Why southern Europe has a bleak future: the youth are emigrating


2:42 pm - June 7th 2013

by Frances Coppola    


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I wrote a post the other day that caused something of a stir. I argued that migration of the young & skilled from southern European countries could mean that those left behind face a very bleak future. Let me explain a bit further.

I am emphatically NOT arguing that there is anything intrinsically wrong with young, skilled people leaving in search of a better life elsewhere. Migration benefits both the migrants and the receiving countries. Immigration is a GOOD thing for countries that have ageing populations and skills shortages – as most Western countries do.

But where people can freely move to other countries, the sort of ‘internal devaluation’ that forces down wages in search of ‘competitiveness’ inevitably causes migration when the same jobs in Greece and Germany pay vastly different wages. Unfortunately it is this sort of ‘internal devaluation’ that has been forced on the Eurozone periphery because their membership of the Euro prevents them from devaluing their currencies vis-a-vis their main trading partners, which is the usual means by which countries restore competitiveness.

Traditionally, young migrants send money back to their parents. But in the West, with pension and healthcare systems that support the old, the explicit contract between children and parents is weakened. I don’t have evidence to support this but I think that young migrants are much more likely to send money home when there is little state pension or healthcare provision in their country of origin. If they believe that the state will support their parents, they may not send money home.

The problem is that the people left behind are older, less able and lower skilled, which makes these countries less attractive to businesses. After all, why would a business choose to locate itself somewhere where the local workforce is ageing and poorly skilled? So businesses would go elsewhere too. That would cause GDP to shrink further.

The population’s need for state support would actually increase as it ages and gets sicker, but tax revenue would fall as working people and businesses leave. That adds up to long-term decline and a growing burden on the state’s finances.

And old people and long-term disabled don’t generally pay taxes. So where will the taxes come from to support the welfare systems that these people depend on?

There is one final ingredient in this poisonous mixture. Most of these states are already highly indebted. With a growing burden on their healthcare and pension systems and falling tax take due to GDP decline, their debts can only get worse. The fiscal compact gives primacy to debt service over maintaining public services. As I see it, therefore, these states will eventually be forced to dismantle their welfare systems – the pensions and healthcare required by their ageing populations – to avoid debt default.

Eventually, I suppose, the old and the unskilled will also leave – if they can, and if any country will receive them. For although the European Union is in theory committed to the free movement of people, I wonder how real that commitment would turn out to be in the face of large-scale migration of pensioners and benefit claimants from the Eurozone periphery. I suspect that free movement of people might turn out to be another of those European laws that are binding in good times but illusory in bad.

Therefore as Krugman said, the combination of labour mobility with internal devaluation and lack of fiscal union in the Eurozone is potentially lethal.

There is no possibility of recovery for countries caught in the deadly embrace of high public debt and youth migration. For them, “internal devaluation” actually means creeping desertification.


A longer version of this blogpost is here.

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About the author
Frances is an occasional contributor to Liberal Conspiracy. She spent 17 years of her life working at a senior level in banks, but now is a professional singer, singing teacher and image consultant. She blogs here.
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Reader comments


More evidence, if it were needed, of how utterly misconceived the Euro project is, and of how the ideology of European federalism blinded so many to the inevitable consequences of the single currency.

I wonder how real that commitment would turn out to be in the face of large-scale migration of pensioners and benefit claimants from the Eurozone periphery.

You can go, but they won’t give you any money.
In Ireland even Irish citizens can’t get the dole if they haven’t been paying into the system for two years recently. That means that Irish people living abroad for a few years get turned down for the dole.
They brought this rule in because the EU said that they couldn’t discriminate against non-citizens.
It’s what the Tories are hinting at too for the UK.

As for southern Europe having a bleak future because the young are leaving … it’s OK as they are being replaced by people from even poorer countries.
I saw this in Athens last year; thousands of Bangladeshis Africans and Afghans are there to do any work that might need doing.

3. Man on Clapham Omnibus

To summarise; the solution to an ailing economy is for everyone productive to leave. Moreover, theres nothing intrinsically wrong with that.

4. Planeshift

For decades this has been what happens in Wales.

Skilled Young people leave for higher status jobs in England, leaving the public sector as the only major employer for skilled people.

Older people retire to the Welsh countryside, attracted by low house prices and the scenery.

Result is we effectively have 10 billion a year subsidy from the UK.

Rise of TPA , english nationalism and people simply saying ‘why are we subsidising the welsh?’ makes this an unsustainable situation in the long run.

5. Churm Rincewind

“Immigration is a GOOD thing for countries that have ageing populations and skills shortages – as most Western countries do.” Oo-er. Viewed through the narrow prism of economics, this may well be true.

