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Jan 11th 2020

FOR BULGARIAN bosses, recruitment is becoming a bit of a nightmare. Finding a lathe operatorcompetent or otherwise takes more than six months, and may require forking out cash to a recruitment agency. Older, savvier machine operators are retiring, complains Julian Stephanov, who runs a manufacturing firm near Sofia, and too few young people have the right skills. One problem is a lack of training. Another is that Bulgarias workforce has shrunk by 6% since 2008. Continued high emigration and low birth rates mean it is expected to fall by another third by 2050.

All across Europe, people are living longer and having fewer children. The same trends are, of course, seen in other rich countries, and many developing onesbut coping with them will be harder in Europe, because of its half-formed union where workers can move freely and many countries share a currency, but where there is no common fiscal policy or strategy to deal with ageing.

Investors are well aware of some of Europes shortcomings. The sovereign-debt crisis showed that converging inflation and interest rates did not, by themselves, ensure a sustainable currency union or integrated banking system. Wage bargaining, regulation and so on need to converge to stop imbalances between countries building up. Less well understood is that demography could also tear the union apart.

Even though Europe receives more migrants than it loses, the UN projects that its population will fall by around 5% by 2050. By then the median European will be 47 years old, nine years older than at the turn of the century, and four years older than the median American. In 2015 there was about one person older than 65 for every four people of working age (ie, an old-age dependency ratio of around 25%). By 2050 the ratio will be one to two; in America it will be one to three.

Some countries will suffer even more. Spain and Italy are expected to lose more than a quarter of their workforce by 2050. Populations in the south and east are forecast to shrink by a tenth on average. With fewer workers, those countries risk seeing growth stagnate, even as rising spending on pensions and health services pushes up public debt.

The 28 members of the European Union fall into three broad groups. Women in northern and western countries tend to have more children than the EU average (Germany is an exception). Though their fertility rates are below the 2.1 needed to sustain a population, high immigration means their populations have still grown.

Those in southern Europe, the second group, have stagnated or shrunk. Fertility rates are lower; in some countries, emigrants have outnumbered immigrants since 2010. Italy is emblematic. Older Italians drift away from work well before they reach pensionable age, and a shortage of child care means many women never return to work after giving birth. By the age of 50, just over half are in work. If those low employment rates persist as Italy ages further, in 2050 there will be more Italians over the age of 50 who are out of the labour force than there are workers of all ages, points out Stefano Scarpetta of the OECD, a Paris-based think-tank.

Populations in central and eastern Europe, the third group, have been falling fast because of emigration. Around 2.5m Romanian nationals of working age, equivalent to a fifth of the population, live elsewhere in the EU. These countries also have relatively low older and female participation rates (the Baltic states, which take inspiration from the Nordics, are an exception). Poland and Hungary offer financial incentives for child-bearing. But research suggests that these rarely work.

These demographic disparities worsen economic divides. Southerners start in a poor position. Productivity is low and as the number of people in work falls, growth will weaken. Their gross public debt is already highin Italy, over 130% of GDPand risks rising further. The euro-zones one-size-fits-all monetary policy may seem less appropriate as growth prospects diverge.

Most central and eastern countries are outside the currency union. But here too there are strains. EU membership promised speedy catch-up towards western European levels of income. But the IMF reckons that the annual growth rate of GDP per person will be up to a percentage point lower because of demographic decline, slowing convergence. Many of these newish members were initially keen on free movement. But after losing working-age people to Europes north and west, they are cooling on it. Croatia, which lost 5% of its population in the three years after it joined in 2013, wants the union to discuss tackling the effects of demographic decline.

Migration within the EU, as in America, has seen workers move to more dynamic cities and regions. Research by the Centre for European Reform suggests that less successful places tend to be older and less productive. The EU has a pot of money to ensure cohesion, but it is small and less equipped than national budgets to redistribute from winners to losers.

Europe needs coherent policies if it is to hold together as it ages. Older people and womenwho tend to have lower employment ratesshould be encouraged into work. If Italian women were as likely to work as German ones, Italys workforce would be 14% bigger. Matching older workers employment rates would add 5%.

Judging by France, providing cheap child care both encourages women into work and supports fertility rates, says Mr Scarpetta. Existing workers can be better trained; automation can supplement them. Improving education and investing in infrastructure could increase productivity. Governments can ensure that retirement ages keep pace with lifespans. All these policies would have the added benefits of attracting immigrants and convincing would-be emigrants to stay.

To date, northern countries have done the most. Germany acted decisively in the 2000s, says Axel Brsch-Supan of the Munich Centre for the Economics of Ageing. Reforms to state pensions linked contributions and payouts to the old-age dependency ratio. Partly thanks to rises in the pensionable age, employment rates for older people, especially women, shot up. In 2000 the share of older people in the workforce was only slightly above that in Spain and Greece. Now it is the EUs third highest.

