Revival - shallow thoughts and campaign unleashed

I mean maybe this blog will revive. I'm not proud of neglecting it - although not deliberately - but sometimes there is no time, or if there is still some, than energy lacks. Anyway I made promises that remained unfulfilled, however, I didn't really find suitable topics to deal with as I was not convinced that apart banalities I could be able to express anything half-original. And only repeating what others already explained - I would spare myself from this kind of self-promotion.
Nevertheless, at the moment I'm in the middle of a savage electoral capmaign, the prize is the seat of the president of Romania, among the contenders we can find Mr. Basescu, whose economic talent was many times highligted at these pages, the president of a the so-called social democratic party, Mircea Geoana, a liberal candidate, Crin Antonescu, the eternal challanger, Vadim Tudor, the extreme nationalist, a literate Hungarian, a poet, Hunor Kelemen. The first three are the serious candidates, the others can influence the result but has no real chance to become head of state. Not that it would be a welcome job, I suspect. Romania, even half a year ago portrayed in Hungary as a rapidly emerging country that will overtake its western neigbor in three or four years, is now on the verge of collapse. Not only had the budget deficit soared - it is predicted to reach 8% of the GDP - and the economy declined, but at the moment the favorite theme of politicians is the lack of the necessary revenues to pay public officials, teachers, justices, nurses, medical doctors etc. The IMF delayed the next part of its credit until a new and stable government will be established.
One reason beind is the campaign itself. I'm even not convinced that the situation is really so dire as it is portrayed, because politicians are clearly seeking the way to put the responsibility for the failure on their rivals. Therefor everyone maneouvers, tries to snooker its opponent(s) and somehow convey the image that if the salaries for next month really won't be paid out it will be their opponent's fault somehow. And as the president - whose party was left alone a month ago by the social democrats as sole government party - can not easily distance himself from the problems, he clearly tried to frame the situation as if only the IMF money would be available for the state. And the objection of the social emocrats to install a knew - minority - government of the presidents party is the only objection in the wy ofn this part of the credit.(It is evidently cheaper, but the Romanian government borrowed continously in this year from local banks huge sums and with a growing risk apettite at the markets even the doubious CCC credit rating wont easily deter "investors" from buying Romanian government bonds.)
But this is only a minor aspect of the crisis and I fear none of the candidates - and no one from the economic elite - is ready to drew the very sober conclusions from the crisis: the model of the recent years at last failed to delver a sustainable growth and it is not easy to imagine that it will in the future. However, every proposal is somehow a repetition of this earlier economic policy. (The social democrats try to mix it with some populist measures, higher salaries, lower prices fro public services etc.) Romania, a realtively poor country with a huge population depending on social assistance due to the lack of employment lived primarily on the remittances of a large guest worker population (at its peak they sent almost 10 billion euros to home in a year) and made it easier for its population to take credit with the help of lower tax rates. (Nevertheless, Romania's tax system was neither simple, nor really low, but the rational and efficient and etc. markets and their even more rational and efficient actors was simply not capable to grasp it, because they only had some very superficial informations...) Although the country attracted some investment, a large part of it went to the real estate sector and real estate prices skyroceted. Just as consumption with them. (Bucharest is quite similar to Latvia in the outlok of its cars and it is striking how many prestigious companies have a shop somewhere in the city. For example Cristophle closed its shop in Budapest after a year, while the Bucharest branch still exists...)
Anyway, it stopped with the crisis, and now people began to feel the harder times. The proposals for reviving the economy do not seem to be far reaching enough: austerity, cutting of social spending (it is usually called better targeting but please, don't tell me, that someone with 200 euros in a month as regular income not deserves some social assistance...) and cutting jobs in the public sector. The latter can be reasonable but the country was never really capable to create jobs, the record low unemployment was simply a result of the emigration. Now the migrants are returning and public officials will be laid out... The problem, unfortunately is the poverty that do not allow domestic consumption to be the driving force of growth. Even not with tax cuts - a liberal proposal - when they would deliver people 20-30-40 euros per month. (This is one of the weakest points of every tax cut ideas in ECE: with a realtively low wage level local SMEs orieted towards the domestic consumers can not raise their prices for services too much. People simply do not have enough money to pay 15 euros for a hair cut after spending the lions share of their income on houshold costs and food.) But the perspectives are not bright, with a rapidly shrinking and ageing population and with the necessity to export more... Romania faces either a very long and protracted struggle alone, offering low wages in order to attract investment in export oriented sector or ... don't really know. With the strain of the crisis slowly withdrawn the chances of a profound change - a turn from a state level regulatory and social system combined with supranational free market towards a supranational level regulatory and social system combined with supranational free markets - seems less and les probable. The aging and poor ECE countries will remain entrapped.
Otherwise the non-political proposals are sometimes even worse. "Economists" analyzing the region from a macro perspective - I'm still stounded seeing how easily they preceive that they are omniscient after putting some basic data in their models - can not really tell what would be the way out. The language and discourse of these actors is shallow and contentless, full of empty signifiers and not a single world with real content. They simply repeat phrases, like structural reforms, tax reforms but at the moment they even not dare to give details. Just phrases. And it is always hard to get rid of the feeling that it is completely immoral: to make such unelaborate proposals (while only onething is certain: in essence they mean the worsening of the situation of the social groups at the bottom of the society) from well-paid positions... Even if it is demagoguery, I can't help to think of it.