But of course reality is much messier, much more complicated and much more ambiguous than this assertion would appear to allow.

Some noticed a long time back that in capitalist market economies, in some markets, small departures from equilibrium can be destabilising.

I’ve mentioned before that I grew up in Clapham when it was the regular habitat of the man on the Clapham omnibus and then the playground of Teddy Boys in the 1950s. But in the 18th and early 19th centuries, Clapham had been a fashionable village within communting distance of Westminster. In those times, among other illustrious residents, William Wilberforce lived there, as did the banker Henry Thorton (a friend of Ricardo) and the essayist Thomas Macaulay. Graham Greene lived there prior to WW2: his novel, The End of the Affair is located there.

Since my departure, Clapham has again flourished and house prices have soared even by London standards. The conclusion to draw is that urban cycles of ascendancy, degeneration and regeneration are very long. For contrast, consider Streatham next door, which was very fashionable when I lived in Clapham: Duncan Sandys, Churchill’s son-in-law, was then the MP. Streatham Hill Theatre, where I went to see Look Back in Anger in early 1957, after its run at the Royal Court Theatre, is now a Bingo Hall. That is progress.

In England, physics and maths graduates that can, go and work in banking and financial services to get those bonuses so schools find it challenging to attract and retain good physics and maths teachers.

7. Shatterface

I’m not sure what the practical difference is between arguing against emmigration from poor countries and arguing against immigration from poor countries.

What Frances is saying is that the emigration from poor countries and regions will tend to be mostly from among the young, the better educated and the skilled, and that will weaken the growth prospects of poor countries and regions. But that situation needn’t be irrecoverable – Ireland recovered from the Irish diaspora once the Irish people rejected De Valera’s vision of maintaining Ireland as as a rural backwater where nothing much changed and the Church ruled without challenge. But the transition in Ireland took decades. A counter example is the continuing plight of southern Italy.

We might ask whether EU policies are conducive to maintaining a differentially high level of youth unemployment. With compulsory maternal and paternal leave, aren’t businesses more likely to fill vacances with older workers, which have settled sizes of families, to avoid bearing the costs of maternal and paternal leave for younger workers?

9. So Much For Subtlety

8. Bob B

But that situation needn’t be irrecoverable – Ireland recovered from the Irish diaspora once the Irish people rejected De Valera’s vision of maintaining Ireland as as a rural backwater where nothing much changed and the Church ruled without challenge. But the transition in Ireland took decades. A counter example is the continuing plight of southern Italy.

There are two reasons to think the Irish example does not apply. One is that Ireland maintained a high birth rate. No matter how much young people left, they had plenty more. And young people are vital to economic growth as they start the new businesses and learn the modern skills. The second is that they did not really change their own economy that much. They just got a ton of European money.

Neither of those apply to southern Europe which have the lowest birthrates in the world. And the EU has no more money to splash out.

We might ask whether EU policies are conducive to maintaining a differentially high level of youth unemployment.

The State always benefits those who are in place. Those who have jobs. Not those that could get a job, not those that try something new. Which is why a powerful state is always a recipe for stagnation. But in this case it is not the EU’s fault. It is domestic politics.

10. douglas clark

Is the USA not already operating a model that might be appropriate for Europe?

People during their pre-working lives and their working lives tend to congregate in the North and then they retire to the South. Well, those that can afford to anyway.

Awaits huge reponse from experts on demographic movements in the USA.

SMFS: “The second is that they did not really change their own economy that much. They just got a ton of European money. ”

Ireland certainly got a “ton” of EU money but Ireland’s economy was transformed by inward investment from American multinationals – such as Dell, Microsoft and Intel. Very likely, Ireland’s low rate of corporation tax was an attraction.

“The European Union’s Regional Policy, through the Structural Funds, has played an important part in the transformation of the Irish economy, in particular by bringing about the rapid convergence of Irish living standards to EU levels during the 1990s. Since joining the EU in 1973 [through to 2006] Ireland has received over €17 billion in EU Structural and Cohesion Funds support.”
http://www.iro.ie/EU-structural-funds.html

The population of the Republic of Ireland is just 4.6 million, which is about that of an English region and much smaller than the relatively impoverished combined populations of “southern Europe”.

I recall listening to a BBC interview in the early 1960s of Edna O’Brien, who had recently emigrated from Ireland to resettle in London. Her first, critically acclaimed novel, Country Girls, had become a best-seller in Europe but was banned in Ireland. The standing of the Catholic church has been further diminished by the sexual abuse scandals involving the clergy.

