Bare Bones Life for Estonian Pensioners

PARNU, ESTONIA. Enno Kuusmets is a sturdy Estonian who at age 77 has experienced tough times.

 Enno Kuusmets at Parnu’s bus station 

Born four years before the Soviets took over in 1940, his homeland in southeast Estonia was soon occupied by the invading Germans. His father was forced into the Wehrmacht. Enno remembers soldiers digging trenches in his yard as the Germans retreated from the siege of Leningrad.

The conquering Soviets punished Enno’s father with ten-years in a Siberian work camp. His health ruined by privation, he died two years after returning home in 1955. Finishing high school that same year, Enno’s family couldn’t afford bus fare for the 50-mile journey to Tartu for university entrance exams. His alternative was three years in the Red Army. Later he studied economics and moved to Parnu on the Gulf of Riga, one of four urban centers in Estonia.

“The worst times were in1960,” Enno recalls. Newly married, he remembers, “sugar was in short supply, the lines stretched for on for one kilometer and you waited all day for a ration.” Pay on the collective farm where he drove a truck was 50 kopeks per day. His family farmed a small plot and was allowed 20 chickens, one pig and one cow.

 Times were good in the 1980s, he says, until the failed reforms under Gorbachev triggered hyperinflation. “1991,” says Enno, “was a fateful year for me. I lost my wife and then I lost my money,” his ruble savings having become worthless.

Enno Kuusmets today lives in a two-room flat in a squat rundown building in the distant outskirts of Parnu. He survives on a pension of € 360 per month. That’s enough to get by but after paying for electricity, water, building fees, taxes and cable television he has about € 225 for food, bus fare and other expenses. He’s not able to save money to visit his son, a shopkeeper in Tartu. A diabetic, Enno suffered a four-month bout of pneumonia last winter.

                                               
                                                              Enno in his Parnu apartment

Since regaining its independence in 1991 Estonia has been a post-communist success story. Its open economy produced the programmers who partnered with Swedish investors to develop Skype, which under Microsoft still has a major facility in Tallinn. Estonia has a market friendly flat tax and the country has embraced information technology in ways few European countries have. Geopolitically Estonia is anchored in Europe and is a member of the European Union, and since 2011 the euro currency zone.

Enno Kuusmets is not complaining and savors Estonian independence. But he worries about young people as well as his elderly neighbors. Estonia is losing population and educated young people are the ones leaving in greatest numbers.

This county is the size of New Hampshire and Vermont combined but has less than 1.3 million people. In the five years since the 2008 economic crisis about 30,000 people emigrated from Estonia. While a small number, it is equal to over 2% of Estonia’s population. Most young people go to Finland, Britain and even Australia to find greater opportunity and higher incomes. Neighboring Finland is the preferred destination as its language is similar to Estonian and Finnish salaries are typically three to four times higher. The average monthly wage in Finland is € 3,200 compared to € 800 in Estonia.

Medicine and health care are severely impacted by emigration. In a nation with this low a population losing even five specialist doctors is a large problem. Estonia typically certifies about 150 new nurses each year. But in both 2010 and 2011, according to the ministry of social affairs, more nurses emigrated than graduated from nursing schools.

Parnu, waiting for a bus outside typical dwellings 

Some analysts challenge the assertion that emigration of the skilled and young is a problem. Rather, they say, the open labor markets within the European Union are positive as Estonians not only send remittances home but return with fresh skills. But make no mistake, times are tough in Estonia and not only for the elderly. Economic growth this year will be no more than 1.5%. The economy is not producing enough jobs and the 20 % youth unemployment rate is misleading because so many young job seekers have left the country.

Enno’s pension is generous compared to what is paid in the neighboring Baltic States of Latvia and Lithuania. But it is well below the € 800 to € 1,000 the European Union pays each month for the living expenses of university students participating in its Erasmus exchange program in member countries. #

Greece..Economy Stabilizing

Thessaloniki: In the short-term more protests are coming. On November 6th, about the time the troika of Greece’s creditors arrives, a 24-hour general strike is planned. There will be more complaints that citizens have endured too much austerity and can’t take more. They’re wrong; much more needs to be done.

Greeks desperately need the structural reforms that will boost competition and bring down the high prices that daily afflict consumers who have seen their wages fall while supermarket prices are mostly steady. Analyst Miranda Xafa in Athens writes of, “an urgent need to improve the business environment by reducing red tape, regulatory obstacles and barriers to competition.” Examples, she says, are government-mandated rules prescribing who can sell what, dictating shop-opening hours, and setting unnecessary standards to limit competition from imports.

