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Reflections of a Filipino in the Netherlands

Archive for the ‘The Netherlands’ Category

Waterschappen

Posted by butalidnl on 18 March 2015

Today, 18 March 2015, is the election day for Netherlands’ ‘Waterschappen’ (Water Authorities). Waterschappen are elected bodies that administer water works in a given area of the country. The Netherlands is divided into 24 waterschappen (the country also has 16 provinces). The boundaries of the waterschappen are based on water drainage areas; they often cross provincial lines.

It seems that only the Netherlands and Belgium have elected waterschappen, which demonstrates the importance these countries give to water management. Waterschappen are the Netherlands’ oldest democratic institution; the first waterschap was formed in Utrecht in the year 1122. Waterschappen manage the many dikes, polders (reclaimed areas), canals, locks and other flood control infrastructure; as well as water purification and distribution, and some aspects of water transportation. Through the centuries, they have been good in fulfilling their tasks.

Historically, the Dutch had a lot more waterschappen than today. As late as 1850. there were 3500 of them. This is because they were formed to manage relatively small areas e.g. polders (reclaimed areas) where water had to be managed closely, at least in the past. Over the years, the waterschappen merged with each other, eventually resulting in the 24 waterschappen today.

During the 1500s, the King Philip II (of Spain) moved to abolish the waterschappen and centralize administration. The Dutch were horrified, fearing that their dikes etc will not be maintained properly, and they will fall victims of floods. This was a contributing factor in the Dutch revolt , which eventually led to their independence from Spain.

There are frequent discussions over the continued relevance of waterschappen. Every now and then, political parties would propose to abolish them. But, so far, none of these proposals have succeeded. This is probably because waterschappen continue to be relevant. Global warming has only increased threats like sea-level rise and floods.
Besides, it does not make sense to ‘fix’ something that has functioned so well through the centuries.

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Dutch ‘Black Pete’ Controversy

Posted by butalidnl on 15 November 2014

It is November, and the Dutch are gearing up to celebrate ‘Sinterklaas’ (St. Nicolas) Day on December 5. On this day, St. Nicolas is said to go around giving good children gifts, much like the more common Santa Claus.
The Dutch firecely defend this tradition against the ‘American’ tradition of Santa Claus. In the Netherlands, Christmas season only starts on December 6; before that they only have Sinterklaas decor, songs, etc. Sinterklaas is a big media event; his arrival (he’s supposed to come from Spain, riding a small steamboat) in mid-November is covered by the main TV channels, and is greeted by elected public officials.

A part of the Sinterklaas tradition is marked by controversy. Sinterklaas is assisted by helpers (sounds like Santa Claus’ elves) who are white people colored black (or dark brown). These are his ‘zwarte pieten’ (black Petes). They help Sinterklaas deliver gifts; but they are naughty and rather dumb, and always making minor mistakes.
A growing minority of Dutch say that zwartepiet is a racist part of the Sinterklaas tradition. They want Piet to change color (to become simply white, or have other colors than black), and to no longer be portrayed as dumb and clumsy. These people have filed protests against Sinterklaas events, to press their point.

In reaction, another part of the Dutch public is shocked at what they see as an assault on their traditions. They say that zwartepiet is not a sign of racism, but merely a part of the sinterklaas tradition. Why confuse children with multicolored zwarte pieten?
And to further heat up matters, the PVV (a rightist, racist party) has taken up their cause. The PVV has gone as far as to propose municipal ordinances explicitly requiring the Petes to be black.

Not about children
The issue of zwarte piet is NOT about children. According to one writer: children, who are naive enough to believe in Sinterklaas, could easily be made to believe that Piet changes his colors. Children won’t mind what color Piet is, as long as they continue to receive gifts.
The issue is emotionally laden because many adults want the practice of Sinterklaas to be exactly the same as when they grew up. For them, tinkering with the tradition is a slippery slope, which may end up giving up Sinterklaas altogether. So, they want to draw the line at zwarte piet.
For other Dutch, zwarte piet represents the Dutch racist history (of a time when black people were slaves), and that it reinforces prejudices against darker-skinned people. There are expressions e.g. ‘don’t make me into a zwarte piet’ (meaning, ‘don’t portray me as dumb and always at fault’). They say that adjusting the image of zwarte piet will not harm the overall tradition around Sinterklaas.