We tend to underestimate the enduring consequences of historical fault lines. The boundary between the eastern and western parts of the Roman empire ran through what was once the Federal Republic of Yugoslavia – hence the continuing use of Roman and Cyrilic alphabets there. As Count Von Bismarck reportedly remarked: The Caucasus are not worth the life of a single Pomeranian grenadier.

12. Richard W

The key issue around migration, brain drains etc and how it affects the area losing population is the fertility rate. A country with fertility well above the replacement rate does not suffer negatively from losing skilled workers. For example, India has a competitive and comparative advantage in training medical doctors and IT professionals, they do not suffer a brain drain when those workers migrate overseas. The remittances they send back assists capital formation to train new doctors and not all Indian doctors move overseas. The great advances over the last 30 years in the developing world have been based on migrant remittances. Capital begets more capital and the undeveloped country develops reducing the need for skilled workers to move.

However, low fertility and the movement of skilled workers is a deadly combination. Such a scenario is a brain drain and can only result in a spiral of decline and the impoverishment of the area losing population. With southern Europe having some of the lowest fertility in the world a brain drain will trap them in low productivity and poverty. Once decline starts it is very to arrest the downwards spiral because those with skills can’t earn decent wages and see no reason to remain. Those who are ambitious and have transferable skills move exacerbating the decline they fear. The population who are left are children, elderly and the low skilled. That population demographic is not going to attract foreign direct investment. Moreover, the tax base to support services for those left behind also suffers a decline.

The same decline dynamics happen to towns and regions within countries as Planeshift mentioned. Young people with skills move away and those who can’t move remain resulting in only a low wage local economy of the low skilled, children and old people. Those are the type of people who place greatest demand on public services without the local authority having the tax base to support that demand. Why would a major employer relocate to that area when the demographics are all against them obtaining a skilled workforce? They go to areas where skilled workers are easiest to recruit. Without any significant European mechanism to prevent the regional decline the exact same scenario that we see played out in regions of the UK is happening and will continue in whole SE countries.

Only time will tell whether the populations who remain will turn to the extremists. It will be quite an achievement of the Europhiles if the European Monetary Union is responsible for reintroducing fascism to Europe.

Not only southern Europe. The Baltic countries are losing a lot of people: https://andreasmoser.wordpress.com/2012/09/29/shrinking-lithuania/
But I don’t see a problem with that. Why should a country’s population remain static? Why shouldn’t individuals be free to move? Even if a whole country would become empty, so what? It would become a national park or a testing ground for artillery.

Ways to try and avoid the sad consequences of a continuing combination of a brain-drain and a low fertility rate is to become a tax haven or a financial centre for money laundering. The trouble is that is becoming a very competitive business in these times of austerity.

Btw a month or so back, the German government was pressing for EU regulations to set a minimum rate of corporation tax so as to stop Ireland under-cutting the corporation tax rates of other EU countries in order to attract inward investment.

15. Derek Hattons Tailor

This OP is nicking part of a post I made a few days ago and expanding on it. I used Ireland and Italy as examples of countries that have been in long term decline due in part to high migration. The only additional common factor which no one has mentioned is falling birthrates, particularly among the middle classes, which might well amplify and accelerate the problem. Worth noting that the UK has also suffered falling birthrates consistently since the 1970s.
The population that’s left, when those that can, leave, is aging and low skilled, hence unproductive and more dependent on the state. With no one to replace them, a cycle of low investment and no jobs hence more migration follows. Tax revenues fall whilst demands on the taxpayers rise.
In terms of solutions, it seems reasonable to assume that countries which attract immigrants should also be attractive to the existing population (jobs, infrastructure and social stability). There are no special qualities that attracts migrants, they are the same qualities that any population will find attractive. Hence you need to attract inward investment (and stop obsessing about bloody SMEs) to create jobs and growth, and spend public money on building the physical and social assets that are needed to attract them (and stop trying to socially engineer “fairness” by redistributing slices from an ever decreasing cake). But this is all Porters diamond stuff not revelatory, or new.

16. So Much For Subtlety

11. Bob B

Ireland certainly got a “ton” of EU money but Ireland’s economy was transformed by inward investment from American multinationals – such as Dell, Microsoft and Intel. Very likely, Ireland’s low rate of corporation tax was an attraction.

Yeah but look at the colonial nature of that inward investment. Ireland did not change its own economy very much. They simply used EU money to become a better place for other people to do business. Where are the Irish multinationals? Butter. One airline. A Beer company that dates from the British period.

Culture is a stubborn thing and it remains to be seen if the Irish can wean themselves off being potato farmers to become fine upstanding Protestant entrepreneurs.

