening remarks of the Budget 2013.
“the economy could soar like a “rocket” next year as new figures showed that the country’s goods-trade surplus jumped 20% in January compared to the same month last year”.
I noted back in January that the IMF had started to do its own “lessons learned” on its European financial crisis response and had begun to admit it had made some fairly terrible mistakes in its assessment of the debt sustainability of a number of nations, including Greece, under its current programs.
Late last week the IMF released another discussion paper (available below) that covers recent developments in sovereign debt restructures and their effect on IMF policy. The paper concludes that:
First, debt restructurings have often been too little and too late, thus failing to re-establish debt sustainability and market access in a durable way. Overcoming these problems likely requires action on several fronts, including
(i) increased rigor and transparency of debt sustainability and market access assessments,
(ii) exploring ways to prevent the use of Fund resources to simply bail out private creditors, and
(iii) measures to alleviate the costs associated with restructurings
Second, while creditor participation has been adequate in recent restructurings, the current contractual, market-based approach to debt restructuring is becoming less potent in overcoming collective action problems, especially in pre-default cases. In response, consideration could be given to making the contractual framework more effective, including through the introduction of more robust aggregation clauses into international sovereign bonds bearing in mind the inter-creditor equity issues that such an approach may raise. The Fund may also consider ways to condition use of its financing more tightly to the resolution of collective action problems;
Third, the growing role and changing composition of official lending call for a clearer framework for official sector involvement, especially with regard to non-Paris Club creditors, for which the modality for securing program financing commitments could be tightened; and
Fourth, although the collaborative, good-faith approach to resolving external private arrears embedded in the lending into arrears (LIA) policy remains the most promising way to regain market access post-default, a review of the effectiveness of the LIA policy is in order in light of recent experience and the increased complexity of the creditor base. Consideration could also be given to extending the LIA policy to official arrears.
In short, the assessments of debt sustainability have been woeful, there aren’t strong enough binding terms (read CACS) in sovereign securities, the official sector, but not the IMF itself, need to play a part in defaults and the IMF should investigate the optimal debt resolution mechanisms available for negotiating between creditors and debtors.
The paper discusses the implication of the ongoing litigation against Argentina as well as the experience of the fund in the recent case of Greece. Of note is the admission by the fund that it was forced to lower its assessment of the country due to contagion worries from the official sector in Europe:
Accordingly, when a member’s sovereign debt is unsustainable and there are concerns regarding the contagion effects of a restructuring, providing large-scale financing without debt relief would only postpone the need to address the debt problem.
Instead, the appropriate response would be to deal with the contagion effects of restructuring head-on by, for example, requiring that currency union authorities establish adequate safeguards promptly and decisively to cushion the effect of spillovers to other countries (via, e.g., proactive recapitalization of creditor banks, establishment of firewalls, and provision of liquidity support). In the context of the first Greece program, financial assistance was delayed until Greece had lost market access. In response to concerns about possible spillovers from debt restructuring, the Fund lowered the bar for exceptional access (second criterion) by creating an exception to the requirement for achieving debt sustainability with a high probability in the presence of systemic inter national spillover effects. In light of these issues, the modification of the exceptional access policy could usefully be reviewed
In other words, Europe, and its banks, weren’t prepared for a Greek default so the IMF was forced to pretend that the country’s position was better than it actually was. That was obviously a mistake and the country, like many before it, was forced to take a second bailout followed by a re-structure that should have occurred up front. As noted by the paper:
A review of the recent experience suggests that unsustainable debt situations often fester before they are resolved and, when restructurings do occur, they do not always restore sustainability and market access in a durable manner, leading to repeated restructurings. While the costs of delaying a restructuring are well recognized, pressures to delay can still arise due to the authorities’ concerns about financial stability and contagion. Delays were also sometimes facilitated by parallel incentives on the part of official creditors, who accordingly may have an interest in accepting, and pressuring the Fund to accept, sanguine assessments of debt sustainability and market reaccess.
In hindsight, the Fund’s assessments of debt sustainability and market access may sometimes have been too sanguine.
The existing DSA framework does not specify the period over which debt sustainability or market access is supposed to be achieved (although it is generally understood that debt would be sustainable within a five-year horizon) or how maximum sustainable debt ranges should be derived, leaving this mostly to Fund staff judgment. Sustainability was generally assessed on the basis of an eventual decline in the debt-to-GDP ratio—Argentina, Seychelles and St. Kitts and Nevis were the only three cases that provided for a quick and sizable reduction in the debt-to-GDP levels post-restructuring. St. Kitts and Nevis also targeted an explicit debt threshold, i.e., the ECCU debt target of 60 percent of GDP by 2020. Most other cases allowed more than five years for the debt level to fall significantly below safe levels.
