The EuroCrisis - a Cultural Crisis - Part 7: the Final Solution; a Nobel Prize Solution

The EuroCrisis - a Cultural Crisis - Part 7: the Final Solution; a Nobel Prize Solution

After the Financial Crisis in 2008, things where never the same for the Developed World. The US managed to bounced back with a lot of struggle, but printed trillions of dollars in debt to reactivate it's economy. With an average growth rate of 1%, the EuroZone never recovered. Austerity measures pushed from Germany to achieve fiscal discipline in Southern Europe only drove those countries from recession to depression. By strangling the weakest economies instead of supporting them, Germany compromised the future of the EuroZone. With weakened economies, Southern Europeans moved North in search for a better life. They were not well received. As a block, The EuroZone should have been able to channel the free capacity into other areas of need. I always like to use the US as an example: the city of Detroit is the automotive district. The automotive industry is cyclical: when there is a downturn, the workers move to other states, taking their families with them. Many times companies go to depressed regions to headhunt the best workers and move them to other states where there is a need. Sometimes, workers must even shift industry. This happens a lot in the oil industry, where cycles are long.

In times of crisis, cohesion and alignment must prevail over personal interest. In practice, the opposite happened. Cultural differences prevailed. Spain is known for food and tourism, but also had a large workforce in construction. When the construction field had a downturn, these millions of unemployed workers should have been moved to other areas of the Euro region where there was a need. There is always some country that is building, so that should not be an issue. Language is not a barrier in the construction field either, the workers usually speak only their own language whereas supervisors might speak the local language and have a local contact. After many years of difficulties and reforms, Spanish economy has finally bottomed and is now rebouncing. However, 5 million unemployed is a large number to include in the job market. 

In addition to that, Spain has received 5 million immigrants in the last 20 years. It is interesting to see that the numbers match: 5 million immigrants, 5 million unemployed. In times of crisis, the immigrants and their children are usually the ones who take the strongest hit. It has to do with a lack of proper contacts and networks. The issue of migration is a difficult one to discuss. Not approaching the issue will only make things worse. I am in FAVOUR of migration, but it must be productive. The whole point of receiving immigrants is to stimulate growth. In my releases "Revolution 4.0 and the Man of Tomorrow - Part 1 & 2", I explained how Argentina's productivity (measured in GDP x capita) sank when large influxes of immigrants from Bolivia, Paraguay and Peru that started arriving in the 1970s where not incorporated into the job market. Today, these groups of immigrants and their children live in slums.

As Friedrich Hayek said "There is all the difference in the world between treating people equally and attempting to make them equal". People deserve equal treatment, but they are culturally different. Acknowledging that and embracing the differences is the first step. The second step is to understand that the different communities of foreigners that are established today in Europe have much more to bring to the table that what they are allowed to account for. But the communities must also understand that they must earn that respect themselves. In the US, the afro-americans took 200 years to come forward in society. From Martin Luther King's speech "I have a dream", to the Ku-Klux Klan[1], to not getting a place in the bus, to today's reality, which is not good (they are still not treated as equals), but it is better than before. Latinos and Asians still haven't had a breakthrough.

In my release "Where No Man Has Gone Before - the Road to the Fourth Industrial Revolution", I take you in a trip throughout civilizations to show you how different civilizations have contributed to technological and industrial development. The communities must organize themselves, and show Europe what they have to offer. Europe must make room for them as well for them to add value. The communities must study themselves and their own history, and show Europe what they are good at. The same for the European communities within European countries. If Spain is only known for food and tourism, it might be that the communities abroad did not do a good job at promoting other industries. Besides construction, I can think of good Spanish competence in engineering and medicine.

The case of Argentina is an interesting one, and provides us both with positive and negative examples. Italians, Spanish, Scandinavians, Germans, French... they all brought their cultural and business heritage and contributed positively to growth and productivity. The Armenians were good at medicine, an example being the Stanbulian family, which is a very recognized name in the field in Argentinian medicine. Syria is also known for a strong medicine. The fact that it is in the same region is surely not a coincidence. What were the ancient civilizations good at? Inca medicine surely has deep secrets and roots that Europeans would never dream about. From that perspective, it is clear that Peru could or should specialize in natural or ecological medicine. Today, free access to information makes things easier than ever. But being in touch with a culture's roots and own heritage, can only play as an advantage. The communities have a head-start: contacts, knowledge of the culture, language... Communications are much easier than before, there are no excuses.

Locked in their towers of numbers and mathematical formulas, today's economists talk a lot but forget one factor: the human factor. Should the interest rate be lower or raise? More or less fiscal austerity? Should we keep or leave the Euro? The truth is, if growth is re-activated but the foreigners and their children are not capitalized and used as a productive part of the workforce, the situation will improve but only for some people. As migration continues to flow, difference in classes will create social tension. Not all in the economy is about numbers. The Socially Excluded (as described in my "Social Exclusion Curve" in my release "Revolution 4.0 and the Man of Tomorrow") must be given some way into the job market. Again the case of Argentina stands out. The Bolivians and their children, culturally more reactive, do not have the entrepreneurial European mindset that the rest of the population does. Argentinians of European origin expect them to be like them: European. But they are not, they are culturally different. This leads to social tension as well, where Europeans think that the non-Europeans are lazy and don't want to work and the non-Europeans feel segregated and discriminated and eventually turn against society.

