For the record with the exception of Ireland, the need for IMF interventions is not directly related to the global finantial crisis. The need for the EU bailouts is a consequence of the Euro accession of countries that should not be a part of it in the first place.

As a consequence of joining the Euro there was a subsequent interest rate drop in those countries, causing the people to feel a false sense of wealth. Thus leading them to increase spending and as a consequence, their debt. Though sure enough, the global finatial crisis accelerated and worsened the problem and precipitated the IMF intervention.

Also worth noting is that the latest IMF rescue may lead some to think that the Portuguese situation is not as serious as that of Greece or even Ireland. This is false and the only reasons why the IMF is being more lenient now is precisely because Greece is failing once again and is now two for two, and Portugal preemptively enacted some of the policies that would otherwise be imposed by the IMF anyway.

Regardless, Portugal is as much a budgetary basket-case as Greece is, and they even share fundamental common flaws that are hindering their growth for decades. It starts with a poor public finance track record that oversteps well beyond what one might consider creative accounting. And although I have no data leading me to agree that there is a case for mismanagement, I'm not as certain that there isn't a case for fraud in both these countries, as I have mentioned in the past (http://twitter.com/RalitsaZaitseva/status/1382611121344512) and which contributed greatly to the eventuality of the IMF assistence in the Portuguese case, due to the most complete lack of trust from the markets. And this, like the Greek case proves as well, will not be going away just because the IMF came for the rescue.

At this point I can't really be bothered to read the entire text of the latest IMF deal. But no matter which Eurozone country is in trouble, I have already mentioned the broad solution (http://ralitsa.tigblog.org/post/2981327). And so, the degree of success of any of these countries in dealing with their own crisis with or without the IMF, will depend on how close they get to those fundamental measures that are required to address the overall problem.

Then it would also be desirable to rethink the role of trade unions in the 21st century context of globalized markets, transnational corporations and their contrast with local or at best national governments. But that may well be too much to ask from most Euro-Mediterranian countries.

 

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I suppose I could say I am waiting for Medvedev's address to the Federal Assembly with a sort of cool detachment. This was supposed to take place this week but for reason(s) still not entirely clear, it seems to have been postponed at least until the 22nd of the current month.

Just to be clear, this speech is Russia's equivalent to the US' State of the Union address. I say equivalent but without any real pluralism or real democratic opposition for that matter, on any Russian government body, federal or otherwise. But this year's address might be more interesting to listen to, at least by comparison to the previous ones.

For one, there are no certainties as to how the governing couple's relationship has been going within the privacy of the Kremlin walls. There has been little indication as to which will receive the support from the establishment or on how the other will react to it. Or better put, how Medvedev will react if Putin decides to run again instead of waiting and letting Medvedev have another term.

Then there is the ongoing rumour that the Russian administrative map may be redrawn and possibly presented the speech and that this reorganization would see the number of Russian regions being reduced from the current 83 to just 20. The goal here is obvious. It follows the primitive logic that you can solve a problem by diluting it, thus reducing its concentration. And this has got to be driving force behind this idea. It might even work to some extent in some regions where separatism is not being taken too seriously anyway. But personally, I can see this as an added motivation for the ongoing secession movements in the Caucasus. While at the same time, one of many reasons why succession of other regions of Russia has never been particularly credible has been tied to the lack of real economic viability for many such regions as independent countries. A problem that will be fixed if such an administrative reform takes place.

Another interesting consequence to watch for, should this supposed decrease in regions be a real plan, will be the redrawing of the Russian political map. And more importantly, the redefinition of the rules for political parties to put forward candidates. There's no real point in going into the boredom of how the Russian fascist regime is laid out to ensure that all opposition parties but the communists (which are not quite a freedom loving bunch, as over 80 years of recent Soviet history have shown) can for all intents and purposes, be bared from running. But under the currently existing law, the reduction of the regions from 93 to 20 would at least in theory, make life easier for them.

As for the Kaliningrad region, which is really all the Russia I really care for, none of this will make any difference. No matter who is appointed to govern the place after the right for the local population to vote for one was taken away, or what über-region they put us in, none of that will change the fact that we are a separate entity. And geography trumps bureaucracy any day.

And this is why since Yeltsin stepped down, I am actually looking forward for the speech. It is impossible to be sure what will come out of it, but I am hoping it will will be as interesting as it will surely be amusing. Particularly if my hopes come true and this turns out to be the Putin-Medvedev governing loving couple sawing off the branch they are sitting on.

