Friday, May 17, 2013

Europe's failing states

The homeland of Helen Blums, along with a number of other former Soviet or Eastern Bloc countries, is in trouble due to emigration and low birth rates. Latvia's president said recently that the country's independence would rapidly become unsustainable if the net outflow of population was not stopped.

And in a provocative piece on the problems of fertility and emigration in some European countries, Edward Hugh suggests that the international community should start thinking about a 'country resolution mechanism' along the lines of the mechanisms for dealing with failed banks recently debated in Europe.

Hugh refers to Wolfgang Lutz's low fertility trap hypothesis which involves self-reinforcing mechanisms which may lead to population meltdown.

Economic factors are clearly crucial.

"... Not only do […] negative economic conditions discourage young people from forming families and having children (obvious I think), they can also have the effect that young people leave in search of a better future thus reducing the potential number of children who can be born in the future.

"The ensuing acceleration in the rate of population ageing and the proportions of older people only makes the problem of sustaining public spending on pensions and health systems worse and worse, causing the fiscal burden on those who stay to grow and grow, a development which makes it more and more attractive to leave and start up again elsewhere. And with each additional person who leaves there is another turn of the screw, and the costs of staying get higher, as do the advantages of not doing so. This is how melt down can happen.

"Naturally there can be a political dimension to the disintegration, as the need to implement ever less popular policies (especially policies unpopular with older people, those who do vote) leads politicians to become more and more demogogic while delivering less and less. Naturally the democratic quality of a country’s institutions starts to deteriorate under these circumstances, which only makes the young feel even more helpless and under-represented.

"This outcome is now becoming plain in much of Southern Europe, but it is obviously even more evident in Ukraine...

"... [T]he process of country decline, like most processes in the macro economic world, is non linear. That is to say critical moments or turning points will exist when suddenly things move a lot faster than expected. Hemingway grasped the essence of this in his much quoted “bankruptcy comes slowly at first but then all of a sudden”. As the economy falls back, and the burden of debt grows on the ever smaller numbers of young people expected to pay, the pressure on those young people to pack their bags and leave simply mounts and mounts, accelerating the process even further.

"In fact populations dying out is nothing new in human history if we move beyond the most recent world delineated by nation states. In hunter gatherer times populations occupied increased or reduced proportions of the earth’s surface as climate dictated. In more modern times, islands have been populated or become depopulated according to economic dynamics (think the Scottish coastline). More recently, it is clear the old East Germany would have become a country in need of “resolution” had it not sneaked in under the umbrella of the Federal Republic. Why people should find the idea of country failure so contentious I am not sure, perhaps we have just become accustomed not to have “hard” thoughts.

"Applying the argument many apply to banks, unsustainable countries “deserve” to fail, don’t they? Why should the US or German taxpayer have to pay to keep them afloat? Naturally, including Spain in this group of countries that can only now salute Caesar as they prepare to die may seem extreme, but just give it time.

"I expect (should I say “predict” in the Popperian sense, since this argument is empirical, and is surely falsifiable) the first countries to die to be in Eastern Europe, with the most likely candidates to get the ball rolling being Belarus, Ukraine and Serbia. But then gradually this phenomenon will spread along the EU periphery, from East to South..."


  1. Thanks, that's a good discussion of a big problem, one we hardly know how to think about. Demographic decline is happening fastest in the most traditionalist of modern and semi-modern societies. The Anglo-Scandinavian world is doing OK by comparison.

    Curiously Latvia has a pretty strong economy, despite its poor demographics. The rest of Europe would love to have half the economic growth shown here: Its public debt is only 32 per cent of GDP, not too bad these days.

    Lithuania and Estonia are also doing well. They are small signs of hope. Both have embraced low-tax free market policies.

    Curiously, ex-communist Europe is less centralised and socialist than social democratic and Christian democratic Europe.

    1. Edward Hugh doesn't target Latvia particularly. But I suspect he may not be too popular in Ukraine, Belarus or Serbia. Or Spain, come to that – where he lives.

      Odd that demographic problems afflict the more traditionalist societies.

      On the other question – of ex-communist countries being more market-oriented – maybe they are just reacting against the old system. Or maybe it takes time to develop social democratic structures – and they have only traveled a little way down that road (to renewed serfdom?).

      I don't want to sound too ideological, however. Whatever works, you know...

  2. So what happens when a state fails? Is there an "estate" sale of the assets to reimburse the creditors? Or does the world watch as it descends back into Hobbes state of nature?

    1. It's not so long ago that Europe had functioning imperial structures (Austria-Hungary, not to mention the USSR). And who knows what the EU (or a successor institution) might become?

      So there are alternatives to the model of the nation state, and a failed state needn't mean chaos.

  3. The author in the article linked notes the fact that nations die is nothing new. In the past, however, poor demographic growth opened the door to foreign conquest. (Wasn't that part of Rome's problem?) That is not a likely scenario in modern Europe. How it goes down today is anyone's guess.

    I alluded to chaos because whenever I read about countries failing, Lebanon comes to mind. Of course,they suffer from demographic problems of a different sort. The Christians were not sustaining themselves near as successfully as the Muslims.( remember in the mid-1980s walking into my university library and seeing an older poster on the wall with a beautiful photograph of the Mediterranean coast and the words "Lebanon--Paradise of the Middle East.)

    And artificial states like Yugoslavia tell another sad story altogether.