In my first 2 releases "Revolution 4.0 and the Man of Tomorrow: Inequality, Post-Industrialism and the Knowledge Based Economy - Parts 1 & 2", I showed you the basis of economical theory so that you can have a basic background in economy. I then explained how different tax systems cannot be applied indiscriminately in different cultures, and why New Liberalism failed in Argentina in the 1990s. I then explained how I was the only person in the world to predict the downturn in the oil markets and it's impact in the Norwegian economy. Later, I took through the history of Scandinavia and of South-South America to explain the differences but also the similarities. I created the "Leanza Bøhnsdalen Social Exclusion Curve", as a way to measure poverty in developed countries. I introduced the concept of Knowledge Economy, or Revolution 4.0.

In my release "Change Hard: Why Corporations Rise and Fade", I take you through 100 years of Management theory to show you corporate resistance and politics in Organizations. Basic Motivation, Leadership, Cultural Models and Team Building will reinforce the concept of human relationships. Real life examples from 2 Corporations and 1 Software Development company will bring theory to life. I will then show you how, unable to Innovate, big companies eventually perish and disappear.

In my final release "Where No Man Has Gone Before: the Road to the Fourth Industrial Revolution", I take you through a recount of technological development throughout civilizations. I then go into the details of Industrial Development in the last 200 years. The first three Industrial Revolutions have left us incredible advances, but industries that were big in the past might not be as important today. The NeXT industries, not as capital intensive as before, will give room for knowledge to blossom as the most expensive commodity of modern times.   

Cultures have added much more than we think to the history of mankind, and must be positively channeled to contribute productively. It is important to understand as well that subcultures grow within a major culture. Within the Spanish culture that might be well defined, structured, at some point formalized, there are also subcultures. Before it was regional differences. Today, in addition to regional differences there are foreign communities inside each country. These communities carry a piece of their own homeland inside them. For many of the people living in these communities, life is a bridge between past and present. Discussions about homeland, politics, news, etc, never really cease, not even after decades of residing in a foreign country. Again, the question is how to tap into their potential and channel it productively into society as a whole. While world leaders discuss how to close borders, and economists discuss strange and complex formulas, THE REAL DEAL IS HOW TO MAKE MIGRATION PRODUCTIVE. Negative trends in productivity of the immigrants are a reason to worry, if you have a long term mentality.

Revolution 4.0 makes it easier for people to communicate, organize themselves and devote their energy to productive activities. Whereas before you had to look for a job, today you can create wealth out of thin air with little financing. Knowledge is more accessible than ever. The communities must take responsibility and action for their own lives. The solution will not come from upstairs, the leaders can only provide tools, but they will not do the job for them. Now more than ever, YOU as a citizen will have to use your HEAD to SEE how YOU can CONTRIBUTE. In my blog, I have shown you the 4 KEYS to VALUE CREATION. Use them WISELY. 

In 4 books and more than 450 pages, I have challenged 150 years of modern economic theory to include the impact of culture on productivity (measured as GDP x capita). From that perspective, the Argentinian and/or South American experience in subjects of migration and economic development (both positively and negatively) can be studied and analyzed worldwide. I have also explained how I was the only person to predict the Oil Crisis and it's impact on the Norwegian Economy. And I created the "Leanza Bøhnsdalen Social Exclusion Curve" to explain poverty in developed nations. With all these accomplishments, and being that no other living person has given the EuroCrisis my focus (that of a Cultural Crisis), Europe should seriously consider my nomination as the NeXT Nobel Prize in Economic Sciences. It might sound presumptuous for a 36 year old, but whereas some people give speeches, other people take ACTION, look for root causes, and solutions... a Nobel Prize Solution!!!

THE GAME IS FLAWED!!!

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[1] https://en.wikipedia.org/wiki/Ku_Klux_Klan

The EuroCrisis - a Cultural Crisis - Part 6: a Game of Numbers

The EuroCrisis - a Cultural Crisis - Part 6: a Game of Numbers

Which number did you get? Are you number 2 or number 6? Number 12… is just like you!!! Finding work in other countries is not easy. However, it is easier for some people than for other. Where do you come from is the most typical question asked when you meet somebody. It seems like an innocent question, but it is not. It reveals many things. Culture, religion, thoughts, political alignment… It should be like that, up to certain extent. On a personal level, being from South America I am constantly stereotyped as an Extreme rightist or Extreme leftist. In South America, Social Democracy does not exist as such. Most people are either Republicans or Socialists. There appears to be 44 places that belong to “the World”, defined really as Europe + the US. The other 150 nations are outside the queue system, meaning they would get no place in the developed world. In the Norwegian language, “stol” equals “trust” but also equals “chair”. The number you get is really equal to the trust that you get, which really means the place you will get.