A fair few people have asked me about what is going on in Europe lately. Often wondering why the USA and Europe both are facing such similar problems and yet, are going about it in completely different ways.

First off, one fundamental difference is that the USA does not care so much about debt. While the EU still does, at least for the time being. And truth be told, they have no other choice. Creating the United States of Europe seems more and more to be the only possible path in order to keep the Euro under control. It is not something that will happen overnight or even be openly admitted but it is where the EU is already heading slowly but surely.

But until that becomes a reality the EU is still a loose association of somewhat independent states. I am really not qualified to go into the US fiscal and economic policies but it seems to me that this fundamental difference on the units that make up the USA as opposed to those making up the EU lead necessarily to different approaches.

Greece

The financial crisis began in Europe thanks to Greece. Despite all the early warnings, some dating all the way back to 2006 that something like this was going to happen and would hit Greece more severely than anyone else. But the Greeks had just found a renewed hate to focus their undivided attention upon. And that was something as shallow and futile as to what name should the independent nation of Macedonia have. Alexander would be so proud now...

But returning to the present time, there is something that had barely been mentioned about the crisis and the Greek bailout. The Greek bailout was actually a bank bailout. But it was not a bailout on any Greek bank. The Greek bailout was first and foremost a bailout by the German government to German banks.

Confused? Germany, and France though in a much smaller scale, have been the EU powerhouses and whose economies most contribute for the stability of the Euro. As a result Germany has been buying much of the Greek debt, just like China has been buying the US debt for years now.

But back to Germany, the German banks own most of the Greek debt. Without the Greek bailout the Greek debt bonds would greatly devaluate and sink the German banks in the process. So when Germany is helping Greece and more any of the other troubled Euro economies, it is actually helping itself more than anything else.

Rating agencies

Why does Germany need to bail itself out like this, is an entirely different matter. The main reason there is the dreaded rating agencies. And there are two very basic problems with these rating agencies. One is the rating part of it and the other is the agency part of it.

To begin with all these agencies are American, which by itself already poses a major problem for the Euro. And then they operate with complete lack of accountability. And it is this absolute lack of accountability that poses the greatest problem. In times of crisis a report from one of these influential agencies can make a difference between recovery and state bankruptcy.

These are the extreme possible range of consequences of a single report. Whether any given report is accurate or not it really is irrelevant from a legal stand point. And this happens because being all American agencies, they and their reports are protected by the First Amendment. Fundamental as that amendment may be and surely all Europe could use something like it in their own national constitutions, the fact remains that probably would not be such a bad idea to define a legal difference between an indivudual's free speech and corporate speech and possibly even advertising speech.

The bad boys

Greece was undoubtedly the place where the problem started within the EU. But they are far from being alone now. Ireland, Italy, Portugal and Spain have all been facing very similar problems for quite a while. These are very different countries and they are addressing their problems in sometimes different ways. But more often than not, they are all going about it the wrong way.

Contrary to general perception at the national level in these countries, the main problem is not the budget deficit. The real problem is what I have been mentioning above and that is the foreign debt. Which does not get any better when coupled with low, in most cases negative, economic growth.

And this is another very important distinction between the EU and the USA. The greatest problem in the USA is by far the budget deficit, while in the Euro economies it is the economic growth.

Public investment in the Euro economies could help in the long run in a Keynesian kind of way but it can not be the hope, let alone the solution, for the problem. Semi-public investment may be among some of the key macroeconomic solutions but only if the risk is placed on the private side of the table when creating such partnerships. What this means is if semi-public investment in which lower return or even losses take place are indemnified by the state to the private partners is not semi-public investment at all. That is plain and simple public investment no matter how disguised it may be. And public investment at this point would certainly help in the short run but only to aggravate the problem further down the road.

There is a need to entice the private sector into risk taking and that is something that should be done on a national level particularly in the most troubled Euro economies. In order for this risk taking to become attractive enough and actually become a reality, there are several fundamental changes that need to be done at national level. And with those changes and ensuing risk taking, will come greater productivity which is where lies the solution for these countries.

Increasing productivity

Call it risk taking or euphemise it by simply calling it entrepreneurship. Whatever name is used, for it to happen in a country and spread like wild fire, the country first needs to lay down the needed conditions.