Change?
With emotions high, there is a tendency to oversimplify matters and stereotype the other side in the controversy. Anti-zwartepiet people are portrayed as ‘foreigners who don’t care about Dutch traditions’, and pro-zwartepiet people are portrayed as racists. Most people are somewhere in the middle – i.e. they want to maintain the Sinterklaas tradition without hurting a part of the population.
In Amsterdam, Sinterklaas will be accompanied by zwartepieten, but there will also be pieten who are clearly white with only black soot on their faces (which they supposedly got from going down chimneys). In Suriname (a former Dutch colony in South America), their pieten come in many colors. There are less zwartepieten going around the streets of the Netherlands before Sinterklaas, when compared to earlier years.  And, zwartepieten now are less often portrayed as dumb or clumsy.

The fact that the zwartepiet controversy is one of the country’s hottest issues actually gives a good sign of the state of the country. It, however, is a bad sign on the country’s sense of priorities.

 

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Remittances, Development and the Way Forward

Posted by butalidnl on 12 June 2013

This paper was prepared for the conference “Building Bridges: Diaspora for Business and Development”, held in The Hague, The Netherlands on 8 June 2013

Never before has ‘Migration and Development’ drawn a lot of attention from Dutch politicians. Foreign Trade and Development Cooperation Minister Ploumen recently presented to parliament the policy paper ‘What the World Deserves: A New Agenda for Aid, Trade and Investment’. The minister stated that migrant organizations (MOs) have a useful function in poverty alleviation efforts through remittances, in their networks and knowledge of local conditions. The minister included MOs in the policy dialogue on migration and development, and financed their ‘development-relevant’ projects. Migrants can also, according to the Paper, contribute to the development of their countries of origin by, among others: contributing financially to projects that develop specific regions; establishing enterprises that create employment and economic development; and by being deployed as migrant experts.

The Dutch government’s starting point is that remittances are private, and that governments should not interfere with how these remittances are used. The World Bank has a more nuanced standpoint regarding this.  According to them “Remittances sent home by migrants to developing countries are equivalent to more than three times the size of official development assistance (ODA) and can have profound implications for development and human welfare. Remittances can contribute to lowering poverty and building human and financial capital for the poor.” [1]
There is thus more than enough reason to take a closer look at remittances.

Remittances

Remittances are, according to the International Monetary Fund (IMF), personal transfers consisting of all current transfers in cash or in kind made, or received, by resident households to or from other non-resident households.

Most remittances are used for food, clothes, school fees and medicines, thus increasing their recipients’ access to basic social services. Remittances are also invested in the private sector, particularly in houses and plots. There are both positive and negative effects of remittances. On the positive side, remittances are known to reduce poverty, increase savings, increase investments in human capital and increase recipient countries’ access to international credit markets. Most importantly, remittances are often counter-cyclical in the sense of increasing when other investments decline (e.g. in times of conflict, economic recession and natural disasters, where immediate assistance is needed).

On the negative side, remittances are known to cause inflation, increase imports and create dependency among their recipients. In some situations remittances may contribute to or prolong state fragility, as their macro- and micro-economic importance gives legitimacy and stability to fragile states that are in need of political and economic reform. Remittances also often increase differences between those with and without access to remittances, and in this sense may cause or increase social tensions and conflicts. Moreover, the flow of remittances is known to lead to more out-migration. [2]

Migrant remittances has emerged as a significant source of finance for many third world countries, surpassing the inflows of ODA, and increasingly also that of Foreign Direct Investment (FDI).  At the same time, remittances are more complicated, because these are basically personal transfers of money and are not easily tapped for development projects. In this paper, we will put remittances in the context of the situation in the Netherlands, examine the ways in which remittances have been mobilized for economic development, and outline some future steps.