For example, in Greece the debt-to-GDP ratio in the most recent program projections is not expected to be reduced substantially below 110 percent before 2022, while in the forthcoming Fund-supported program with Jamaica, debt is still projected to remain close to 120 percent of GDP in five years’ time. In Grenada, the debt ratio at the end of the five-year horizon actually turned out much higher than staff projections at the time of the restructuring. Also, in Greece, Jamaica (2010) and Seychelles, staff medium-term debt projections have been revised upward substantially within only a few years compared to projections made at the time of the restructurings.
Also of note is the emphasis on the broader guidelines of the IMF programs , supporting countries sustainable return to private capital markets in a specific time-frame , and what that means in terms of the types of restructures that should be used and how, and when, the IMF can support them:
There may be a case for exploring additional ways to limit the risk that Fund resources will simply be used to bail out private creditors.
For example, a presumption could be established that some form of a creditor bail-in measure would be implemented as a condition for Fund lending in cases where, although no clear-cut determination has been made that the debt is unsustainable, the member has lost market access and prospects for regaining market access are uncertain.
In such cases, the primary objective of creditor bail-in would be designed to ensure that creditors would not exit during the period while the Fund is providing financial assistance. This would also give more time for the Fund to determine whether the problem is one of liquidity or solvency. Accordingly, the measures would typically involve a rescheduling of debt, rather than the type of debt stock reduction that is normally required in circumstances where the debt is judged to be unsustainable.
Providing the member with a more comfortable debt profile would also have the additional benefit of enhancing market confidence in the feasibility of the member’s adjustment efforts, thereby reducing the risk that the debt will, in fact, become unsustainable. While bail-in measures would be voluntary (ranging from rescheduling of loans to bond exchanges that result in long maturities), creditors would understand that the success of such measures would be a condition for continued Fund support for the adjustment measures. Such a strategy—debt rescheduling instead of debt reduction—would not be appropriate when it is clear that the problem is one of solvency in which case reducing debt upfront to address debt overhang and restore sustainability would be the preferred course of action.
In light of the ongoing litigation against Argentina the paper also appears to be pushing for two things, firstly the introduction of a standard across-the-board mechanism to support collective action clauses, and resolution, within the sovereign debt markets:
Recent experience indicates that the contractual, market-based approach has worked reasonably well in securing creditor participation and avoiding protracted negotiations. But these episodes have also foreshadowed potential collective action problems that could hamper future restructurings. These problems are most acute when a default has not yet occurred, large haircuts are needed to reestablish sustainability, and sovereign bond contracts do not include CACs. The ongoing Argentina litigation has exacerbated the collective action problem, by increasing leverage of holdout creditors. Assuming there continues to be lack of sufficient support within the membership for the type of statutory framework envisaged under the SDRM, avenues could be considered to strengthen the existing contractual framework.
These aspects of the Greek legislation resemble the aggregation features of the SDRM. The key differences between the framework envisaged under the SDRM and the Greek legislation is that the SDRM would be established through a universal treaty (rather than through domestic law),
apply to all debt instruments (and not just to bonds governed by domestic law), and be subject to the jurisdiction of an international forum (rather than the domestic courts of the member whose debt is being restructured). At this stage, there does not appear to be sufficient support within the membership to amend the Articles of Agreement to establish such a universal treaty.
Complementing efforts to revamp CACs, the Fund may consider conditioning the availability of its financing more tightly to the resolution of collective action problems.
For instance, the use of high minimum participation thresholds could be required in debt exchange operations launched under Fund-supported programs to ensure broad creditor participation. Fund policy encourages members to avoid default to the extent possible, even after restructuring. An expectation of eventually being paid out in full may encourage holdouts. The use of high minimum participation thresholds would help reduce such incentives. The Fund could also routinely issue statements alerting creditors that securing a critical participation mass in the debt exchange would be required for the restoration of external stability—the implication being that failure to meet the
established minimum participation threshold would block future program financing, leaving no other option but default and protracted arrears.
Also, in pre-default restructurings, where collective action problems are most acute, the Fund could consider setting a clearer expectation (already allowed under existing policy) that non-negotiated offers by the debtor—following informal consultations with creditors—rather than negotiated deals, would be the norm, as in these cases speed is of the essence to avoid a default. These ideas could be explored in future staff work.
And the second area, that is also “to be explored in future staff work”, is what to do about the risks caused by asymmetry in the treatment of private and official sector creditors, something that was very apparent in the recent Greek restructure:
… arrears to private and official creditors are currently treated asymmetrically under Fund policy.
Private external arrears are tolerated but arrears to official bilateral lenders are not. This subjects the Fund to the risk that it could not assist a member in need due to one or more holdout official bilateral creditors who seek favorable treatment of their claims. Consideration could be given to extend the LIA policy to official bilateral arrears and in that context clarify the modality through which assurances of debt relief are provided by (non-Paris Club) official lenders. Another possibility would be for the Paris Club to extend its membership to all major lenders, so as to allow the Fund to rely on the Paris Club conventions with respect to financing assurances and arrears.
However, it is uncertain whether the Club could achieve such an expansion.
All up it’s an interesting paper and well worth the read if you are interested in this type of thing. The paper also has some discussion on the European crisis-resolution mechanism ( discussed in more detail here ) , although given recent back-steps from Europe on the banking union this looks to still be something of a distant dream at this point.