Where are the queues? - Impressions from Latvia

If someone would like to visualize the Great Depression of the last century - the one that shaked the world between 1929 and 1933, with far reaching consequences - the first images to pop up would almost certainly be those monochrome ones with horrified people incredulously looking at the headlines or each other, incapable to grasp that a life's savings were lost literally in one moment, or the ones with peoples in ragged clothes queuing in front of a kitchen for the poor, hoping for their daily soup. Not that it was necessarily the general appearance of that crisis, but poverty, misery, hopelessness is dominant in its memory, and somehow defines our visual perception as well. Black and gray, shabby places, rags, dust and dirt.

In the last week I had the opportunity to visit Latvia and travel a bit around the country as well as in its capital, Riga. The primary aim of this journey was not to collect experiences from the middle of the crisis, it was a quite ordinary trip, at least it was simply a kind of holiday, even though our host proved to be an extraordinary one. But anyway, it is almost impossible to forget about the circumstances and the experiences and discoveries of a traveller, however vague, contourless and obscure they could be, will be measured against the background of the present economic misery. Even though if one is aware of the problems with such experiences, the usual behavior of foreigners either to miss the deeper context or to perceive a given place in a stereotypical, often contemptous way or admiring it without real basis and placing it in an uneven and unequal relationship with one's own country.

At the moment the first impression of a superficial traveller would be that Latvia is quite a normal place, where the signs of the crisis are still not visible. Thriving nightlife in Riga, shamlessly high prices, tens of thousands of young people at a pop-rock festival, middle class Latvians making boat trips, German, Italian etc. tourist groups do not signall the inevitable collapse or at least extraordinarily painful adjustment suggested by the economic data and commentators.

The signs of the problems are there of course, we spent our days next to a newly erected residential area, where only one flat from 280 had tenants and after some days spent in the country someone will inevitably make a hint for the spending cuts affecting people, first of all pensioners. But the crisis was not an everyday topic in the circles we were fortunate enough to move in, and even among those who mentioned it - besides those, who addressed the substantial issues as well - some people were speaking of it as being exclusively the fault of reckless banks lending money for those who are not capable to repay it. There was no explicit despair, feeling of the inevitable end etc. Latvia was rather colorful - vivid green, white sand, paler blue sea, yellow, blue and purple flowers, deep blue of blueberries and slowly reddening cranberries in front of the background of harsh green mosses, red bricks of the churches in Riga, light blue, yellow and shining white buildings - not the grey and black. (Ok, dust exists, but it wouldn't be ECE if just next to the National Theater one wouldn't find a shabby road with a dust covered tramway track :) )

Of course any of these observations (better to call them impressions as they weren't the result of any thorough examination or discovery) are only superficial and have no broader relevance. They can at best be anecdotal evidence, nothing else. And there are clear signs of the boom-bust economy, almost everyone uses a car at least one category higher than would be affordable according to their income compared to the "West", BMWs, Audis, Lexuses, Volvos, Mercedeses are running on the roads (otherwise infrastructure was not a favorite destination of money for investment, at least as far as I could have assessed), real estate prices were in an incredible height etc. But on the whole, up to this moment it is rather a pleasant crisis, still nobody really hurt, far from the apocalyptic imaginations. Not that it can forecast anything relevant for the future, it is just a single moment, frozen for eternity...

Detruisez l'Autriche-Hongrie - reloaded?