Table 1. Migrants in the Netherlands, 2012.

 

Number of persons

Percentage of the population

x 1000

%

Total

16,730

100.0

Indigenous Dutch

13,236

  79.1

Migrants from Western countries

  1,557

    9.3

     including: Polish

     101

    0.6

Migrants from Non-western countries

   1,938

  11.6

    Turkish

      393

    2.3

    Moroccans

      363

    2.2

    Surinamers

      347

    2.1

    Antilleans

      144

    0.9

Other migrants from non-western countries

      691

    4.1

Source: Central Bureau for Statistics, Year Report Integration 2012, December 2012

As of 1 January 2012, migrants compose 20.9% of the total population of 16.73 million people in the Netherlands, with 11.6% coming from non-Western countries and 9.3% coming from western countries. Among the biggest groups of migrants are those of German (377 thousand) and Indonesian (378 thousand) origins. Both countries have a long migration history to the Netherlands. The Turkish (393 thousand), Moroccans (363 thousand) and Surinamers (347 thousand) continue to be the biggest number of migrants coming from non-Western countries.

Table 2. Destination of Remittances from the Netherlands, 2011. Amounts are in US$ millions.

Country

Remittance

……..

  Country

Remittance

Belgium

1159

 

Indonesia

500

Germany

447

 

Morocco

431

France

230

 

China

280

Spain

155

 

Nigeria

152

Poland

104

 

India

93

United Kingdom

80

 

Thailand

58

 

 

 

Philippines

53

US

52

 

Turkey

51

The data for this table came from the World Bank, Bilateral Remittance Matrix, 2011.

Total remittances from the Netherlands in 2011 amounted to $4842 million. Of this, roughly one half went to EU and other developed countries, like the US. The remittance totals for Belgium and Germany are, to a large part, due to salaries of people who live there but work in the Netherlands.

The amount remitted to Turkey seems unusually small, given that it has a rather large migrant community (393 thousand).  It has dropped precipitously from 2000, largely due to the reclassification of the expenses of migrants while in Turkey from ‘remittances’ to ‘tourism revenues’, as well the conversion of money from foreign currency accounts to local currency. Other factors include: family reunification has lessened the number of beneficiaries; integration of Turkey with EU banking system; second and third-generation migrants have less inclination to remit.[3]

Remittance Flow Dynamics

The more migrants a country sends out, and the higher their income,  the more they would tend to remit. This is a very general ‘rule’, but there are more factors that affect the amount of remittances. From the IOM:  “Drawing on the existing literature, Spatafora (2005) lists five  broad groups of external variables that could affect remittances:
a. Economic activity in the host country, improved economic conditions in the host country allow existing migrants to send more remittances and may also trigger greater emigration from the home country, increasing future remittances. An economic downturn would have the opposite effect.
b. Economic activity in the home country. Negative economic shocks in the home country may encourage existing migrants to send more remittances and push more people to migrate.
c. Economic policies and institutions in the home country. The presence of exchange rate restrictions and black market premiums or general macro-economic instability may discourage migrants from sending remittances, or shift away from formal channels.
d. General risks in the home country. Political instability, including low levels of law and order and risks of expropriation, may discourage remittance.
e. Investment opportunities. Higher potential returns on host country assets may induce migrants to invest their savings in the host country rather than remitting them home.” [4]

Table 3. Remittances from Selected Countries from 2005 to 2011. Amounts are in US$ millions

 

2005

2006

2007

2008

2009

2010

2011

Netherlands

5928

6610

12635

14914

10526

9462

10974

Belgium

2754

2699

3202

4048

4238

4152

4574

Germany

13148

13081

14521

15701

16171

15058

16677

Spain

8136

11326

15191

14826

12751

12244

12904

Greece

902

982

1460

1912

1843

1932

1941

UK

3877

4732

4834

4637

3400

3439

3256

US

46293

49656

51654

54399

51639

51597

51592

The data for this graph was taken from the World Bank  Remittance Data Outflows, 2013. [5]