STOL = CHAIR = TRUST

The numbers seem to be assigned differently in different countries. In the case of Northern Europe, the debate is cultural. What culture do you belong to will lead to the number you will get. In my case, since I am a Swedish Lutheran and Social Democrat, I get number 13. Seems like a very good number, I like 13. Some benefit one must have, by being Norwegian by Bloodright.

In the case of Argentina, the country I was born and raised in, the “trust system” based on numbers exists as well. It is not so much based on ethnicity or culture as much as on location and social class. It is easy to understand. If your parents are rich people from the North of Buenos Aires city, you will surely get all the best jobs without much effort. It has to do with trust: your employers probably know someone from your family. They know you won’t “steal” from them. Good grades at university don’t really matter much, being a country of “European mentality”. Since I was from middle class, I would always get the jobs that the more accommodated classes didn’t want. I didn’t complain though, the Bolivians born and raised in Argentina had it worse: since they live in slums, they must work in black or bad conditions. In Argentina and Europe, bloodright “kills” birthright.

Cultural differences play a big role. Northern European countries are more organized, but also require a “sacrifice” from part of the population. The numbers are not negotiable. Southern European countries might offer more flexibility for Europeans and Latin-americans (mainly of European origin and christians as religions, they are really hispanic-americans). But not so much for Asians. From that perspective, Spanish culture seems more inclusive and open than Argentinian, where looks count more than in Spain (it has to do with the Italian influence where you are supposed to have a high sense of fashion). The US has accomplished to build a pseudo-meritocracy, by prioritizing good students in the job market. Having good grades at school opens doors for good universities, which in turn open doors to the best jobs. Networking, contacts, being in the circle is also important, but smart people get a good place as well. It is true though that it may not be a high percentage of the population that have a much better life due to their education, but at least it does give hope. Good students are rewarded. The prize is not only for them, but for their parents as well, who invested time and money in their tuition. You do need the best (and smartest) players in the team, if you want to be the best in your field. Think about it as football: if you invite all your friends and cousins to join the National Team, you will probably be the NeXT San Marino (number 51 in Europe in Football). 

The question now is whether the foreigners and their children that are not of European origin will adjust to the strict cultural rules of Northern Europe. In Germany, attempts to “Germanize” the non-european immigrants do not give good results. Consider the German-Iranian[1] that murdered people recently screaming “I am German”. Cases like this are frequent in Sweden as well. My impression is that many of these groups of immigrants thought that they were moving to the US, and finding out that it is not so provoques frustration. Germanic countries are not like the US, they are more organized. Nothing is better, nothing is worse, all models have their pros and cons and are based more on culture than on government. Europe will continue to receive non-european migration in the future. Some degree of meritocracy would be advisable as well. Not all factors can be controlled, sometimes you just have to take things as they come.

Today, however, things are getting easier than before. Thanks to Revolution 4.0, the average citizen can take initiative and control of their life. Developed countries offer solid healthcare and public university systems. Citizens must channel their energy and use it productively. The system must as well make room to reward those who study hard and work hard, so that other people can feel identified with them and follows their footsteps. After all, that is the reason that their parents moved to Europe (and Argentina) in the first place. The fact that it is more difficult for foreigners does not mean it's impossible, it is always difficult for foreigners anyway, to different degrees. Let us hope this period of changes brings good vibes and hopes for everyone. And careful if you SEE number 6 more than once…

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[1] https://www.theguardian.com/world/2016/jul/23/i-am-german-munich-gunman-took-part-in-shouting-match-during-attack

The EuroCrisis – A Cultural Crisis – Part 5: Capitalizing on Business Cultures

Where do I come from? Do I come from the Past, or from the Future? Is Argentina, the country I was born and raised in, the FUTURE of EUROPE? As explained in my release "Revolution 4.0 and the Man of Tomorrow - Parts 1 & 2", Argentina was the country to receive the most European migrants after the US. From 1880 to 1970, European migration contributed to the country´s growth. The immigrants established themselves in different parts of the country, forming communities. They contributed their heritage, customs, and also business culture. Buenos Aires housed more than 2 million italians and 1.4 million Spaniards, contributing to all aspects of daily life. However, they were not the only migration group. French, Germans, Polish, Greek, Scandinavians... they established their businesses and contributed to local cuisine and heritage. On a personal level, beign a 4th generation Italian I have only been influenced by Italy as any other Argentinian born and raised in Buenos Aires. However, having a norwegian mother, beign a lutheran and a norwegian grandfather who was a very sucessful businessman in Argentina, it would become evident that my business style is most definetely scandinavian (old day norwegian style). It is clear that if you are born and raised in a country you are FROM that country. But does that mean that you belong culturally to that country? After the 1970s, Argentina did not know how to make the most of migration waves that were not European. Bolivian and Paraguayan migrants might not have much to contribute to business from a historical perspective. But you could never say the same about Peruvians, heirs to the most advanced indigineous culture in the region: the Incas. 