As Count Von Bismarck reportedly remarked: The Caucasus are not worth the life of a single Pomeranian grenadier.

He probably said that about the Balkans. Specifically what is now the former Yugoslavia.

All of the developed world is facing a problem of a higher ratio of retirees to active workers – see the following interesting graph:

http://www.oecd.org/insights/37966982.pdf

I’m not sure if this accounts for expected changes in migration or only allows for forecast birth and death rates.

Who can blame young people in countries with few job opportunities and high debt levels from immigrating? Why repay the huge debts run up by your parents’ generation?

“Where are the Irish multinationals? ”

How about Ryanair? The population of the Republic of Ireland is only 4.6 million, about the same as a region in England. Even so, Ireland does produce top class business managers – like Sir Gerry Robinson – and economists – like Peter Neary, now at Oxford, and John Sutton at the LSE – as well as a string of world renown writers – like Swift, James Joyce and GB Shaw. The Duke of Wellington was born in Ireland.

19. Edward Lud

Mark Steyn has for years been making the argument in Frances’ piece. Just saying.

20. Charlieman

@16. So Much For Subtlety: “Where are the Irish multinationals?”

Another question from SMFS to which the answer is bananas 😉

In a long time, Britain hasn’t produced international diplomats of the standing of Conor Cruise O’Brien and Peter Sutherland.

22. So Much For Subtlety

18. Bob B

How about Ryanair?

The very next sentence mentions one airline.

Even so, Ireland does produce top class business managers – like Sir Gerry Robinson – and economists – like Peter Neary, now at Oxford, and John Sutton at the LSE – as well as a string of world renown writers – like Swift, James Joyce and GB Shaw. The Duke of Wellington was born in Ireland.

I do not claim Irish people lack talent. I claim that culture goes deep and is next to impossible to change. People who have had dysfunctional politics and economics are likely to go on having dysfunctional politics and economics for some time to come. Ireland is trying to escape that but I am not sure they will.

And listing a bunch of Protestants of Mainland origin is cheating.

Charlieman

Another question from SMFS to which the answer is bananas

Ireland has a population in the same ball park as Hong Komng or Switzerland. I can name several multinationals from each. Where is the Irish Swiss Army Knife?

23. Charlieman

@22. So Much For Subtlety: “Where is the Irish Swiss Army Knife?”

Who imported the bananas that you consumed as a child?

Switzerland’s population is 8 millions and HK’s population is 7 million, both of which are proportionately much larger than the 4.6 millions population of the Republic of Ireland. Ireland is on the extreme western fringe of Europe while Switzerland is land-locked in central Europe and HK is a city state with an exceptionally high population density on the edge of China.

Back to the thread: we are looking for examples of the regeneration of national or regional economies which have suffered diasporas or brain-drains. China and India might qualify but both have exceptionally large population reservoirs and legacies of ancient cultures.

At the start of the 20th century, Argentina was one of the most affluent countries in the world in terms of per capita GDP. Around the start of the 19th century, China’s national GDP is estimated to have amounted to about a quarter of World GDP but China missed out on a transforming industrial revolution until the economic liberalisation reforms of Deng Xiaoping starting in the late 1970s.

Several national economies in Africa are currently booming.

25. Charlieman

@12. Richard W: “Once decline starts it is very [difficult] to arrest the downwards spiral because those with skills can’t earn decent wages and see no reason to remain.”

Or we could look at it a bit differently, observing that young people with talent are likely to attend a university away from home and are unlikely to return. Craptown can create smart people, but only sentiment will bring creativity back to their home town. That’s a different model from continuing education or the old WEA, which are about elevating the residents of Craptown.

If society projects a model where the pot of gold resides at the end of a rainbow, citizens will go there. Might it be that, in the UK, we have an educational system that discourages people from looking for the pot of gold in their own garden?

“However, low fertility and the movement of skilled workers is a deadly combination.”

I drove around New Zealand earlier this year. NZ has such a skill deficit problem that a codger like me is welcome.

26. So Much For Subtlety

23. Charlieman

Who imported the bananas that you consumed as a child?

Actually for various reasons it was not Fyffs if that is what you are getting at. Nor do I see why the merger of two English companies that 100 years later was taken over by an Irish investment fund makes the company Irish. It is headquartered in Ireland I will grant. But it sort of proves my point doesn’t it – the entrepreneurial spirit came from Britain. The EU has just poured money in and some Irish people have used it to buy brands created by other people from other cultures.

Bob B

Switzerland’s population is 8 millions and HK’s population is 7 million, both of which are proportionately much larger than the 4.6 millions population of the Republic of Ireland.

They are *now*. They are not much larger. Simply larger.