The economic crisis since 2008 has had only a limited effect on remittances from Europe (see Table 3). Remittances decreased in 2009 (for Germany, the decrease was in 2010) in most cases by only a small amount. The decrease in the Netherlands and UK were more significant.  [Since the data is only until 2011, it does not reflect a possible bigger drop in Spain and Greece in 2013.] Across all countries, total remittances as a result of the 2008 crisis decreased by 5.5%, compared to a 40% drop in FDI. This shows that, while economic recessions would negatively affect the level of remittances, they usually do so only slightly and temporarily.
Remittances can generally be classified into two kinds: ‘family support’ remittances which are for regular family expenditures (e.g. consumption, education), and ‘discretionary’ remittances which are driven by investment or altruistic motives.  Migrants who are: irregular workers, earn lower salaries, or have a spouse and family in the home country, tend to have more family support remittances; while those who are: regular, earn higher salaries or do not have a family to support in the home country tend to have more discretionary remittances. But, these are only generalizations; the reality is that most migrants have a certain mix of both types. Family support remittances are quite stable, while discretionary remittances are more sensitive to overall economic conditions.
Discretionary remittances make up 20-30% of total remittances. They are particularly interesting for those who want to maximize the use of remittances for investments or development projects. But migrants who primarily send family support remittances also send discretionary remittances and could also be encouraged to pool their limited resources together with other migrants, in order to make investments.

Government Attempts to Utilize Remittances

The governments of remittance-receiving countries have tried, over the years, to maximize migrant remittances for ‘development’. Among the steps taken were[6]:

Selling ‘development bonds’ to migrants. A number of governments offered migrants bonds (e.g. ‘resurgent India bonds’) with special features e.g. tax-free status, preferential interest rates, preferential exchange rates. While there were enough people availed of these bonds, they mainly catered to the higher-income, higher educated migrants, who already remitted via formal channels. Criminals and corrupt officials also used these bonds to launder their money.

Matching Fund Programs. The shining example of this is the Tres por Uno program for Mexican migrants in the US. Every dollar raised by Mexican Home Town Associations (HTAs) in the US for projects in Mexico, was matched by one dollar each from the federal, state and local governments of Mexico. In 2005, Mexican migrants collected $20 million for development projects, and the Mexican government matched this with $60 million. The collective remittances of Latin American HTAs account for 1% of their total remittances.

Investment Incentives.  The governments of India and Pakistan had programs that provide incentives e.g. preferential access to foreign currency and capital goods  for migrants who invest in backward areas and export processing zones. The drawback of such schemes is that they encouraged capital-intensive production in the midst of high unemployment.

Abolishing Exchange Controls. The most successful ‘scheme’ in terms of increasing remittances is the abolition of foreign exchange controls. In 2002, the Philippines quadrupled its formal remittance receipts by abolishing exchange controls. Other countries have similar experiences.
Reforms that make it easier to set up and run new businesses, as well as a flourishing economy have also increased remittances for investment.

The Way Forward

Even though the sending of remittances is a private matter between a migrant and his/her family, there are measures that could be taken to promote an increase in the proportion that is invested in community projects or businesses in the country of origin.
The role of governments should be more in creating an enabling environment that promotes the growth of remittances and their use for national development, instead of actively trying to channel remittances. Other actors could be more effective in channeling remittances.  Migrants themselves, individually or through their organizations, should be more in the center of efforts to better channel their remittances.

