Boosting research and innovation in Croatia can strengthen the economy ( Credit: Jisc, Flickr Creative Commons)
An injection of much-needed investment funds awaits Croatia when it joins the European Union on July 1: An amount equivalent to about 4 percent of the country’s GDP will become available to Croatia through the EU Cohesion Policy when it becomes the EU’s 28th member nation. The funds offer Croatia a unique opportunity for financing strategic investments, aiming to restore the country’s growth prospects and generate better employment opportunities.
Experience shows, however, that seizing this opportunity is not easy: New member countries of the EU have often allocated those funds to projects with low economic and social returns, or have simply failed to effectively deploy these funds.
“My own working assumption is that the Europeans are learning the hard way that to run a single currency, you have to have not only a monetary union but also effective governance of the economic union."
--Jean-Claude Trichet. As quoted in the Financial Times, July 6, 2012. Lunch with the FT: Jean-Claude Trichet, by Martin Wolf.
As emergency meetings of Heads of State to address the Euro zone crisis have seemingly become recurrent events, the crisis in the Euro zone lingers on stubbornly and might possibly become more serious with borrowing costs for Italy and Spain, reaching unsustainably high levels. As ever bolder proposals proliferate to put an end to the crisis, it is important to look back at the history of the crisis and try to identify its root causes. A working paper by Justin Lin and myself addresses this question and, in particular, the extent to which it was driven by the global financial crisis and by factors internal to Europe, notably the adoption of the common currency.
In the recently released Global Economic Prospects June 2012, World Bank experts warned of long period of volatility. Resurgence of the Euro Area tensions had eroded economic gains of first 4 months of 2012, said the report. And as the leaders of the 27 European Nations convened in Brussels yesterday to tackle the crisis, it was labeled as the “last chance” summit. The outcome: Up All Night, But Consensus Finally Reached, says a Time.com story. According to the story, published today, “Yet, despite what were described as tense and grinding negotiations, decisions announced early Friday morning appear to represent important steps towards the survival of the embattled euro zone—and in both the short- and long-term context of the crisis.” This much needed move comes at a crucial point and will hopefully have a positive impact on developing countries. However, a lot remains to be done. Following is a sampling of some interesting research and analysis by World Bank as well as others highlighting issues of current import to global economy and development.
Systemic financial crises require swift and comprehensive solutions by the government. In 2008 it quickly became clear that characterizing the U.S. securitization crisis as one of liquidity was inaccurate, and hoping that it would be cured by auctioning off increasingly poorly collateralized central bank loans to distressed firms was futile. That led to -TARP- a plan to repurchase troubled assets from banks, which quickly evolved into a bank recapitalization plan when it became clear pricing toxic assets was nearly impossible.
More recently, Spanish banking system has seen its situation worsen, partly because of Madrid’s failure to force an earlier cleanup of bad debts stemming from a real estate bust. Austerity measures to remedy the region’s debt crisis have since led to greater deterioration of Spanish bank balance sheets, as more and more Spanish businesses folded and homeowners went into foreclosure. Over the weekend Spain became the largest euro-zone nation to seek an international bailout, and the 17-nation currency area agreed to lend Madrid up to $125 billion for its bank rescue fund. At this point there is little disagreement that there needs to be a broad-based approach to resolve the Spanish bank insolvency problem, but not as much discussion over the form it should take.
Through its forthcoming European Union presidency Poland should inspire other regions of the world that seek their own development path. By no means do current turbulences and crisis disturbances shatter the need of European integration. Just the opposite, they make it stronger. European integration works and will get through this confusion.
Right after the holiday season Greece announced their controversial plan to build a 12 km long wall to stop the flood of illegal immigrants to the EU. The wall will cover only a fraction of the total length of the border and is aimed to be built in the area that is worst affected by illegal border crossings estimated to amount to 350 people every day, making Greece the leading entry point of illegal immigrants to the EU. As provocative as it may sound, in an economy that is suffering from severe difficulties and rampaging unemployment figures, blocking immigrants from entering is becoming one of the priority political actions to moderate fiscal expenses that is visible to the domestic population. Even though opponents have raised loud objections against the project, according to a recent poll 59 percent of the Greeks approved of the plan. And one has to admit it has an intuitive appeal of simplicity and logic: once you close the drain the flow will stop. Yet, as simple as it may sound, this is not how it works.
A recent study by PEW Hispanic Center states that immigrants are finding jobs faster during 2010. According to the report “immigrants in the U.S. have gained 656,000 jobs since the Great Recession ended in June 2009. By comparison, U.S.-born workers lost 1.2 million jobs. The unemployment rate for immigrants fell over the same period to 8.7 percent from 9.3 percent. For American-born workers, the jobless rate rose to 9.7 percent from 9.2 percent.”
Two other labor indicators show a recovery for immigrants workers in the US labor market: 1) an increase in the labor force participation from 68% in the second quarter of 2009 to 68.2% in the second quarter in 2010; 2) an increase in the employment rate from 61.7% to 62.3% during the same period. The study also points out at the greater mobility of immigrants in finding jobs in different states. In a previous podcast we underscored the mobility of hispanic immigrants due to their diaspora connections (see previous post).
Important developments today:
1. EU unveils new rules for financial markets
2. U.S. Industrial Production up in August
Due to the global recession, migration to the EU slowed down in 2009, for a net migration of 1,464,059 in 2008 to 857,186 in 2009 (a 40% decline). The reduction in migration flows is due to employment losses in countries of destination (especially Spain, Italy, UK) and to more restrictive immigration policies devised by European countries (e.g. UK points system, Italy prohibition on access to health service for undocumented migrants, Spain’s reduction in the number of positions available for immigrants).