It will be interesting to see if this paper has any effect on future programs, but it does appear, if only very slowly, that the IMF is learning from past mistakes and attempting to shift policy in a direction to address that issue. It would appear, at least from this paper, that the IMF will be demanding a more realistic assessment of the debt sustainability of target nations and a greater use of up-front restructuring as a per-requisite for program engagement. We’ll have to watch the next steps in Europe to determine if this is simply a talking point or something the IMF board will action.
WITH CONSIDERABLE speculation about an impending deal on bank debt, with the Taoiseach and the German Chancellor jointly stating that Ireland is a ‘special case’, it is helpful to remind ourselves just how special a case we are.
Eurostat, the EU Commission’s data agency, has calculated the cost of the banking crisis in each EU country. The following focuses on the cost to general government budgets. Ireland has really taken one for Team EU.
Yes, there’s wee Ireland up at the top, just edging out Germany for the dubious title of spending the most on the banking crisis. €41 billion to date according to the Eurostat accounting data (this doesn’t count the billions ploughed into the covered banks from our National Pension Reserve Fund as this was not counted as a ‘cost’ to the General Government budget).
Of course, this doesn’t give the best picture. What happens when we look at the cost as a percentage of GDP?
Ireland may not win football’s European Championship but when it comes to banking debt we are Barcelona, Bayern Munich and Manchester United all rolled into one with Real Madrid for a bench. Germany may have run Ireland close in the nominal amount of banking debt but when it comes to a proportion of GDP, it is just pennies behind their sofa. For Ireland, it’s the entire house.
Here’s another little stat to chew on. The European banking crisis is just that – a European crisis. But as we know, this has not been addressed at European level. Rather, the cost has been delegated to individual countries regardless of their size or ability to pay. For instance:
- Ireland makes up 0.9 percent of the EU population
- The Irish economy makes up 1.2 percent of EU GDP
Ok, we’re small. So how much of the entire European banking debt have we paid?
- The Irish people have paid 42 percent of the total cost of the European banking crisis
We may be minnows when it comes to population and economic size, but when it comes to banking debt we are the whale in the pond.
One more breakdown. How much have countries paid per capita?
The European banking crisis to date has cost every individual in Ireland nearly €9,000 each. The average throughout the EU is €192 per capita. I really don’t know what you can say after that.
So, Ireland is a really, really special case. We require a really, really special solution. The Government (and we must always remember that this mess wasn’t created on their watch) has a real challenge in the negotiations over bank debt. But there is a bottom-line here.
If any deal does not qualitatively alter these dismal statistics, then it won’t be a deal worth applauding. The Government may be tempted to return to the Irish people waving a sheet of paper claiming ‘a bank debt deal for our time’.
But if are still paying nearly €9,000 each while the remainder of the EU pays only a fraction of that, then it is no deal at all; just a re-arranging of euro notes – a lot of euro notes – on the decks of a sunken ship.
High levels of military spending played a key role in the unfolding European sovereign debt crisis — and continue to undermine efforts to resolve it.
A new report by the Transnational Institute — ‘Guns, Debt and Corruption: Military Spending and the EU Crisis’ — looks at the ways in which excessive militarization directly fed into the unfolding European debt crisis, and continues to undermine efforts to resolve it. Below the downlink links and infographic you can find the executive summary of the report.
Five years into the financial and economic crisis in Europe, and there is still an elephant in Brussels that few are talking about. The elephant is the role of military spending in causing and perpetuating the economic crisis. As social infrastructure is being slashed, spending on weapon systems is hardly being reduced. While pensions and wages have been cut, the arms industry continues to profit from new orders as well as outstanding debts.
Perversely, the voices that are protesting the loudest in Brussels are the siren calls of military lobbyists, warning of “disaster” if any further cuts are made to military spending. This paper shows that the real disaster has emerged from years of high European military spending and corrupt arms deals. This dynamic contributed substantially to the debt crisis in countries such as Greece and Portugal and continues to weigh heavily on future budgets in all of the crisis countries.
The power of the military-industrial lobby also makes any effective cuts less likely. This is perhaps most starkly shown in how the German government, while demanding ever higher sacrifices in social cuts, has been lobbying behind the scenes against military cuts because of concerns this would affect its own arms industry.
The paper reveals how:
High levels of military spending in countries now at the epicentre of the euro crisis played a significant role in causing their debt crises. Greece has been Europe’s biggest spender in relative terms for most of the past four decades, spending almost twice as much of its Gross Domestic Product (GDP) on defence as the EU average.Spain’s military expenditure increased 29% between 2000 and 2008, due to massive weapon purchases. It now faces huge problems repaying debts for its unnecessary military programmes.
As a former Spanish secretary of state for defence said: “We should not have acquired systems that we are not going to use, for conflict situations that do not exist and, what is worse, with funds that we did not have then and we do not have now.” Even the most recent casualty of the crisis, Cyprus, owes some of its debt troubles to a 50% increase in military spending over the past decade, the majority of which came after 2007.