But enacting and sustaining reforms has proved tricky. Past reforms have been rolled back. Higher pensionable ages introduced in Italy in 2011 were partially reversed last year; so too were measures in Poland and even Germany. Strikes in France against a pensions overhaul are in their second month (see article). Changes to pensions are so unpopular in the south because whole families often live off them, says Cinzia Alcidi of the Centre for European Policy Studies, a think-tank in Brussels. Spending more on working-age benefits would help.

The necessary reforms go far beyond those obviously connected to population ageing. Analysis by the European Bank of Reconstruction and Development, for instance, finds that cutting corruption and strengthening institutions in less well-run countries could convince potential emigrants to stay home. Marshalling a decisive response to the continents changing demography will not be easy. But the EUs very survival may depend on it.

This article appeared in the Finance and economics section of the print edition under the headline "Demography could be yet another force for divergence within the EU"

Excerpt from:
Demography could be yet another force for divergence within the EU - The Economist

LONDON (Reuters Breakingviews) - For aficionados of financial-political-economic crises, Greeces near-exit from the euro zone in 2015 was a classic. Two journalists have told the story as a bureaucratic page-turner.

Greek Prime Minister Alexis Tsipras arrives at a European Union leaders summit after European Parliament elections to discuss who should run the EU executive for the next five years, in Brussels, Belgium May 28, 2019.

The Last Bluff: How Greece came face-to-face with financial catastrophe and the secret plan for its euro exit largely narrates six months of meetings, speeches, popular votes, meetings and more meetings. Remarkably, Viktoria Dendrinou and Eleni Varvitsioti convey the excitement and tension felt by the protagonists.

As is often the case in dramas, the ending is predictable but only with the benefit of hindsight. Viewed from today, it is clear that in the beginning of 2015 German Chancellor Angela Merkel would guide the Europeans towards a deal with this wayward member of the European single currency.

The Greeks would ultimately cooperate, since output and employment were starting to recover, and a large majority of Greek voters were committed to keeping the euro. Something resembling the compromise which was finally reached just before 8 a.m. on July 13 of that year was pretty much inevitable.

Dendrinou and Varvitsioti, respectively journalists at Bloomberg and the Greek newspaper Kathimerini, make clear that it did not feel that way at the time. The election of Alexis Tsipras as Greeces prime minister in January 2015 created real dramatic tension.

The inexperienced radical politician had promised voters that he would resist the latest demands of the countrys creditors, represented by the European Commission, European Central Bank and International Monetary Fund. Tsipras was popular, because many euro-loving Greeks hated the harsh reforms and fiscal austerity that the troika had imposed. Tsiprass choice of finance minister increased the chances of catastrophe. Yanis Varoufakis was a Marxist economist with no relevant experience and unlimited self-confidence. As it turned out, Greece barely avoided crashing out of the euro.

The Last Bluff follows the twists and turns of the story with admirable clarity and concision. Varoufakis was sidelined; Merkel and Francois Hollande, the French president, took charge; the International Monetary Fund slowed progress; Greece defaulted and imposed currency controls; the Europeans secretly planned for Greece to leave the single currency. Most importantly, Tsipras learned that he was far too weak to bully the European Union. Throughout, the EUs leaders, Donald Tusk and Jean-Claude Juncker, were mostly helpful, and a large cast of senior and junior bureaucrats kept track of the seemingly endless details.

Varoufakis has written his own version of this story, but Tsipras is the most interesting character in this account. His political coming-of-age required jettisoning long-cherished left-wing populist dreams. That was hard, but the prime minister eventually learned that dogma is less productive, both politically and economically, than painful compromise. He ended up ignoring the result of a referendum that he himself had called, showing great personal courage as well as some political cunning.

While Dendrinou and Varvitsioti steer clear of grand historical analysis, one great theme does emerge the value of the European project to its participants. The EUs politicians and civil servants were not happy about dedicating so much time to one small country and its truculent and often ill-informed politicians. But everyone was willing to make a huge effort to keep Greece onside, simply to avoid jeopardising an organisation which had become so central to peace, prosperity and identity.

The last dramatic scene shows how this almost instinctive loyalty tipped the balance in favour of what only now looks like a pre-ordained ending. The all-night negotiations seemed to have failed. An exhausted Merkel stood up, declaring, Then its over. Greece will leave the euro zone. But Tusk blocked the door, asking her: Do you really want me to say that the euro zone broke up over 2.5 billion euros? She sat down again for another half hour of talks.

The results were what Dendrinou and Varvitsioti call a typical European fudge. Europe may be a high ideal, but its flexible politics can be pretty low.