Remittance Fund Diaspora Business Centre (DBC).  The Diaspora Business Centre is an initiative that seeks to raise public and private resources for a Diaspora Remittances Fund (DRF). The DRF gives poor and disadvantaged people in migrants home countries a prospect for economic self-sufficiency; it also offers undocumented migrants and rejected asylum-seekers a chance to voluntarily return to their country and to start their own business.
The DRF concentrates on countries of origin of the diaspora and projects that aim for economic self-sufficiency. The DRF works with projects in the informal and primary sectors, with specific attention to attaining food security. It does two things: provide financial support, as well as technical guidance and support to capacity-building. This is why the DRF is forming a pool of diaspora senior experts that would advise businesses in developing and emerging countries. In this way, the DRF stimulates entrepreneurship, self-reliance and sustainable development of Small and Medium scale Enterprises (SMEs) on location. Through concrete advisory projects in the workplace by these professionals,  businesses could build up their expertise and to prosper in the local economy.

Support for Migrant Organizations’ Community Projects. Migrant organizations often support community projects in their countries of origin. Governments of host countries as well as the home countries could support these initiatives.  France has a Co-Development program which provides technical and financial support to migrant organizations (especially those from Mali, Mauritania, Morocco and Senegal) in their development activities.  The Mexican government provides counterpart funding for projects by Home Town Associations. Non-government organizations could also support MO’s projects. It is also important to have programs to strengthen the capacity of the MOs to pursue such projects.
The Dutch government should expand its program of providing matching funds (directly or indirectly) to migrant organizations’ projects in their countries of origin.

Financial Literacy Trainings[7]. These trainings could be given both to migrants in the host country, and to their spouse and family  in the home country. Giving the training to migrants would put them in a better position to manage their finances, which would hopefully result in them increasing their savings and the capacity to remit. Giving the training to the spouses of migrants would enable them to better manage the remittances that they receive.
Migrant organizations could conduct these trainings in host countries, while migrant-related NGOs could do this in home countries. These trainings have been proven to be effective at the level of the migrant; however, the challenge is to give these to enough migrants in order to make a significant macro effect.

‘Pasali Method’. One problem with remittances is that they tend to exacerbate income differences within the receiving country – within regions, and even within a community. This is because communities and households which have many migrants benefit, while others (which are poorer to begin with) do not. Pasali has set up a Social Business in a backward community in the Philippines (which does not benefit significantly from migrant remittances). It will soon offer to Overseas Filipinos ‘participations’ or discrete investment packages which will yield yearly returns. Migrants who invest in these participations would have their profits deposited with a Philippine bank account, which will then mostly go to their relatives. Thus, they will indirectly be able to help their relatives by first investing in a backward area somewhere else.
A prerequisite for this is that there should be an efficient banking system in the country, especially for inter-regional cash transfers.

SME-Migrant Organization Partnerships. Migrant organizations, either by themselves or in partnership with SMEs in their host or home countries could set up businesses. Individual migrants could participate in these businesses through ownership of shares or through ‘portfolio’ investments with these companies. A necessary condition for this are that laws and regulations do not hinder migrants from starting businesses.

‘Virtual Return’. The International Organization for Migration (IOM) has a program called ‘Migration for Development in Africa’ which is a capacity-building program that facilitates the transfer of skills and resources from the African diaspora to their countries of origin. It includes a program for temporary or ‘virtual’ return where migrants contribute their skills without endangering their host-country residency status.

This program recognizes the potential of, and utilizes, migrants’ skills, and not only their of cash remittances.

References

Migrants’ Remittances and Development: Myths, Rhetoric and Realities, by Bimal Ghosh,  International Organization on Migration. 2006.

Migratie en Ontwikkeling: Beleidsevaluatie van het Ne derlandse Migratie en Ontwikkelingsbeleid sinds 2008, by Bram Frouws and Ton Grimmius. for the Dutch Ministry of Foreign Affairs, 2012.

Migrant Remittances and Development Cooperation. by Jorgen Carling, Peace Research Institute, Oslo. 2005

World Bank Migration and Remittances Data.
– Remittance Data Outflows, April 2013
– Bilateral Remittance Matrix 2011

Carlo Butalid, for the Dutch Consortium of Migrant Organizations (DCMO)

8 June 2013


[1] World Bank website Migration and Remittances

[2] DIIS Policy Brief Fragile Situations

[3] Microeconomic Determinants of Turkish Workers Remittances: Survey Results for France-Turkey. By Elif Unan, May 2009.