But the most shameful example of wasted talent have been the Koreans. In an interchange program, the South-Korean communitity rearched 50.000 strong in the 1990s. They established their businesses and hired bolivians as cheap labour. Obtaning a residence permit in Argentina did not come cheap: businesspeople who sought to establish themselves and obtain a residence permit had to invest USD 100.000. They had their own religion, language, and traditions (Taekwondo was popularized by the Korean community already in the 1980s). Koreans born and raised in Argentina were of course... Koreans. Not satisfied with the opportunities Argentina had for them, many moved to the USA. The community is only 20.000 strong today. In the same period, Korea´s GDP x Capita has grown from 5.000 USD x capita in the 1980s to over 25.000 USD x capita today! South Korea´s economy was one of the world´s fastest-growing developed countries in the 2000s, along with Hong Kong, Singapore, and Taiwan the other three Asian Tigers. For Koreans, moving to Argentina turned out to be a very bad business.

Will Europe understand that the different non-european communities that are established in Europe TODAY have a lot more to contribute than Sushi and Kebab? Will Europe understand that the asians born and raised in Europe also deserve equal opportunities, both in the job market and also in the business world? The first step is to understand cultural differences. The second step is to embrace them. Muslims, Asians, Africans, Latinos... they can be used as bridges into other dimensions to expand in a globalized world. In my release "Where No Man Has Gone Before: the Road to the Fourth Industrial Revolution" I take you through a journey throughout civilizations to understand how different cultures have contributed to technological and industrial development. Born and raised in Europe, the members of the communities will still be culturally different. This is actually a positive thing, if correctly capitalized. Or Europe can also choose to segregate, discriminate and opress those that are not of European origin. And become the NeXT... Argentina!!!

The EuroCrisis – A Cultural Crisis – Part 4: GOD vs. the State

High unemployment, refugees, people from many different countries, nationalities, backgrounds... How much of the current EuroCrisis is economical and how much of it is it a human crisis? Argentina, the country I come from, should be a study case for Europe TODAY. It has been PIONEER in many things: mass migration, bad integration, poverty and the appearance of guettos with the arrival of less educated and productive workforce from nearby countries in the 1970s. Whereas europeans managed to move from working class to higher middle classes, people of indigineous backgrounds have not been properly integrated. Today, many countries in Europe present unemployment rates of nearly 25% (including real unemployment and people living of welfare, who might or might not eventually join the workforce). As explained in my books “Revolution 4.0 and the Man of Tomorrow – Parts 1 & 2”, the socially excluded are usually immigrants who have not been properly integrated into the workforce (and their children). Whereas before european countries were mainly inhabited by europeans, today they are also communities of latinos, asians, africans, etc. In the mind of the European, these groups from other continents would never count as europeans (same for Argentinians, who have a european mindset even being southamericans).

Again using the Nordics as example, a large part of their success was atributed to a unicultural society with strong cohesion and trust levels. In his book “the Protestant Ethic and the Spirit of Capitalism”, the german sociologist Max Weber explains that capitalism in Northern Europe evolved when the Protestant (particularly Calvinist) ethic influenced large numbers of people to engage in work in the secular world, developing their own enterprises and engaging in trade and the accumulation of wealth for investment. “Skape og dele” (create and distribute), marks the strongest foundation for scandinavian social democrat entrepreneurship. Sweden, probably the champion of this model, enjoyed a fantastic period of growth from 1880 – 1970 based on sheer, raw, scandinavian entrepreneurship, rising to the 4^th position in GDP x capita and positioning itself as one of the richest nations in the world. The introduction of a welfare system and socialist experiments only managed to slow down entrepeneurial spirit. Sweden today is still one of the world´s most developed countries, but not as good as before. While the Nordics (and Europe), have stagnated, many other regions have shown fantastic growth rates.

In an interesting outcome, the experience of Scandinavians living abroad (and their descendants), only confirms the theory that the success was not based on government intervention, but on an adventurous vision and viking spirit. Swedish-Americans are considerably richer than the average American – as are other Scandinavian-Americans. The poverty rate of Americans with Swedish ancestry is only 6,7%, half the national average. Swedish-Americans are better off even than their cousins at home: their average income is 50% higher than theirs, a number used by opponents of the Swedish model as an argument against the shackles of big government.

Their success in America seems solidly grounded in old national virtues. They have more trust in each other and in government; they tend to obey rules. The Protestant work ethic is strong: in Minneapolis in particular, the number of Lutheran churches is striking. Scandinavian-Americans also display a keen of civic sense, whether in shovelling snow or helping elderly neighbours, from which everyone benefits. The scandinavian social democratic spirit involves a strong sense of entrepreneurship for the creation of wealth, and trusting the government for the distribution of that wealth.