Ireland is on the extreme western fringe of Europe while Switzerland is land-locked in central Europe and HK is a city state with an exceptionally high population density on the edge of China.

Usually being landlocked – and Switzerland has a merchant marine – goes with being poor. Most of the poorest nations in the world are landlocked. But not Switzerland.

Nor do I see what the geography has to do with it. Can you explain that? Ireland is better cited off the coast of Europe than HK is off China.

China and India might qualify but both have exceptionally large population reservoirs and legacies of ancient cultures.

China might but India does not. It has taken China nearly 200 years to find a model that works. We will have to see if it continues to work. Japan’s model has not.

At the start of the 20th century, Argentina was one of the most affluent countries in the world in terms of per capita GDP.

And in the end dysfunctional politics and culture brought them back to their natural level. It is not that the people of Argentina are stupid or lack talent. They do not. It is that their culture is dysfunctional. Oddly enough the US has probably done them the greatest disfavour by preventing military coups. A period of peace and stability under the military is the usual cure for too much southern European/Latin democracy.

Several national economies in Africa are currently booming.

But are also deindustrialising by the looks of it. That boom is based on the export of raw materials to China. And notice that first a form of de facto Western control had to be imposed via the IMF for Africa to grow.

Charlieman

Or we could look at it a bit differently, observing that young people with talent are likely to attend a university away from home and are unlikely to return. Craptown can create smart people, but only sentiment will bring creativity back to their home town.

Or the ability to make a living. That is what is killing so much of the south of Europe and the north of Britain.

Might it be that, in the UK, we have an educational system that discourages people from looking for the pot of gold in their own garden?

I think so. You can look at Scotland which went from being one of the greatest producers of skilled workers and entrepreneurs under Victoria, to being, what?, a de facto welfare state where everyone thinks their best option is in getting state money. Education has collapsed and shows no sign of stopping its downward spiral.

Culture matters. And while it is relatively easy to make things worse, it is very hard to make them better.

27. Charlieman

@26. So Much For Subtlety: “Actually for various reasons it was not Fyffs if that is what you are getting at. Nor do I see why the merger of two English companies that 100 years later was taken over by an Irish investment fund makes the company Irish.”

Fyffes became an Irish run business in the 1950s (at the latest). That’s 70 years after the business was founded and 20 years before Ireland joined the EU.

Fyffes, owing to its age, is an extraordinary company. You only keep a company like it on the seas if you’re an entrepreneur.

“I don’t have evidence to support this but I think that young migrants are much more likely to send money home when there is little state pension or healthcare provision in their country of origin. If they believe that the state will support their parents, they may not send money home.”

We’ve been told for years by proponents of mass migration like Leo Barasi that one of the great things about more immigrants is that they spend the money here and don’t send it home. Looks like Leo and co actually thought/hoped otherwise. Thanks for finally being honest, Leo.

Personally, while I have some sympathy for the southern families and countries, I don’t believe that the UK economy should be run with a view to helping money leave the country to support other ones. You can have a welfare state and some wage protection and social cohesion and some energy independence… or you can have laissez faire border controls and to hell with the rest. You can’t have both and expect it to work out happily or fairly.

That dilemma something that, in its desire to have everything for nothing, too much of the left has not acknowledged, let alone faced full on. In its vague multiculturalist vision of a ‘vibrant’ migratory society it has been undermining the sustainability of a number of the less glamorous but actually useful and substantial things that are supposedly central to its vision.

Cut-throat capitalists, for whom things like the welfare state, wage protection etc. are of little or no concern, have no such dilemma, of course. But congratulations to the pro-mass migration section of the left for lending a quiet hand to those very people they otherwise noisily posture against.

For some reason I erroneously thought this post was by Leo Barasi. Apologies to Mr Barasi and Ms Coppola. The main points of my post I stand by.

30. So Much For Subtlety

27. Charlieman

Fyffes became an Irish run business in the 1950s (at the latest). That’s 70 years after the business was founded and 20 years before Ireland joined the EU.

Take it up with Wikipedia:

It became an Irish company following takeover by the Irish group FII plc in 1986—FII having been originally established as Fruit Importers of Ireland Limited in 1968. The combined company was initially known as FII Fyffes plc, but became simply Fyffes plc in 1990.

Fyffes, owing to its age, is an extraordinary company. You only keep a company like it on the seas if you’re an entrepreneur.

No, you keep it going if you are a good manager. And it probably does help if you have a closed, captive market from which the large banana producers and exporters are excluded. Just try to get bananas from United Fruit into the UK. Being an entrepreneur demands something else.

But all credit to the Irish for being able to run a British company for 28 years without mishap.


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