The debts caused by arms sales were often a result of corrupt deals between government officials, but are being paid for by ordinary people facing savage cuts in social services. Investigations of an arms deal signed by Portugal in 2004 to buy two submarines for one billion euros, agreed by then-prime minister Manuel Barroso (now President of the EU Commission) have identified more than a dozen suspicious brokerage and consulting agreements that cost Portugal at least €34 million. Up to eight arms deals signed by the Greek government since the late 1990s are being investigated by judicial authorities for possible illegal bribes and kickbacks to state officials and politicians.
Military spending has been reduced as a result of the crisis in those countries most affected by the crisis, but most states still have military spending levels comparable to or higher than ten years ago. European countries rank 4th (UK), 5th (France), 9th (Germany) and 11th (Italy) in the list of major global military spenders. Even Italy, facing debts of €1.8 trillion, still spends a higher proportion of its GDP on military expenditure than the post-Cold War low of 1995.
The military spending cuts, where they have come, have almost entirely fallen on people – reductions in personnel, lower wages and pensions – rather than on arms purchases. The budget for arms purchases actually rose from €38.8 billion in 2006 to €42.9 billion in 2010 – up more than 10% – while personnel costs went down from €110.0 billion in 2006 to €98.7 billion in 2010, a 10% decrease that took largely place between 2008 and 2009.
While countries like Germany have insisted on the harshest cuts of social budgets by crisis countries to pay back debts, they have been much less supportive of cuts in military spending that would threaten arms sales. France and Germany have pressured the Greek government not to reduce defence spending. France is currently arranging a lease deal with Greece for two of Europe’s most expensive frigates; the surprising move is said to be largely “driven by political considerations, rather than an initiative of the armed forces”. In 2010 the Dutch government granted export licences worth €53 million to equip the Greek navy. As an aide to former Greek prime minister Papandreou noted: “No one is saying ‘Buy our warships or we won’t bail you out.’ But the clear implication is that they will be more supportive if we do”.
Continued high military spending has led to a boom in arms companies’ profits and an even more aggressive push of arms sales abroad ignoring human rights concerns. The hundred largest companies in the sector sold arms to the value of some €318 billion in 2011, 51% higher in real terms compared to 2002. Anticipating decreased demand at home, industry gets even more active political support in promoting arms sales abroad.In early 2013 French president François Hollande visited the United Arab Emirates to push them to buy the Rafale fighter aircraft. UK prime minister David Cameron visited the Emirates and Saudi Arabia in November 2012 to promote major arms sales packages. Spain hopes to win a highly controversial contract from Saudi Arabia for 250 Leopard 2 tanks, in which it is competing with Germany – the original builder of the tank.
Research shows that investment in the military is the least effective way to create jobs, regardless of the other costs of military spending. According to a University of Massachusetts study, defence spending per US$ one billion creates the fewest number of jobs, less than half of what it could generate if invested in education and public transport. At a time of desperate need for investment in job creation, supporting a bloated and wasteful military can not be justified given how many more jobs such money would create in areas such as health and public transport.
Despite the clear evidence of the cost of high military spending, military leaders continue to push a distorted and preposterous notion that European Union’s defence cuts threaten the security of Europe’s nations. NATO’s secretary general, Anders Fogh Rasmussen “has used every occasion to cajole alliance members into investing and collaborating more in defense.”
Gen. Patrick de Rousiers, the French chairman of the EU Military Committee, at a hearing in the European Parliament, even suggested Europe’s future was at stake if military spending was not increased. “What place can a Europe of 500 million inhabitants have if it doesn’t have credible capacity to ensure its security?” he asked rhetorically.
We believe, by contrast, that at a time when the European Commission’s agenda of permanent austerity faces ever-growing challenges, there is one area where Europe could do much more to impose austerity. And that is the arena of military spending and the arms industry.
Abolishing nuclear weapons owned by France and the UK could save several billions of euros every year and fulfil a major pledge made by these countries under the nuclear non-proliferation treaty to finally eliminate nuclear weapons. Reductions of all EU nations’ military spending to Ireland’s levels (0.6% of GDP) would save many more billions.
Writing off dirty debts caused by arms deals concluded through bribes, would be a good first step to lay the bill for the crisis with those who helped cause it. Such measures would also prove that at a time of crisis, Europe is prepared to invest in a future desired by its citizens rather than its warmongers.
Download Guns, Debt and Corruption: Full report (pdf, 525KB)
Download Guns, Debt and Corruption: Executive Summary (pdf, 77KB)
Everyone knows the stereotypes. Germans save for the future, while Spaniards spend everything they earn. So it’s not surprising that Germany has survived the recent crisis in decent shape, while Spain is a mess, with unemployment at roughly 27 percent. If only the Spaniards had been as thrifty as the Germans, this never would have happened, right?