Differences between lutheran and catholic beliefs are very noticeable in the work place. Whereas catholics are focused on costs, lutherans are more focused on increasing the outcome (but not having so much control on budgets). This has it so that scandinavians are actually better at sales, whereas catholics are better a saving costs. Both sides of the equation are actually needed to maximized benefit. The difference is very noticeable when comparing Republic of Ireland (catholic), with the UK (mainly anglicanism, a branch of Reformed Protestantism).

However, in the city of Oslo TODAY, only 30% of the population actually believes in GOD¹. It is difficult to say if the traditional protestant values are actually transmitted from generation to generation if the population turns to atheism. Concerns about immigration and economic issues resulting from lower commodity prices might indicate that there is a lack of faith, as lutheran churches struggle to attract new followers. Generosity and fair distribution amongst the community have characterized scandinavians in their past success. How well wealth is distributed amongst society as a whole today will determine if Scandinavians will continue their path to prosperity. The same could be applied throughout Europe as a whole. How much of the anti-immigration sentiment is really a crisis of values, of a fear of the unknown and losing a position of power and benefits? In the World of Tomorrow, the multipolar world will be lead by the US and China. As China expands it´s position of power and gets a larger share of the cake of World Commerce, regions must align and be cohesive in order to secure their position. The final outcome will be positive: a more equalitarian world for everyone. Social Democrats like myself should be very happy and embrace this period of changes, if they are true Lutherans...

Again Cristian Bøhnsdalen, the Last (or the First?) true lutheran!

1 http://www.vl.no/nyhet/forste-gang-flertall-tror-ikke-pa-gud-1.702540

The EuroCrisis – A Cultural Crisis – Part 3: Grexit

The EuroCrisis – A Cultural Crisis – Part 3: Grexit

Having been born and raised in Argentina, which underwent a similar situation Greece is undergoing now in the year 2001, many people ask me if the “Argentinian solution” could be applicable to Greece. The similarities are many, this is true:

1. A fixed currency: the Argentinian Peso was pegged to the USD, which restricts flexibility in monetary policy. A floating currency ensures that, if the exports become less competitive, a devaluation will lower the salaries and help the industry.
2. Unemployment soured: with a non-competitive industry and the application of austerity measures, unemployment soured to 25% (juvenile unemployment reaching 50%).
3. Unbearable sovereign debt: like in the case of Argentina, Greece cannot really make the payments that it should. A series of rescues simply push the situation forward, but once again, austerity measures that have pushed the country into depression ensures that the country does not generate enough surplus to repay the debt, which becomes even larger as interests accumulate.

The solution for Argentina was to abandon the fixed currency and devaluate the peso, which boosted the exports, and to default on the debt, which brought relief to the strangled government’s finances. The money that was “saved” by not paying the debt was invested in a New Keynesian plan which increased government expenditure and revitalised the industry. However, the financial system was destroyed. Even today, in 2016, Argentina is still fighting to go back to the international capital markets, paying one the largest interest rates in the world. Development has a roof of course, if there is no functional financial system. So the solution worked out well in the short term, but had terrible long term consequences. However, for Argentina, there didn’t seem to be any choice at that point. The high unemployment rate and half of the population thrown to poverty led people to the streets and took down the government in December 2001.

So, what is the solution for Greece? The first thing is to acknowledge that it’s time in the Eurozone is over. As a matter of fact, many would argue that Greece should have never entered the Eurozone, since it inflated it’s fiscal situation in order to show numbers that were compliant with the metrics provided by the Euro-leaders. But regardless of that, Greece is just too far away. Bordering Turkey, the Balcans and Bulgaria, if belongs to the Eastern European bloc. Christian Orthodoxy is the main religion, from a cultural perspective making it closer to the other Eastern European countries. So leaving the Eurozone and retaking the dracma as a currency would be a first step. This would make it’s exports more competitive. About it’s external debt, defaulting is NOT an option. What the country needs is re-financing. Fortunately for Greece (this did not happen to Argentina, nobody cared what happened there), Russia is interested in coming to it’s aid. It is clear that if it is to bail out Greece, that would mean that the helenic country should align both politically and economically to Russia. But on a personal level, I believe that would work out just as fine for Greece. It is clear that neither the European leaders, nor the European people, ever wanted Greece in the Eurozone in the first place. Greece, on the minds of Western Europeans, is just another good place to go on vacation.

But Greece is much more than that. Revolution 4.0 brings about again a world of philosophers, a new age of creators. The Greek have had a very long and ancient history, and can surely enlighten our path to a new era of prosperity for humanity. Do not despair people of Greece! Let go of the chains that tie you to a dead region and show us the path to a new tomorrow. We, the people of Earth need you!

Your friendly economist,

Cristian “Nash” Bøhnsdalen.