And the first one that is desperately needed is a profound reform of the entire political and judicial systems. Because the two go hand in hand and you can not reform one without reforming the other.

With the exception of Ireland, all the other troubled Euro economies are marred with corruption. Obviously there is no acknowledgement of any relevant level of corruption in any EU nation. But it is not a coincidence that among the Euro based economies, it is in those where corruption has been endemic for decades that the greater financial problems can be found.

Whether they are founded on some old political elite that has simply been around for far too long, or some dubious allegiances between politicians, political parties and certain financial lobbies or criminal syndicates the fact remains that these are not conditions that are considered to be beneficial for a liberal environment of free entrepreneurship.

On a much longer term perspective, education reform is also necessary. And because its results take at least one generation to show, it is urgent to start right away. All levels of education at least up to the university level and particularly in western Europe has become too centred on the single goal of passing exams rather than transmitting and acquiring knowledge. This ultimately leads to a chronic mental atrophy and inability to actually have any relevant independent thought without which entrepreneurship can not exist on a broad scale. But this is by no means the only problem as the problem will continue to progressively hinder higher education even further as well, ultimately crippling areas of knowledge that can not be imported and will seriously compromise a nation's sovereignty and national security.

But the most necessary and fundamental change that needs to be operated in just about every nation but which acquires particular immediate relevance in this Greece, Ireland, Italy, Portugal and Spain group is the reform of social security.

Why social security fails

Social security was arguably the greatest conquest of the workers, or the proletariat if you will. In most European nations it came into existence right after WWII. Eventhough in the USA it was enacted about 10 years earlier and in the USSR it had already been in place since 1922.

The fundamental problem with social security financing lies in how it was set up as soon as social security itself was created. But you can skip this part if you know the basics about how social security is financed.

At any given time the active population with a job gets charged with an income tax. That tax is then channelled to several areas with a highly significant part of it being put into social security, namely to fund retirement pensions which are the bulk of the present social security problem.

A very relevant detail is that the tax taken from the generated income of any given worker is not used to finance that same worker's pension for when he retires. Instead, the money that is taxed goes to pay the pension of someone who is currently retired. Just as when that worker retires, it will be the tax on some younger worker that will be paying his retirement.

Despite this obvious flaw, that could only have been corrected at the beginning if the social security benefits had began to show a generation later, this system had been working quite well until recently. With the sharp decline on the birth rate in the most developed western countries, which has been leading to an overall ageing of the population, the cracks in the system have begun to show.

Suddenly we have more retirees than ever before and that figure will keep on growing for a while. And at the same time we have less people at a working age that we can tax to pay the due pensions that those retirees are entitled to.

There are many different ways to address the issue, neither of which will make everyone happy. But this is an incredibly simple math problem and not a complex issue of economic science. It was this fundamental flaw upon the creation of the whole social security system that led us to the problem we now have. And even side issues like the pros and cons of a private social security system are much more complicated today because of that flaw that was overlooked at the time.

But blaming aside, the fact remains that social security is today one of the main sources of public spending. And although the ways to reform it can be virtually countless, at the end of the day it still has to be reformed in one way or another. And until it is and it is so in a fashion that gives some degree of assurance that the issue is addressed and will not continue to be a problem, there will be economies still bleeding.

Solutions

There are general measures to increase productivity, which would in turn bring obvious benefits to any economy, particularly to these troubled Euro countries. But alongside those there are many other options with more immediate results. Although reforming social security would actually have an immediate result on the economy, provided it would be properly and permanently reformed.

As I mentioned above, economic growth is part of the solution. Having said that, raising taxes is not. In fact you can not raise taxes and have economic growth at the same time under the current conditions.

So if growth is part of the solution, one of the possible ways to get there is through foreign investment. And once again, in order to get more foreign investment it is necessary to improve the conditions to bolster investment which is not achieved at all by raising taxes. Focusing on improved tax collection instead, while fighting fraud and evasion while even reducing taxes is the best way to go about the problem for these countries. This would not be true for other nations such as the USA, but in these particular ones, the actual tax collection should be at least 30% more than what is currently being collected.

Through a comprehensive social security reform, improved fiscality and overall greater attractiveness to foreign investment, an increase in productivity will naturally follow. Leading to an increase in exports and consequently to a decrease on the debt.