The leading American economists who called on Tsipras to embrace currency flexibility by abandoning the euro did not understand the single currencys political and cultural importance. They also overestimated the economic value of a national currency for Greece.

A new drachma would only reduce the pressure on future Greek governments to address what the authors describe as the real, deep problems of the state in areas such as justice, competitiveness, tax evasion and the functioning of independent authorities. After the last fudge, the European authorities also lost interest in tackling these problems. The European vision may be noble, but the execution is often flawed.

British readers of the The Last Bluff will undoubtedly compare the Greek experience to their countrys negotiations to leave the EU. On the EU side, the approach is remarkably similar. Internal differences are smoothed over and the good of the Union is paramount. However, neither Theresa May nor Boris Johnson, the two British prime ministers involved, seem to have Tsiprass ability to recognise what was really at stake.

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at http://www.breakingviews.com. All opinions expressed are those of the authors.

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Breakingviews - Review: Greek crisis drama shows EUs good and bad - Reuters

European powers have rejected U.S. President Donald Trumps call for them to join him in abandoning the 2015 nuclear deal with Iran, the Joint Comprehensive Plan of Action, with several factors pushing them to try to keep the deal alive, analysts say.

After European Union foreign ministers held an emergency meeting in Brussels Friday to discuss escalating Middle East tensions, EU foreign affairs chief Josep Borrell said the 28-nation bloc will keep doing whatever it can to save the deal. Under the agreement, world powers offered Iran relief from international sanctions in return for limits on its nuclear program.

Trump had called on the JCPOAs three EU signatories Britain, France and Germany, all traditional U.S. allies to break away from the deal in a Wednesday speech detailing his response to Iranian missile strikes on U.S. forces in Iraq the previous day. Iran launched the attacks, which caused no casualties, in retaliation for what the U.S. called a self-defensive strike that killed top Iranian general Qassem Soleimani in Baghdad last week.

The very defective JCPOA expires shortly anyway, and gives Iran a clear and quick path to nuclear [weapon] breakout. The time has come for the United Kingdom, Germany, France, Russia and China to recognize this reality, Trump said. Iran has long insisted its nuclear program is for peaceful purposes.

We want to save this deal if its possible, Borrell told reporters after chairing the EU foreign ministers talks in Brussels. Thanks to this deal, Iran is not a nuclear power, he added.

Dispute resolution mechanism

Borrell also said the EU powers had not discussed triggering the JCPOAs dispute-resolution mechanism in response to Irans series of breaches of JCPOA limits on nuclear activities in recent months or its latest threat to scrap restrictions on uranium enrichment, a process that can be diverted to nuclear bomb-making.

Diplomats have warned that Britain, France and Germany could activate the agreement's dispute mechanism if Iran does not return to full compliance. Such an activation could lead to a U.N. Security Council snapback of international sanctions on Iran, a move that Tehran has said would prompt it to quit the deal and end any remaining restraints on its nuclear program.

Trump has vowed that he will never allow Iran to obtain a nuclear weapon and refused to rule out military action to prevent such an outcome.

One factor pushing EU powers to try to keep the JCPOA alive is the fear that triggering a dispute process that leads to a U.N. sanctions snapback could push the U.S. and Iran into a war.

Any conflict between Iran and the U.S. will happen at the EUs doorstep, and they will be the ones who will pay a price for it, in the form of waves of refugees and radicalization that would end up on European shores, said Ali Vaez, an International Crisis Group analyst, in a VOA Persian interview.

EU powers also appear to be waiting for Iran to make the next move in its series of JCPOA breaches.

Tehran has yet to say when and by how much it will expand uranium enrichment, as it threatened to do after the Jan. 3 U.S. killing of Soleimani. Tehran also has said the International Atomic Energy Agency can keep monitoring its nuclear sites and the JCPOA breaches are reversible if European powers help the Iranian economy to circumvent crushing U.S. sanctions.

Hudson Institute analyst Michael Doran told VOA Persian that Iran would have to behave so brazenly in any further breaches of the JCPOA that it generates a backlash for EU powers to feel compelled to trigger the dispute mechanism.

I think the Iranians understand that its not in their interests do that, so they will calibrate their nuclear steps very carefully, he said.

Waiting game

As EU powers wait for U.N. inspectors to verify the extent of Irans breaches of the JCPOA before deciding their next move, the U.S. may not exercise the same degree of patience.

A State Department legal opinion reported by the Associated Press last month said the U.S. has a legal avenue to demand a snapback of U.N. sanctions without waiting for the JCPOAs joint commission to conclude its dispute process. Trump withdrew the U.S. from the JCPOA in 2018, saying it was not tough enough on Iran.