Indivudal states - as entities and historical individualities - are not eternal ones. A significant part of the world's and Europe's sovereign entities are relatively newly established, and many of the seemingly resilient ones went through phases in the last hundred years when their existence and/or sovereignity was in doubt. It is quite clear in the Eastern part of the EU, where every new member state didn't exist 150 years ago (or at least not in their present form and as sovereign states - for example Hungary or Romania), many of them was established as independent nations after the WWI but ceased to exist between 1939 and 1944, while others emerged as new "powers" of the region. The realignment of ECE happend again in 1945-1947 and after 1989.

The important point is that the present configuration of this part of the continent is not necesserily an eternal, given one sanctioned by thousands of years of history, or a divine action: it is a reasult of the collapse of greater frameworks of states, empires and would be nation states. Those who are familiar with the region's history will almost automaticly associate to violence, war, armed attacks on neighbours after reading such an introduction, especially after the rise of extrem rightist (and extreme nationalist) forces at the election for the European Parliament. But my only concern was to highlight that states can collapse, fail and be dissolved due to the circumstances. Some of them is simply collapsing, as its institutions can not control its territory, others' endgame begins at the fringes, with the loss of efficiency of the state administration and with the emergence of alternative powers at the local or regional level, others simply implode due to their incapacity to fulfil its tasks and responsibilities towards its subjects, and these factors can coincide with each other. But, although in many times a kind of external impact - in the form of war, crisis, presure from a great power etc. - plays an important role in it, the internal incapacity (impotency) of the state is almost never lacking among the factors behind such developments. And - as it is a lesson from these events - even the largest and seemingly quite stable formations can be dissolved very rapidly, at an astonishing pace.

Maybe we can see similar processes at the fringes of the EU today. Countries, struck by the crisis, without room for manouvre and having lost a significant part of their state revenues, compelled to follow prescriptions of great creditors who rushed to their aid and bailed out them, are in more and more dire situation, as they are forced to cut down their public services. The budget cuts in Latvia are affecting the public instruction system, the health care (for example certain surgeries will only be available for clients of foreign helth insurance systems from the autumn, as the Latvian helath care will cease to finance those for Latvian citizens), maybe the police, the judiciary system. In this case it is the result of accross the board budget cuts, but other examples exist in Romania or Hungary as well. In the latter the state financing available for hospitals was reduced significantly and only the reduction of their services could lead to some balnce in the expenses and revenues. (Meanwhile the cuts in the contributions of employers and employees to the health care budget will significantly worsen the financial situation of the health insurance system.) In Romania the lack of funds is almost everywhere, but it surfaces quite sporadically, either in regional or in sectoral terms. According to press reports one county tribunal will be closed in August due to the lack of financing, the salary of judges will be cut with 1/3 of it (in a country where - accoding to the EU's assessment - corruption is in full bloom, and the state is incapable to act against this phenomenon decisively), in many cities there is not enough money to open the schools in September etc. Although the government insists that they will provide at least the necessary basic financing, it is far from being certain, especially as Romania has to comply with the conditions of the IMF and the EU in order to receive the individual tranches of its huge loan.

Not that it would be exclusively a fault of the external world. The Latvian government is desperatly defending a currency peg from an eventual devaluation (and from this perspective salary cuts in the public sector are lying on the road to "internal devaluation"), the Romanian is caught between electoral promises last fall, an uneasy coalition of "social democrats" and "conservative liberals", an alliance for Romania('s wealth), really aimed to divide the resources of corruption among them, and between the coming presidential elections, while in both countries the "econimc miracle" of the last years was "financed" with low taxes and growing consumption - based on loans and loans and loans, leaving no buffer for a case of crisis.

But the most worrying development is concerning the future of the EU. The predictions - forecasting problems in the coherence of the eurozone - are not ceasing, while the handling of the crisis highlighted the deficiencies of the inter-governmental approach in times of crisis. The reluctance of the Germans to develop a real common perception of the crisis, to allow European institutions to act independently (although those never has shown much willingness to act that way) although comprehensible, was certainly not benefitial. And as Wolfgang Munchau points out: after the Constitutional Court's decision on the Lisbon Treaty everything will be even more complicated. Even in the field of common economic policy. Not to speak of facing the real problems, the incapability of ECE in the long run to dael with its underlying social problems and with the impact of the demographic trends without a common social policy. But if the slow dissolution of the East will continue it could easily reach to the heart of the union itself.