Economist Megan Greene, an astute observer of the Greek economy, relates a personal encounter with the over-regulated small business sector. Visiting a new bookstore cafe in downtown Athens, she ordered coffee and was surprised to see the waitress dart across the street to fetch the coffee. The owner explained that she couldn’t obtain a license to sell coffee. Wanting to buy a book, Megan was told she couldn’t because it was after 6 p.m. and books couldn’t be sold after six.

Prime Minister Samaras pledged in a recent speech at Washington’s Peterson Institute for International Economics “to replace red tape with a red carpet for foreign investors.” That’s a tall order as nearly half the members of parliament come from protected, privileged professions.

Greece’s leading economics think tank, IBOE, says the economy “is very near the stabilization point.” While a further 4% fall in gdp is likely this year, that projection is mildly improved from six months ago. There is improvement in public finance as both the trade and budget deficits have narrowed.

The biggest plus is the turnaround in tourism, a main driver of the Greek economy. Reassured by relative social peace this year and bargain hotel prices, tourists have been flocking into the country. 2013 is set to be a record year for both tourist arrivals and revenue. The tourist association says arrivals are up 15% and that 2014 should be even better. Tourism, it says, is likely to account for 35% of anticipated gdp and job growth over the next decade.

                                              Beans on sale at Thessaloniki outdoor market

Here in Thessaloniki, a commercial center rather than tourist destination, hotel prices are down at least 20%, a pattern replicated throughout the country. Unemployment approaches 25% while wage reductions have not been matched by price cuts, severely squeezing household budgets. With the economy in its 6th year of recession, a recent survey shows that many households will cut back on home heating this winter because they can’t afford heating oil. Statistics suggest that household incomes are down 40% from 2006 while house prices are down 35%.

This kind of internal devaluation, say troika economists, is the only way an economy can regain competitiveness when it is locked in a common currency zone. While doomsayers at the depth of the crisis predicted Greece would abandon the euro, such a drastic response was opposed by government and the public. A May 2012 survey showed that while Greeks opposed austerity, 88% wanted to remain with the euro.

An engineer I met on a Thessaloniki bus commented, “there is no question we lived far beyond our means after joining the euro in 2001.” His remark matches the assessment of Harvard economist Carmen Reinhart who observed that household debt in Greece exploded from 6% of gdp in 2001 to 50% in 2009. Low interest rates in a traditionally high inflation economy arrived in Greece with the euro. Not surprisingly, a borrowing binge was the result.

Reinhart also observes that Greece has been so profligate in public finance that it has been in default for half the 180 years since independence. Some time ago, a participant in the Greek financial rescue told me, “they have to become poorer.” Well, that happened. They are poorer. But contrary to expectations the government is taking the reform medicine. Greece has made considerable progress. But more hard work is required. #

Thessaloniki: Heart of Macedonia

Thessaloniki, Greece.  The Galerius Arch has been the eastern gateway into this pulsating port city since it was built in 299 A.D. commemorating the Roman emperor’s victory over the Persians.

The thoroughfare passing beneath the arch—the Via Egnatia—is even older. It dates from 146 B.C. and extends 400 kilometers from the Adriatic town of Durres across the mountains of Macedonia and then south to this magnificent city at the top of the Aegean Sea. The Via Egnatia was the second most important highway in the Roman Empire and the first to span the Balkan peninsula. It remains Thessaloniki’s principal thoroughfare.

It is tragic that a geo-political argument prevents Thessaloniki from being fully integrated with its traditional hinterland.  The problem is the rancorous, silly dispute between the Macedonian region of former Yugoslavia and Greece that has dragged on, impeding regional progress for two decades.  Athens argues that the Republic of Macedonia that emerged from Yugoslavia in 1990 is not entitled to be called Macedonia because the real Macedonia is in Greece.

So adamant is Greece that in 2008 it vetoed its vulnerable northern neighbor’s bid  to join NATO and continues to block Macedonia’s path to the European Union.

The Slavic Macedonians share the blame.  They have only a connection of geography to the ancient Macedonians, whose most famous son, Alexander the Great, died hundreds of years before Slavs even arrived in the Balkans.  It’s an insult that the Republic of Macedonia names the airport of its capital city Alexander the Great. Pursuing a fraudulent identity, Skopje has built statues to a Hellenic-speaking tribe with which it has no lineage.