Trumps Republican allies in Congress, including Senators Ted Cruz and Lindsey Graham, have urged him to invoke the U.N. snapback of sanctions in response to Irans threat to back out of JCPOA limits on uranium enrichment. U.S. officials have not said whether they will heed that call.

Trump critics have disputed the State Departments legal opinion, saying the U.S. can only trigger the U.N. snapback if it actively participates in the JCPOA and its dispute mechanism.

I've talked with the Europeans, Russians and Chinese. No one recognizes that interpretation that the U.S. has, so they dont take this threat seriously, Vaez said.

EU powers also face little pressure from their domestic constituencies to walk away from the nuclear deal.

This is not a top priority for the European public, Vaez said. There are a lot of other issues they care about more, like the future of trade, the NATO alliance and 5G mobile technology.

This article originated in VOAs Persian Service.

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Why EU Powers Rejected Trumps Call to Leave Iran Nuclear Deal - Voice of America

ONE of the reasons for this column is to show how countries with a similar or smaller population than Scotlands can not only survive but thrive as an independent nation whether or not they join the European Union.

Last week, Finland, which has a similar size of population to Scotland, marked 25 years of being part of the EU.

On January 1, 1995, Finland, Austria and Sweden became the 13th, 14th and 15th countries to join. They were the first three to do so after the collapse of the Soviet Union and all of them joined after referendums.

Finlands advisory referendum was held on October 16, 1994, and, on a turnout of 70.9%, some 56.8% of people voted in favour of joining.

Heidi Hautala, a vice-president of the European Parliament and a member of the Finnish Greens, told theparliamentmagazine.eu website that when the EU gets its act together, its influence reaches far beyond its own borders.

She added: Protection of privacy and leadership in the protection of the environment demonstrate this.

Now the bloc must come up with a model for the sustainable economy Finland can play its full part in this planet-saving task.

READ MORE:Malta wins case over the arrest of ship off West coast of Africa

According to a poll by the Finnish Business and Policy Forum, the popularity of EU membership in Finland has reached a record high, with 56% holding a positive view and only 13% against.

Roger Casale, secretary general and chief executive of New Europeans said: None of this remarkable achievement of 25 years EU membership has happened by chance and Brexit teaches us that we should take nothing for granted going forwards.

Some Finns took to social media to mark the anniversary. Tapani Saraninen tweeted: Finland as part of European Union is one of the best decisions in Finlands history. For the next 25+ years of development and progress.

Excerpt from:
Finland celebrates 25 years of membership in the European Union - The National

Libya could become a new Syria in the intensity of its conflicts and as a cockpit for regional and big power rivalries unless more serious efforts are made to create a framework for peace-making there. On Sunday, contending forces of the United Nations-backed government of national accord in the capital Tripoli and those led by Gen Khalifa Haftar surrounding the city partially observed a ceasefire called for by their respective supporters Turkey and Russia. Their initiative came from one of several recent summits, reflecting the different European and Middle East interests and ideology running through Libyas conflicts.

In the years since its leader Muammar Gadafy was overthrown in 2011 following a Nato intervention led by France and Britain, Libya disintegrated into regional, tribal, political and religious factions who fought for control. It is a large, strategic and oil-rich country bordering Egypt, Sudan, Chad, Niger, Algeria and Tunisia and sharing Mediterranean geopolitical space with Italy, France, Spain and their European Union bloc. The disintegration makes it the primary locus for migration across the Mediterranean, and has resulted in the development of a deeply inhumane detention camp regime there run by militias.

The latest military, strategic and political competition reflect all these contending interests and ideologies. Gen Haftars forces control most of eastern Libya and his campaign against the government in Tripoli is backed by Egypt, Saudi Arabia and other opponents of the Muslim Brotherhood and Islamist groups he says dominate it. Russia, France and the US tacitly support him too, while Turkey and the EU favour the government of national accord led by prime minister Fayez al-Sarraj. A further arena of conflict focuses on maritime resources and gas pipelines in the Mediterranean highlighted in competing economic summitry last week.

Creating a peace-making framework to head off conflict and stabilise Libya matters hugely. Russia and Turkey seek to fill the strategic gaps left by the USs disengagement from Libya and its preoccupation with Iran. Despite their differences on Libya, both powers have an interest in upstaging the EU as a peace broker and initially they seemed to be getting their way, amid policy disarray and political transition in Brussels.

Libya is a real test for the new European Commission, which proclaims itself to have a geopolitical mandate, notably in the EUs Mediterranean and Middle East neighbourhoods. It is to be hoped that the signs of a more active EU role to consolidate this ceasefire with renewed diplomatic and political negotiations to bring various Libyan forces together will bear fruit. That will require a much firmer effort to find a common EU basis for these talks.

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The Irish Times view on Libyas conflicts: A test for the EU as peace-broker - The Irish Times