Wrong. The spending patterns of Spanish households did not cause the euro crisis, but were a response to the imbalances created by excess savings in Germany. Furthermore, these excess savings were not caused by the thriftiness of German households, but by policies that forced up German savings rates to levels that Europe could not absorb without creating serious imbalances.
National savings and household savings are often assumed to be the same thing, but are actually very different. The household savings rate is the share of household income — mainly wages, investment income, and social transfers like welfare payments and pensions — that households do not spend on consumption.
The national savings rate, on the other hand, includes not just household savings, but also the savings of governments and businesses. It is defined simply as a country’s GDP minus its total consumption. While the household savings rate is determined primarily by the cultural and demographic preferences of ordinary households, the national savings rate is not. Indeed in some cases, such as China and Germany, the household share of all the goods and services a country produces, which is primarily a function of policies and economic institutions, is the main factor affecting the national savings rate.
National savings, in other words, have very little to do with household preferences and a lot to do with policy. Take China, which has by far the highest national savings rate in the world at roughly 50 percent. This is in part because Chinese households, like those of many poor countries lacking a robust social safety net, save a high proportion of their income.
But while China’s savings rate is extraordinary, Chinese household savings rates are merely on the high side, and on par with other East Asian nations. Chinese households, it turns out, are not nearly as thrifty as their exceptionally high national savings rate implies. Why, then, is China’s savings rate unprecedented? The main reason is the very low household income share of GDP. Chinese households retain a lower share of all the goods and services the country produces – around 50 percent — than households in any other country in the world.
This is a consequence of policies Beijing put into place over the past two decades that goose GDP growth by constraining growth in household income. These include low wage growth, an undervalued currency, and extremely low interest rates, all of which reduce household income while subsidizing growth. As a result, the household share of China’s total production of goods and services has been falling for 30 years, from 60-70 percent in the 1980s to 50 percent today. Consequently, as households earn a declining share of what China produces, they also consume a declining share. China’s high savings rate, in other words, has little to do with Chinese thrift, and much more to do with policies that reduced the share of Chinese household income relative to GDP. This is also true in Germany.
In the 1990s, Germany saved too little. It ran current account deficits for much of the decade, which means it imported capital to fund domestic investment. A country’s current account deficit is the difference between how much it invests and how much it saves, and Germans in the 1990s did not save enough to fund local investment.
The Following scenario can also be applied on a world wide basis
The arguments that the American Government caused this crisis through overspending on entitlements — serving the so-called losers of society — this is the standard line of the Far Right — doesn’t show up in this chart.
Government debt vis-a-vis Gross Domestic Product is not astronomical, according to this chart. It was not high in 1929 either, the last time the global economy had a heart attack and died. Public Debt is, in fact, at the time of this chart at least, lower than in 1945, when the public financed American involvement in World War II.
The Far Right illusion is that if government just ‘gets out of the way’ of private enterprise, the world will fix itself. But this chart gives a different picture of reality.
This chart says it is PRIVATE DEBT that is at astronomical levels vis-a-vis GDP. Private Debt in America was at 240% of GDP in 1929, before the global economy crashed then; and Private Debt in America was at 300% of GDP in 2009 — and is still at 260% of GDP now, higher still than in 1929.
Of course, there was a real estate bubble and subsequent banking crisis in the 1920’s. In fact, the asset bubble that began in 1921 caused the massive growth in private debt that destroyed the global economy then also. The web site below examines the housing bubble of 1921-1926.
The famous stock market bubble of 1925-1929 has been closely analyzed. Less well known, and far less well documented, is the nationwide real estate bubble that began around 1921 and deflated around 1926. In the midst of our current subprime mortgage collapse, economists and historians interested in the role of real estate markets in past financial crises are reexamining the relationship of the first asset-price bubble of the 1920s with the later stock market bubble and the Great Depression that followed. Limited data on 1920s home prices and foreclosures means that many questions remain unanswered.22 Historical trade publications like the weekly New York Real Estate Record and Builder’s Guide, of which Baker Library holds a sixty-year run, allow researchers to fill in the blanks. The implications of early findings may challenge conventional wisdom about the factors that caused and prolonged the Great Depression.
What this all suggests is that Big Business is refusing to take the blame for the Global Collapse it helped to create through the same mechanism it used in the 1920s pursuing recklessly their own economic empires — asset price inflation fueled by lower and lower interest rates – and has attempted to shift the blame on to the governments of the world (Big Government being the boogeyman of the Far Right).
The debt that must be destroyed before the global economy can reach a state of organic growth again is, primarily, private debt — private enterprise debt and private consumer debt. In fact, the very force that the Far Right says will save us from our current disaster is what caused and is still causing the current disaster.
Of course, Big Business has now found a convenient method for unloading toxic debt: by selling it at face value or even at future inflated value to the governments of the world. The governments are willing to buy worthless private debt in the hope of keeping themselves in power, of keeping their societies from unraveling into civil war and revolution. Why would Big Business ever concern itself with risk if there will always be a buyer of last resort willing to absorb the crimes and failures of the Free Market in pursuing the demon of Unlimited Wealth?