Source:

http://www.cnbc.com/2015/06/19/putin-russia-has-avoided-deep-crisis-despite-sanctions.html

The EuroCrisis – A Cultural Crisis – Part 2

The EuroCrisis – A Cultural Crisis – Part 2

The history of Europe is very vast and rich. The different Kingdoms gave way to countries and blocs. Even today, these endure the test of time. Many people confuse Eurozone with Schengen Area, which is not the same. See the following graph, which visually shows that, even within the Eurozone, there exists segregation. The Nordics, the Baltics, Benelux, Southern Europe, the UK… intended as a common region both for transit and commerce, the European Union is much more divided than what we would like to think. 

When the financial crisis broke in 2008 the southern European countries, which had had less fiscal discipline, went into recession. Greece was the first to have issues to make debt payments, having to undertake a series of structural reforms in order to refinance it’s debt. Germany, leader of the Eurozone, imposed austerity measures on the weaker nations. Austerity means that the nations should have more fiscal discipline, that is: lower their government spending and increase taxes, in order to restore fiscal balance. However, as seen before, the IMF imposed these same measures in latin-american countries like Argentina to disastrous results. Applying once again the Keynes fiscal multiplier, we should understand that cuts in government spending means for ex, freezing or directly cutting government salaries. A teacher takes a cut in his paycheck, now he has less disposable income. He does not have any money to go to the movies now, so the cinema has less customers. In turn the cinema has to lay-off a few employees due to the economic downturn, who now can’t afford to go to the restaurant. Restaurants must close as well and so the circle goes. Increasing taxes will have the same effect. The total income should not increase since now the customers will simply buy less product.

By applying fiscal austerity, the PIIGS countries (Portugal, Ireland, Italy, Greece and Spain), changed recession for depression. Instead of strengthening their positions, they had to restructure their debts to avoid defaults. In the long term though, some of these measures worked out. High unemployment meant a bad job market, which pushed down the salaries (as seen in Stiglitz theorem). With lower salaries, economies became more competitive and dynamic, strengthening their commercial balances (export – imports). From that perspective, it is conceived that Spain has reached a bottom and might take back the path of growth.

But the Eurozone was not just supposed to represent a commercial relationship between the countries, but also an area of free-labour. Let us take the example of the United States of America. A market consisting of 300 million people distributed in 51 states, each state has it’s own budget and industry specialization. American citizens are supposed to have availability to relocate. For ex, when the automotive industry takes a downturn in the city of Detroit, jobs are lost in the region and the people are supposed to move to other states where they get job offers. This is good for the economy, since qualified labour is not lost but moved to other regions. Some states are deficitary, and are financed by the wealthier states. Of course, all states are under the same umbrella, which is the US government, which handles national politics and economics.

The Eurozone should function in a similar manner. That is why many economists reclaim fiscal union and bank union for it in order to work, if the countries are to have a unified currency. However, what everybody fails to discuss, is that the people should have availability to move to other countries in recession times, and those countries should be open to take them in. For ex, when the Real Estate bubble burst in Spain, millions of Spanish people became unemployed. In Norway, even if not formally part of the Eurozone, many of it’s paradigms are applied. In 2012, 20.000 spanish people came to Norway to look for work. Only 1.000 found a job (and that includes part-time as well). Spanish people are tremendously discriminated in Northern Europe, where they are seen as part of “Hispanic-america”. Thousands of Spanish people moved to Latinamerica to look for work, as it was easier for them there than in northern Europe. Usually, they say it’s because of the language, but no, it is because Northern Europeans don’t like Spanish culture (except when on vacation, then they love going to Spain). Northern Europeans usually work in English in Northern Europe.

These issues have nothing to do with permit issues. With a European passport, it is very easy for Spanish people to get permits once they get a job. However, the job market behaves with hostility towards them. Northern Europeans, as well as French and Polish, are prioritized. Spanish and Italian have to wait in queue. It is not written anywhere, but that’s how it works in practice. The reason is historical. After WW2, Spain dealt mainly with food and tourism, and that is what it is known for. It can be easy for the Spanish people then to get jobs in restaurants or kitchen (if you are Spanish, you must be a good cook). But nobody understands that due to lower costs than in other European countries, Spain has positioned itself as an IT powerhouse. So Spanish engineers could struggle to get a job in Northern Europe, just based on prejudice.

I will go deeper into the integration issues that Germanic countries face later, and the historical reasons for this. From a political and economical stand point, Germany has been a terrible leader. General consensus amongst the population is that Germany should NOT be financing the weaker countries, who got into these situation in the first place due to their lack of fiscal discipline. Why should we pay for the crisis? – thinks the germans, these people are like this because of the culture, they don’t want to pay their taxes, they deserve what is happening to them. But as previously explained, if your neighbours are poor, you become impoverished yourself. Influx of immigrants change the shape of your own landscape, not to mention you go bankrupt yourself if you don't have nobody to sell your products to. Regardless of cultural differences, the situation in Southern Europe eventually affects Northern Europe and all the European countries, and sticking together in a time of need would have been the clear direction to head towards.