[4] Migrant Remittances and Development Myths, Rhetoric and Realities, IOM

[5] The remittance figures in Tables 2 and 3 both come from the World Bank, but the Bilateral Remittance Matrix table used for Table 2 uses a stricter definition of remittances than the Remittance Data Outflows table which was used for Table 3.

[6] IOM, Migrants Remittances and Development: Myths, Rhetoric and Realities.

[7] A useful reference on this is FReDI ‘Financial Literacy for Remittances and Diaspora Investments’, by GIZ

Posted in migrant, Pasali, politics, The Netherlands, World Affairs | Tagged: , , , , | 1 Comment »

Raffle for Partylist Groups

Posted by butalidnl on 24 June 2012

The Comelec will be holding a raffle of partylist groups to determine their order in the ballot. The poll body had approved Resolution No. 9467 mandating a raffle of accredited party-list groups “for purposes of determining their order of listing in the official ballot” for the May 13, 2013 national and local midterm elections.

The rationale for this is that partylist groups are striving to be the first in the alphabetical order, resulting in a large number of partylist groups’ names starting with the letter ‘A’, and even some starting with ‘1’ (which comes before ‘A’). So now, Comelec wants to just hold a raffle to make the listing ‘fair’.

The problem is that the raffle is not that fair either. If we follow the logic that many people will just vote for the first party on the list of partylist groups, a raffle will mean that the party which gets drawn for the first position would probably get seats for free – simply as a result of pure luck. While more deserving parties with a much better parliamentary record may get less seats than otherwise.

All this sounds like Comelec is earnestly seeking to reinvent the wheel. After all, very many countries have party list systems for their whole parliament. Comelec could have studied how they approach such a problem (and other problems regarding party lists).
In the Netherlands, the whole parliament is elected using the partylist system. Parties are listed based on the votes they got in the preceding elections. New parties then are added at the end of the list, and ordered based on the order of their registration. The system is fair and rather simple. The system ensures that the more significant parties get top ranking, and that new unproved parties start off at the bottom of the list.
Many other countries have similar systems.

A party’s ranking is important. For instance, election debates are open only to the top parties on the list – up to six parties at times. And it does have something like a bandwagon effect – if your party is Nr 1, it convinces some people to vote for it. So, when parties split, there are bitter court cases to determine which faction ‘inherits’ the party identity and its ranking – the loser ends up being ranked as a new party.

The Comelec raffle is scheduled to be held on 14 December. There is still time to scrap the raffle idea, and adopt the Dutch solution to the ‘problem’ of ordering the partylist groups.

Posted in Philippine politics, Philippines, politics, The Netherlands, Uncategorized | Tagged: , , , , , | Leave a Comment »

Euro Zone Austerity is Correct

Posted by butalidnl on 5 January 2012

US and UK economists are quite vehement in opposing the Eurozone’s stress on austerity. They say that this would jeopardize economic growth, which is important for increasing employment and maintaining welfare. But they are just expressing conclusions which stem from the dominant Keynesian view of economics. We will see that this view needs to be amended or replaced.

Addicted to Growth
American economists are addicted to growth. Keynesian economics teaches that governments should use fiscal and monetary policy to maintain growth at all times. Now, at its extreme, the US Fed is the one mainly holding up the US economy by using monetary policy alone. This obsession with growth has led to the Fed and the Bank of England (BoE) to print money (aka ‘quantitative easing’) in order to stimulate growth. People in these two countries have been led to believe that this is a good thing. That the economy will be alright, if only people continued shopping.

Non-economists may find such a policy of ‘printing money and encouraging shopping’ problematic; but then they would be faced by Keynesian economists assuring them that it is right. What the Keynesians fail to realize is that the world  is in the middle of an international tug-of-war for resources. Printing money and shopping are, in effect, asserting the US’ position as ‘consumer of last resort’ at a time when other countries would rather use resources elsewhere. And that is the weakness of the policy: third world booming economies are  increasingly reluctant to prop up the US economy if this means that they would be deprived of resources they need for their own development. The US economy, instead of benefiting the world with its consumption, is more becoming an impediment to growth of other countries.