Then, of course, this forced ingestion of toxic (criminal?) debt by the governments in question — in hopes of avoiding civil war — has been followed by the political gambit of Big Business and the political supporters of Big Business screaming and shaking of fists at the government for taking on too much debt. Well, the ‘too much debt’ the public was taking on was the disaster debt of unregulated Big Business which made careless business decisions without care to risk or even to crime in many cases (organized crime almost certainly, organized crimes in white shirts on Wall Street).
Comstock Partners issued a report this year in which they found almost exactly the same evidence I am presenting — that it is PRIVATE DEBT that is the villain, and the cause of our collapse. And Public Debt is now growing as it takes on the burden of absorbing the Private Toxic Debt accrued from 2001-2008, mainly caused by the Housing Bubble (again).
From the Comstock Report:
In fact, the eight years between 2000 and 2008 the debt grew from $26.5 trillion (265% of $10 tn GDP) to $54.5 trillion (or $28 trillion from 2000 to 2008).
The private sector debt that grew the most was the household debt, mostly because of the massive purchases of homes and goods imported largely from emerging economies. This sector of debt was historically about 50% of GDP and 65% of Disposable Personal Income, but by the mid 1980s it starting growing exponentially until it was in a full blown debt bubble. This sector debt rose from $6.5 trillion in 2000 to almost $15 trillion in 2008. This sector is presently de-leveraging and is down to about $13 trillion on its way to below $10 trillion (in our opinion) as the de-leveraging continues to take a toll on the U.S. (as well as the global economy, since the rest of the world needs U.S. consumption). This is very similar to what took place in Japan starting at the end of 1989 (except that the bubble in Japanese debt resided in the non-financial corporate sector).
Currently, most observers are much more focused on GOVERNMENT DEBT where the debt ceiling was $6 trillion in mid 2002 and just recently President Obama signed a bill lifting the debt ceiling by $2.1 trillion to $16.4 trillion. If you count the unfunded liabilities (or the promises we made to retirees) this debt could be higher than $100 trillion. We believe this debt will have to be addressed thru either inflation (printing our way out at the expense of the U.S. Dollar), or deflating our way out through de-leveraging or defaulting on the enormous debt (we believe the deflationary solution to be the highest probability, at least initially). It is very difficult to inflate out of our present situation since banks will only lend to the best credits and the best credits don’t want to take on more debt-this is called a “liquidity trap” and stifles the “velocity of money.”
The problem with all of the above solutions is that they will not be easy to resolve since the government sector debt will have to grow to replace the private debt declines, in order to curtail the collapse of the economy. This is exactly what happened in Japan as their government debt grew to 225% of their GDP as the private debt declined in the deflation. We expect the solution that will evolve in this country will start with deflation. We will show exactly how we view deflation by displaying the chart “Cycle of Deflation” (see attachment) which we have used in many prior reports.
I am not suggesting that government debt is not a problem. I’m reminding the reader where this crisis began: with the DEREGULATION of Big Business. The proper role of Big Business is to pursue profits; and the proper role for Big Government is to regulate (provide laws and police powers to enforce these laws) Big Business. Where there are no laws — DEREGULATION — there will be only criminals, at least until we all pass into the Spiritual Kingdom in which selfishness and greed are no longer human problems.
We are heading down a long slow path of debt deflation that will peak in the year 2019. Don’t listen to those who claim that only American Ingenuity and Free Unregulated Business can get America back on its feet again — because those are the very same people who just threw America on its back, while pursuing their own economic empires — the world be damned. There will be a time for the ideology of empire and ingenuity and entrepreneurialism again — but not until after 2019.
We are not saints yet. Until we are all saints we need laws and police to protect decent people from the sharks who believe the world should and must be a world of shark-eat-shark only.
I will save my suggestion that American Bank reform should use the American public power utilities as a model for what banking should become in the future — I will save this for a future article. Bankers should be technicians and functionaries who serve the public and provide guaranteed stability, not entrepreneurs, not gamblers, who can always count on public bail-outs if their gambles turn to dust. Let the capital gamblers and entrepreneurs work in non-financial industries, such as technology and weapons-production.
Overall Scandinavian countries perform very well. It is worth noting these countries have extremely high Tax Rates, but they know exactly what to do with the money.
The UK is ranked in 28th position. This begs a question are things much worse in the UK than the Government admits too.
Ireland despite its monetary woes is in 7th position.
Top 10 Highly Developed Countries
The Human Development Index (HDI) is a composite statistic used to rank countries according to their development levels from “very high” to “low.” Countries are placed based on life expectancy, education, standard of living, child welfare, health care, economic welfare, and population happiness. Formulas are used to factor all the variables and determine the scores of countries. Critics have cited the HDI as inaccurate or vague, but coming up with top ten highly developed countries list on my own opinion would have been very subjective and probably badly ranked. Thus, I have simply listed the first ten countries on the HDI and displayed their scores, while providing explanations. Enjoy.