The public sector would also benefit greatly from cutting all redundancies. In most EU nations the public sector is just too big. And this does not mean the public sector has too many public companies or needs to be privatized. That is for each state to decide what best suits its needs. Though privatization and using the resulting revenue for some creative accounting that will make it seem that the public spending is under control is something that will not fool anyone nor will solve any long term problem. And the state can only sell so many public corporations until there is nothing left and the real and hard-hitting policies can not be postponed any longer.

A very important step that all these troubled Euro nations have already taken was the effective reduction of salaries. Though this can only be done on the public sector, it would be advised that private companies followed suit and worker unions rethought their role from the perspective of a globalized World where old paradigms no longer apply.

The fundamental need for an overall reduction in salaries has simply to do with economic competitiveness in the global market. Again, these most troubled Euro economies are the ones with the lowest ratio of productivity to average salary. Which simply means that even if some of them already have the lowest wages of the Euro economies, most of those workers are still paid extremely high salaries for the level of productivity that they present. And this accounts for another reason why these are the countries worst hit by the crisis.

Conversely, it would be helpful if Germany did the exact opposite. Given the average German worker's productivity, they are being extremely underpaid, even if in absolute terms they already rank among some of the best paid in the EU. This disparity also accounts to the weaker economic performance of the least productive Euro economies. All in all, adjusting salaries and public spending in general to the respective national productivity of an Euro nation is key to keep the Euro as a viable currency and can do more for it in the long run than having member countries policing each other's national budgets.

If and when these goals are met, or at the very least there begins to be an indication that they will be met, it is then time for one final policy.

With an increased wealth resulting from higher productivity and revenue originating primarily from exports rather than internal consumption, it is then time to create incentives to increase individual savings, even by compulsory means, if necessary. Although a much less radical approach that could give some results and be widely accepted given the cultural background within the EU, would be to simply ban credit advertising in the same fashion it was done to all advertising on tobacco related products.

Sadly, no matter which country is considered, the government, through its ruling party is more concerned about policies that will allow re-election rather than properly tackling the several problems, that led to the current situation, at the root.

Now this veil ban is something I really can't understand at all. I recall first hearing about this matter in France back in 2004. It made no sence back then and it still doesn't make much sence now.

I have been to muslim countries and it is a royal pain. And I won't even get into the whole passport issues as I have two because I have dual citizenship. Otherwise I would be bared from most of them thanks to the Hebrew stamps I have on one of them. But anyway, in all the ones I have been to, they all had this same sort of dictatorial dressing code like some European states are now trying to adopt. The difference is that their laws force women to wear a set of clothing while baring other clothing items while some EU members states are now committed to do the same, only reversed.

Although I do not agree and find it rather block-headed, I could at least understand the motivation behind it if that were meant as pay back for all the westerners that have to travel there and comply with their rules, some even getting arrested for something as trivial as holding hands in public. It would be a more impulsive motivation but it would at least follow a simple logic.

The argument that the veil imprisons women seem to be the official argument but that just doesn't make any sense at all. It is an argument that would not surprise me as much if Bush was still in power, but he is not. Nor is he advising Silvana Koch-Mehrin, or any other EU parliamentarians or governments.

Western Europe, the EU alongside with the US and Canada are beacons of freedom. If anything, we all have too many regulations and dressing codes and not too few. And if there is one thing that former president Bush taught us was that you can not impose freedom upon anyone. Trying to do so results in an imposition and therefore a dictatorial act, not a liberating one.

Or is the argument of defending women's rights just an excuse to ease the monitoring of muslim people, to prevent men dressing as Arab women to avoid the facial recognition from CCTV cameras? At this day and age when we have growing concerns about our freedoms and privacy and when big brother is looking from CCTV cameras placed just about everywhere, to ban the veil could well be the first step to ease the monitorization of everyone's movements and not just foreigners'. Will there be a day when wearing masks in public will be outlawed as well? Will we be limited to hanging an apple in front of our faces like Magritte did in one of his paintings or will his art be banned as well once the new legislation comes into force, in Belgium?

It would shock me much less to see these EU countries (or the EU as a whole) to simply stopping to issue visas to countries that force women to wear the veil instead.

The veil can be attacked in many different ways and if women now living in the EU keep using it because they are forced by their husbands or brothers the EU member states already have criminalized coercion many decades ago and the resulting laws can and should deal with that.

At the end of the day this is just another example why despite everything, I'm glad none of my countries is in the EU... yet.