Despite economic crisis, Greece allows the dispute to fester. This month brought more angry exchanges. The Greek prime minister accused Skopje of intransigence.  Macedonia’s prime minister countered, asking Greeks how they would feel if their country was called “the former Ottoman province of Greece,” a pointed reminder that Greece endured 400 years of Turkish rule.  Foolishly, Greece insists that in international organizations its neighbor is identified as FYROM, the Former Yugoslav Republic of Macedonia. 

A sensible solution is for Skopje to have the name Northern Macedonia. This would suggest that the Macedonian heartland is to the south in Greece and that only an accident of history resulted in the southern part of Yugoslavia having the same name.

Of course, strife and bloodshed are all too common in the Balkans and Thessaloniki has been a particular victim. Traditionally a melting pot of cultures and ethnicities, Thessaloniki endured the Romans and then the Turks who were finally beaten and driven out in 1912.  The victorious Greeks sought to obliterate all evidence of Ottoman rule, destroying all but one of the city’s minarets.  

Further outrage came under the Germans when the Nazis deported and killed Thessaloniki’s 50,000 strong Jewish community, which had flourished since receiving sanctuary from the Turkish sultan after being expelled from Spain in 1492.

Thessaloniki somehow manages despite the political standoff and rail and road delays at the Macedonian border.  But it would be so much more vibrant if it could resume its rightful place as the commercial center of an integrated, peaceful Balkan region, the beating heart of the Via Egnatia. #

A Stunning Lack of US Support for the IMF

Thessaloniki, Greece.  Some years back, I wrote that the annual meeting of the International Monetary Fund in Washington was Davos on the Potomac. It is, but it is much more.  Held two out of every three years in the IMF headquarters city, it is a much larger and more important gathering than the World Economic Forum.  

Marco Annunziata of GE, formerly the chief economist at Italy's biggest bank, calls the IMF meeting "an extraordinary concentration of policy makers and market participants...an opportunity to take the pulse of the global economy."

Created in 1944 by the British/American partnership that led the western war effort, the IMF is in Washington because then President Roosevelt and his Treasury Department wanted to keep an eye on it. (They weren't sure the wily Brits who wanted US money could be trusted)  

As the Fund gathered strength in the 1960s making emergency loans to countries in distress, US dominance in the financial agency that has always been headed by a European became paramount.

It still is. Washington alone has a veto over all major decisions as votes are weighted in accordance with economic strength and the US accounts for over 16% of the total.

And so it was that this year's meeting took place while the US government was shut and its treasury secretary distracted by calamity.  Put in simplist terms, with finance ministers and central from virtually all the world's major economies in town, the US government presented itself as unable to produce a budget, a task the IMF identifies as basic. 

Embarrassment to describe the political gridlock is too mild. Shock was a more typical assessment from the high-powered visitors. Frustration with US dithering on global and domestic policy prompted editorialists at Xinhua in China to write that it is time for the global economy to be "de-Americanized." 

They also had in mind the disgusting refusal of the congress to even consider a replenishing of IMF resources that the Obama administration and over 180 IMF member countries agreed to  in 2010.  The lack of both congressional action and administration prodding is galling since it is essentially cost free to the US taxpayer. 

Myopic politicians in both parties fail to comprehend the extent to which the IMF promotes US goals of free markets, financial rectitude, and a rules-based open world economy. That China and former "third world" countries are demanding more say in the IMF should be seen as a triumph of US policy.

Indeed, some US officials privately support increased votes for emerging market countries, something the Europeans--overweighted in the IMF-- do not. Former Treasury official Tim Adams, who heads the Institute of International Finance, says "the old concept of the first world leading in the IMF is outdated." A determination to get more say in the IMF is one reason that seemingly disparate Brazil, Russia, India, China and South Africa have banded together as BRICS, creating their own credit lines with plans to create a development bank. 

The US remains the dominant world economy with its dollar the world's reserve currency. That privileged status shouldn't be taken for granted. With chronic trade and budget deficits, if the US were not respected, Washington could be like Greece coming cap in hand to the IMF for help. Far-fetched as that seems, it could someday happen.  Aware that the US is still recovering from its deepest recession since the 1930s, most policy makers abroad want the US to succeed. They recognize that robust growth and prosperity in the US is in their own interest.

But they also want an end to gridlock and a plan to bring our financial accounts into balance. Without this, US leadership in the global economy will continue to erode. #