The socialist and largely liberal European country of Sweden (officially the Kingdom of Sweden) is led by Prime Minister Fredrick Reinfeldt and is about the size of the US state of California (or Spain if unfamiliar with the CA) and has an approximate population of 9.3 million with the capital and largest city being Stockholm. The Swedish people are rated as one of the happiest in the world and have high marks in income ($35,876 GDP per capita, and a regular GDP of $485 billion), life expectancy (80.9 years), and education. In addition, the country has very low unemployment and poverty rates, has equal and free access to health care, and has been one of the most active supporters of environmental sustainability today and pushes for other countries to “Go green.” Sweden also serves as a major tourist destination for millions of international travelers, as the country has a long and rich history.
Score: 0.905 Score
The Federal Republic of Germany, or Germany, has the largest economy in the European Union, and one of the largest populations at 82.2 million, as well as its bustling capital and economic center of Berlin. Chancellor Angela Merkel is the head of a government with a people of very high education standards, with a nearly 100% attendance rate and 99% literacy rate. Germany thrives in industry and manufacturing and is a major exporter of electrical and engineering products, such as cars (Volkswagen anyone?), and are renowned globally for their skilled work force. The GDP is $3.5 trillion and GDP per capita is $40,631, and poverty rates are low, although the unemployment rate is about 7%. Germany also, like Sweden, is a prime tourist destination for its historic beauty, and the wonderful people (aside from Adolf and the Nazis back in the 1930-40s) have a life expectancy of 79.4 years.
The Principality of Liechtenstein is one of the smallest and least populated countries in the world, with a landmass of just 160 square kilometers (62 sq miles, about the size of Washington, US) and a population of 35,000. Even so, this parliamentary democracy manages to have one of highest GDP per capita’s in the worlds ($141,000) and has virtually zero debt, poverty, and unemployment rates, while having prominent literary and education ratings. Liechtenstein has very low taxes imposed on its citizens and is a center of investment from countries and the wealthy. If ever feeling the desire to travel to this rather interesting country, visit the capital of Vaduz, where you can view the huge Vaduz castle, home to the prince and his family, while also getting acquainted with the city’s 5,100 inhabitants.
The Republic of Ireland has a relatively small population of 4.5 million, is a parliamentary democracy, and its capital is Dublin. Ireland has a very high literacy rate of 99% and high education standards, as well as a strong life expectancy of 78.9 years. It also has a well balanced infrastructure, with a GDP of $203.89 billion and a GDP per capita rate of $45,497. The country is ranked #7 for its press freedom, economic freedom, and political freedom it offers to the public. Ireland was in the process of rapid economic growth and development when the global recession began in 2008. Ireland than experienced negative GDP and accumulated massive debt, being rated as one of the five European “P.I.I.G.S.” (Portugal, Ireland, Italy, Greece, and Spain) and losing two points on the Human Development Index Scale. Still, the Taoiseach (or Prime Minister) Enda Kenney is collaborating with EU leaders (France and Germany) to relieve this problem and continue developing forward.
Canada is, geographically, the second largest country next to Russia and shares the longest international border in the world with the United States. Canada is governed by a parliamentary democracy and a constitutional monarchy and keeps it ties with the United Kingdom close, being one of the few countries with two anthems (“O Canada,” the national anthem, and “God Save the Queen,” the Royal Anthem) with Queen Elizabeth II being the Head of State. The country is very economically advanced with a GDP $1.758 trillion and GDP per capita of $51,147. It has an intelligent population with high education and literacy rates, and a large percentage of the population is even bilingual or trilingual (English and French are the official languages, but Spanish doesn’t hurt). Canada is known for its free health care system (on top of an 80.7 life expectancy) and poses minimal taxes on the 34.7 million inhabitants. And of course, it is a great tourist destination, as you can visit the world-renowned waterfall of Niagara Falls, or the capital of Ottawa, or maybe even the historical landmarks at the largely French-rooted city of Quebec.
New Zealand is a small and relatively remote group of islands and was one of the last islands to be discovered and settled by humans. Thus, it contains a beautiful landscape and flourishing animal life and biodiversity that attracts flocks of tourists annually. New Zealand is a parliamentary constitutional monarchy that also recognizes Queen Elizabeth II as Head of State and in their national anthem, while John Key is the Prime Minister. New Zealand has one of the highest living standards and happiness ratings in the world, and tends to be a strong advocate for peace and environmental sustainability, banning nuclear weapons and protecting its diverse wildlife. The country’s GDP is $157.877 billion dollars, with a GDP per capita of $35,374 for its population of about 4.3 million. Its education, literacy, and health standards are all very high with a life expectancy of 80.2 years (keep on living, Jamie). Of course, New Zealand is a hot spot for travelers looking for beautiful topography and biodiversity, and while you’re there you can stop by the wonderful city where Jamie came from: Wellington (pictured).