The refugee crisis adds now a new level of complexity. In addition to the issues of integrating southern, northern and eastern Europeans, Europe now faces the challenge of multiculturalism. Only the US and the UK have really been multicultural, that is including Europeans, Latinos, Asians, Afro-americans, etc. But these countries have an imperialistic mindset and culture, so they cannot be used as example. But Europe is a region based on emigration and not immigration. Whether the population wants to admit it or not, the people of Europe don’t like non-european migration (or their children). It is like that in most European countries, only to different degrees. In Northern Europe, the people don’t really like Non-Northern Europeans either.

Whatever the government does, whatever plan they might come up with, it will always find the restriction of the local culture, of people’s mentality. Cultural changes only happen slowly and on a long-term basis. Eventually, as the situation worsens and Europe sees how other countries or regions are rapidly catching up, each country will start pushing for their own interests. We can see that happening now, with talks of Brexits and Grexits. In a crisis, it becomes every man for his own. That is just the way that it is.

Your friendly economist,

Cristian “Nash” Bøhnsdalen.

The EuroCrisis – A Cultural Crisis – Part 1

The EuroCrisis – A Cultural Crisis – Part 1

Before going on to provide my own view about the challenges and my insights on the EuroCrisis, I would like to present a generic overview of the general situation. It is always important to take into consideration different ways to approach a subject, before making it your own.

Was the Eurozone a bad idea? – by Lissette Padilla at TestTube News

“The Euro debt crisis finally came to a head when Greece defaulted on its first loan payment. After months of European leaders scrambling to control this threat, critics have been if the Euro is more trouble than it’s worth. So, we wanted to know, was the Eurozone a bad idea? The Eurozone was established in 1999. Today it consists of 19 member states who have all have adopted a singular currency: The Euro. Monetary policy concerning the Euro is decided by the European Central Bank located in Frankfurt, Germany. Their biggest role is preventing inflation by attempting to keep prices stable amongst member countries. It would seem like a good idea to combine powerful economies to feed off and strengthen each other… However, what happens when a weak country enters the mix? Or when a strong country becomes weak? There are strict guidelines for being considered a strong enough economy to join. These are primarily base on a country’s long term stability forecast. But Greece was able to enter the Eurozone without all the necessary qualifications by severely understating their massive deficit. On top of that, the 2007 sent a lot of formerly powerful economies into a downwards spiral, forcing the ECB to bail them out, lest the Eurozone fails too. The ability of failing economies to bring down strong economies is one of the biggest criticism of the Eurozone. Often, when a country has trouble paying its debts, it simply prints more money. While this devalues the currency to some degree, its preferable to outright defaulting. However, individual countries don’t own the Euro, so they can’t devalue everyone else’s money to solve their own problems. Instead, the ECB provides emergency loans, but in exchange for economic reforms to make sure the country can keep up with everyone else. You may have heard of these reforms as “austerity measures”.  Austerity measures mostly include massive government spending cuts, curtailing social programs, and raising taxed. Now while this works in theory, it can also lead to severe consequences. In Greece’s case the EU’s austerity measures put a massive strain on the economy, and removed the government’s ability to invest in the public sector. This meant higher rates of unemployment, which led to fewer people paying taxes, leaving less money for the government to pay back their ballooning loans. Today’s Greece’s total inability to survive within the Eurozone has unprecedented consequences for both the country and the European Union. There are a number of subtle and complicated reasons for the Euro’s current instability. However, the biggest problem simply comes from the inherent differences in attempting to lump together economies with different growth, exports, relationships, and most importantly, monetary politics. So, all things considered, was the Eurozone a bad idea? While the EuroZone may be beneficial to many countries, its ability to weather economic downturn may just be its ultimate failure”.

Joseph Stiglitz on The Future of Europe:

“In the decades since WW2, and even before, Europe built an economic and social system that delivered growth, was reasonably well shared, and in the years before the crisis that we are now confronting, it resulted in countries with the highest indicators in the world. GDP is not a good measure of well-being, there are other factors that are more important not just income but education, health, and the top performing countries. If we go back even further, Europe was the source of Enlightment. A set of ideas and values that have been transformative. Ideals that have marked our standard of living that have marked the last 200 years. For thousands of years until the 1800s, standards of living have remained almost constant, barely perceptible increases. The standard citizens today have a much higher standard of living than people did 500 years ago.* Europe is going through a difficult period, there is recession, the average unemployment rate is around 12%, the youth unemployment rate is 25%, and several countries are in depression. The magnitude of the economic downturn is greater than in the great depression. With the exception of Germany, almost all the other countries (in the Eurozone), have a GDP adjusted by inflation lower than it was 6 years ago… Europe made one little mistake: the Euro. Having it’s own currency allows countries to adjust monetary policy and exchange rate. Countries have been borrowing in foreign debt. The Euro created the potential of sovereign debt crisis, like it has happened in emerging markets. The diagnosis also was wrong. The austerity path is a suicide path, no country has recovered from a downturn through austerity. Divergence started between what are know as the PIIGS countries, and the core countries. The problems that we see now in the EuroZone where evident even before the crisis: capital went into Spain creating a Real State bubble and there were no policies to restrain this influx of money. When the Euro was created, there was excessive belief in market rationality, meaning that the market were self-adjusting**. The crisis that broke in Greece in June 2010 was a good opportunity to show solidarity, to come to the help of Greece, to make the reforms that has to be made to get the Euro to work, but that was not what happened. There were some write downs in debt, austerity measures were set in place, and the result is that GDP x capita in Greece is 25% below what it was. And despite of wages being down, there are not more exports. So what is needed? 1. More fiscal union: ideas like Eurobonds. Borrowing all together, the countries can lower the interest rates. As it is today, the PIIGS countries have difficulties paying due to high interest rates 2. A banking union: in crisis the flows from the weakest to the strongest countries. A common deposit system should be set in place. 3. Replace the austerity with growth and industrial policies. The weak growth is not enough to create new jobs to allow new work force into the market***. There is also a need for structural transformation: in the 19^th century 70% of our workers worked in agriculture. High productivity lead to people having to move out of agriculture, and jobs that they found in the middle of the 20^th century were largely in manufacturing. Today, manufacturing productivity is growing so much again that global employment in manufacturing is going down. Because of globalization, advances countries, the US and most of the European countries, are going to get a smaller share of that dimishing global employment. Many of these should move to the service sector, but the governments must do their part to facilitate this transformation”.

Paul Krugman on the EuroCrisis, 2014:

“Europe is actually seriously scary. China is also seriously scary but it is harder to track, but it gets less press. And we are not an island, I think that international interdependence can be overstated but you would not expect the US to be completely immune to this developments and we are not that solid of a base here. So here we are 6 years after Lehman fell still very fragile. In Europe, the problem has shifted from problems in the debtors’ countries and a very strong Germany, but now the problem is that after years of being worried about the wrong thing, and too worried about debt and about inflation now they suddenly look around and they see that discovered that they have turned into Japan without the social cohesion. That inflation is practically zero, there is essentially a deflationary trap already, Germany is slowing down sharply because it depends upon exports, and who is it going to export to? And the scary thing is they don’t have tools. Monetary tools they is so much they can do, and fiscal tools, nothing can happen without the germans are not ready to change their tune. By the time everybody wakes up to the gravity of the situation Europe may be deeply stuck in a kind of permanent depression, with God knows what political consequences. Anti-immigrants groups are extreme nationalist groups. These groups are flourishing because that is what year after year of economic failure does”.

Nouriel Roubini on the EuroCrisis, already in 2012:

“There are many potential vulnerabilities in the Global Economy, the key one is coming from the problems of the EuroZone: the periphery of countries like Greece, Italy, Portugal, Spain that are in trouble, many of them have a situation of public debt that is not sustainable and might go through debt restructuring. Some might not even survive the EuroZone and might eventually have to exit and if enough of them were to exit that would mean a break-up of the Eurozone. If that were to materialize that would be a shock since it would have systemic effects on global financial markets and the global economy. Europe is re-entering a recession, but also in the UK there is a double dip recession; the recovery in Japan is fragile. The economic data in the US has been better than expected, but I expect that recovery in the US will remain weak because of fiscal and financial instability and now even emerging markets are slowing down with Chinese economic growth beign slower than people expected, and Indian growth having disappointed (recently).

In Europe, while fiscal austerity is necessary to avoid a fiscal crisis, in the short run, raising taxes, reducing transfer payment and government spending will impact demand and make the recession even worse. Studies have shown that fiscal austerity makes the economic situation worse in the short run, and if many nations worldwide apply it simultaneously then we risk a global recession. The problem of the Eurozone is that there is no strategy to restore growth. To restore growth, in addition to austerity the European Central Bank has to have more aggressive monetary easing, cut policy rates to zero. Also, the ECB should be a lender of last resort not just for the bank but also for the sovereign. To restore external balance, the Euro has to fall 30% compared to the USD and the competitiveness of the periphery. If the periphery is going to do austerity, then core Europe should do fiscal stimulus to restore growth both in the core and the periphery of the Eurozone. If that doesn’t happen, whatever you do in terms of structure reform and fiscal austerity eventually is going to become unsustainable”.  

*I disagree with this, I consider that people in developed countries have a higher standard of living today than the top did 200 years ago.

** This is because the Eurozone and the Euro were created during the New Liberalism period 1980 – 2008, where reaganomics and free markets were pushed as global policy by the US.

*** Younger people, people with diverse background and foreigners.

Sources:

https://www.youtube.com/watch?v=SwsxJ4PSpO0

https://www.youtube.com/watch?v=LaRW5jix_ic

https://www.youtube.com/watch?v=dndJfvlAgk8

https://www.youtube.com/watch?v=c_6kSkYlEkI