In this light, the Euro countries’ call for governments to live within their means is a good policy. This means, concretely, that governments should no longer stimulate their economies through excessive government spending (fiscal policy). And combined with the EU’s thrust to lessen its carbon dioxide emissions; it means that Europe’s resource footprint will grow slowly, if at all. It will also mean that Europe will be producing goods and services in an increasingly efficient and competitive manner.

Building Efficient Economies
Government austerity forces economies to be more efficient, and to utilize all their resources properly. Austerity could mean cutting hidden subsidies on fossil fuel, taxes on waste, more efficient production or promoting recycling. While a natural problem with austerity programs is that they may also reduce vital services like the social safety net or public transportation, this will be corrected in the course of the political process as other parties would restore these.

Efficiency includes the concept of a good social safety net, because when workers who are displaced by rapid market changes are well taken cared of, they would more readily accept those changes. Societies should avoid, most of all, the destruction of human capital in the form of forced idleness and de-skilling.

There are also specific policies which skew a particular country’s utilization of resources. Among these are: differences in retirement age (e.g. Greece used to allow retirement at 52 years); low corporate tax (Ireland); or, tax-exemption for mortgage interest payments (Netherlands). Different rules for the Value Added Tax, for social security contributions and benefits; rules for buying and building houses; and, specific taxes on oil, ‘sin’ products etc distort economic and fiscal balances between countries.

Bank of Last Resort?
The idea that the ECB should step in and buy hoards of Italian bonds is wrong. The problem of Italy is that the ‘market’ thinks that its bonds are risky, and thus asks for a higher interest rates for them. While this perception is particularly problematic now, but if the problem does not get out of hand in the medium term, it will eventually solve itself. Investors would eventually settle on buying Italian bonds that have only slightly higher interest rates than German Bunds.

Higher interest rates are important for keeping governments more disciplined when it comes to making their budgets. Making interest rates uniform now (by instituting ‘Eurobonds’ for example) would effectively reward those countries who are misbehaving.

Time is on the side of the EU and the Euro. The Eurozone has a trade and payments surplus. This is quite different from the US, which has budget, trade and payments deficits.  Eventually bond buyers will need to park their money somewhere, and where better than the EFSF and the ESM (which are less than 1 trillion Euros in total, and are as solid as German Bunds)? It will eventually turn out not to be a good idea to park their billions of (petro)dollars in US Treasuries – whose supply increases by at least $1.6 trillion/year.

No Theory Yet
This is not to say that the Eurozone leaders are following a coherent plan, based on a well thought-out theory. Euro leaders are mostly improvising on the run, after being pushed by market conditions to take certain steps; while at the same time also hindered by those same forces from solving the problems quickly.

Economists heckle the policy of austerity because of the Keynesian prediction of an economic downturn if governments cut spending. But austerity is a move that is forced on countries by the market – the market is in effect demanding lower budget deficits, and will punish any government that now does deficit spending. But saying that governments are forced to undertake austerity does not mean that austerity is bad either. Governments are now implementing austerity , which it never would have done without market pressures.

The EU’s decreasing carbon footprint is an independent development, but one which fits neatly into the new EU economic ‘model’. So are the social welfare systems in EU countries, which are only marginally affected by the crisis. Now, the EU is confronted with the need for austerity, together with lessening its carbon footprint and maintaining its social welfare systems.

The present high pressure atmosphere within the Euro zone is clearing out many economic cobwebs. Technocratic governments in Italy and Greece will now work within the parameters, and try to both economize and grow. This means among others: that corruption be lessened, tax compliance improved, and protected professions opened to competition.

A new economic theory will eventually emerge that will affirm the correctness of austerity and reducing the resource footprint under conditions of resource scarcity.

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