United States of America
The United States came a long way from its beginnings in 1776, beating the British in the American Revolution (with a lot of help from the French) and declaring its independence, and now, after removing the Native Americans, fighting a Civil War, dealing with the Great Depression, and engaging in two World Wars, the US has emerged as the most powerful country in the world, with a GDP of $15 trillion (the largest in the world) and a GDP per capita of $48,147. The US is a representative democracy (republic) and a manufacturing giant and a major importer and exporter of goods and a trading partner with every major country. The US is one of the most ethnically diverse countries in the world (the state I live in, California, has a 50% Asian, Latin American, and African American population, out of almost 40 million people.) However, all this aside, the US loses points because, out of a population of nearly 315 million, there is a 15% poverty rate, 9% unemployment average (and in some states up to 14%), and international critics argue that American education standards fall behind the rest of the world. Also, the US loses points in health because, while life expectancy is relatively high at 79 years, obesity rates are skyrocketing, with up to 33% of adults at obese levels, and similar rates for children. On top of all this, America is spiraling through massive debt and dragging other countries down through the decrease of trade caused by the global recession. With 2012 elections looming, we’ll see how President Barack Obama will tackle these issues if he is reelected.
Also known as the United Netherlands or Holland, the Netherlands is a constitutional monarchy, while also being a representative democracy. The Netherlands has very high educational and literacy standards, while having low poverty and unemployment rates, and is led by its Prime Minister Mark Rutte. Throughout its history, the Netherlands was one of the key founders of the EU, NATO, OECD, AND WTO and is a called the “world’s legal capital,” hosting five international court systems. The country’s GDP is $832.160 billion and has a GDP per capita of $49,950. In May of 2011, the Netherland’s 16.7 million people were ranked as the happiest in the world, with a stable economy, guileless government, low taxes, beautiful cities such as the capital of Amsterdam, and a healthy life expectancy of 79.8 years.
Officially the Commonwealth of Australia, this island/continent has the world’s 13th largest economy, with a GDP of $918.978 billion, and the 5th highest per capita of $40,836. Australia is a federal parliamentary constitutional monarchy with some of the highest rankings in the world in the categories of quality of life (the people are very happy), health, education (nearly a 100% literacy rate and extremely high percentages of enrollment and college graduates), economic freedom, and finally civil liberties and protection of human rights. The 22.7 million inhabitants enjoy a country striving for a stable government, content citizens, peace, and sustainability and protection of wildlife and biodiversity (of which Australia has a lot of), and a life expectancy of 81.2 years. Of course, Australia is a fantastic place to visit and experience its rustic wildlife and beautiful cities such as Sydney
And #1, crushing the runner up by almost double the rating is Norway, or the Kingdom of Norway. This country of almost 5 million is a parliamentary constitutional monarchy with extremely high education standards and a very low poverty and unemployment rate, with a life expectancy of 80.2 years. Norway was a pivotal founding member of NATO but rejected joining the EU, but continues to have good relations with neighboring European countries. Norway is also a founding member and now huge donator to the United Nations as well as helping found the Council of Europe, and is an active member of WTO and OECD. Norway has one of the largest reserves of petroleum, natural gas, minerals, lumber, seafood, freshwater, and hydro-power in the world and is a major exporter of oil. Norway is internationally recognized for its universal health care, advanced schooling systems, and a distinguished social security system. For all these reasons, the Kingdom of Norway ranks number one on the United Nation’s Human Development Index.
WHY YOU SHOULD MARCH ON 9TH FEBRUARY 2013
The banking collapse has left the average EU citizen with a bill of €192. Bad enough you might think until you consider that the average Irish citizen will have to cough up €9,000 to rescue the banks. That’s right; it’s not a misprint; there’s not an extra zero in there.
That’s why there are protest marches on 9th February.
That’s why you should be there.
Because despite pious platitudes that Ireland is a special case the EU has decided that the European banking crisis must be dealt with by each individual country regardless of size or ability to pay. So much for the idea of a community!
Ireland makes up just 0.9% of the EU population, and the Irish economy makes up 1.2% of the EU’s GDP. But even though we are a tiny part of the EU we have to cough up 42% of the European banking crisis.
All in all the banking bailout is set to cost us €64bn.
Trying to pay this €64bn bank debt is behind five years of austerity.
Trying to pay this bill is costing jobs and driving thousands to emigrate.
Trying to pay this bill is behind increased taxation and more threatened wage cuts.
After five years of austerity we all know that without a bank deal there is no hope of recovery and that continuing with this failed policy will cripple Ireland for generations to come.
We must send a clear message across Europe that we need a deal on debt.
The ICTU Rallies on February 9th 2013 are your chance to send that message and to protest against the cause of our economic crisis – bank debt. A large turnout will show the EU leadership the depth of feeling in Ireland about the issue.
Marches on the afternoon of 9th February are planned in:
The Economist Intelligence Unit looked at GDP, life expectancy, political freedom, job security, climate and gender equality to compile a list of 80 countries ranked by their general quality of life. It also considered economic forecasts for 2030, the year that a baby born now would reach adulthood.
The full list is as follows