by Manuel Alvarez-Rivera, Puerto Rico
Voters in Greece go to the polls on Sunday, September 16, 2007, to choose members of the unicameral, 300-seat Parliament - the Vouli - in an election that's being held six months ahead of schedule.
Since the re-establishment of parliamentary democracy in 1974 after seven years of brutal (and incompetent) military rule, Greek legislative elections have been carried out by a "reinforced" proportional representation system - reinforced to favor the largest party at the expense of the remaining parties, making the system less (as opposed to more) proportional. Nonetheless, the electoral system has been changed about a half-dozen times over the course of the last three decades (most recently in 2004), with successive changes imposed by the party in power according to its perceived advantage.
In its latest incarnation, the winning party will receive a majority bonus of 40 seats, regardless of its margin of victory over the second-placed party, while the remaining 260 seats will be initially distributed by the largest remainder method of proportional representation (PR) on a nationwide basis among parties polling at least three percent of the vote - a remarkably straightforward procedure, particulary when compared to previous electoral systems, in which the "reinforcement" of PR was brought about by incredibly cumbersome mechanisms that even electoral experts had a hard time figuring out. Elections to the Hellenic Parliament (Vouli) and Electoral Panorama have further information on Greece's past and present electoral systems.
Since 1977, Greek politics have been dominated by two major parties: the conservative New Democracy (ND) and the left-wing Pan Hellenic Socialist Movement (PASOK). Under Greece's reinforced PR system, the winning party has nearly always obtained an absolute parliamentary majority, and the two parties have alternated in power during the past thirty-three years, with ND holding power from 1974 to 1980, 1990 to 1993 and 2004 to the present, while PASOK ruled the country from 1981 to 1989, and again from 1993 to 2004. There have been no coalition governments in Greece since 1974, save for a few months in 1989 and 1990 during which no party held an overall legislative majority (precisely because the electoral system had been modified to make it more proportional).
Historically, Greek politics have been characterized by a strong dynastic streak which has persisted to this day: the current leaders of ND and PASOK - Prime Minister Kostas Karamanlis and Georgios Papandreou - are the nephew and the son of their respective party founders and longtime leaders, Konstantinos Karamanlis and Andreas Papandreou; as if that were not enough, Georgios Papandreou's grandfather (also named Georgios Papandreou) was the main political rival of the elder Karamanlis in the early 1960s. Moreover, Greek politics are highly personalistic, and political leaders have sometimes come to personify the parties they lead (as was very much the case with PASOK under Andreas Papandreou). That said, neither ND nor PASOK are personalist parties in any sense of the term.
Besides the two major parties, Greece has several minor parties: the Communist Party of Greece (KKE) and the Coalition of the Radical Left (SYRIZA) are both to the left of PASOK, while the Popular Orthodox Rally (LAOS) stands to the right of ND. LAOS has yet to secure legislative representation, but KKE has been continously represented in Parliament since 1974, while SYRIZA and its predecessors - the Coalition of the Left, the Movements and the Ecology and the Coalition of the Left and Progress (to which KKE once belonged) - have been in and out of the Vouli since 1989.
Like present-day Spain (but unlike many Western European countries), Greece hasn't had a liberal/centrist party of significance standing between the two major parties since the demise of the Democratic Center Union (previously the Center Union) following its relatively poor third-place showing in the 1977 general election. Thus, like Spain's Partido Popular (PP), New Democracy spans the center and the mainstream right (although unlike PP, ND has no competition from regional nationalist parties). Nonetheless, at times there have been tensions between the party's conservative and liberal elements.
In the same manner as Spain's Socialist Party (PSOE) under Felipe González, PASOK started out assuming a radical stance, but once it achieved power the party implemented relatively moderate (if sometimes costly) domestic policies. However, unlike González and PSOE in Spain (which had moved away from Marxist positions following that party's 1979 congress), Andreas Papandreou's rhetoric remained distinctly leftist and anti-Western. More importantly, his government pursued an independent (and in the eyes of the U.S., very prickly) foreign policy, although Papandreou never took Greece out of NATO - contrary to what his party had advocated before taking office.
Under the leadership of Konstantinos Simitis and Georgios Papandreou, PASOK has sought to present a more moderate image over the years, but the party remains somewhat to the left of most Western European social democratic parties. At the same time, it should be noted that the strict austerity policies carried out during Simitis' tenure (1996-2004) allowed Greece to enter the European Economic and Monetary Union (EMU), and replace the drachma (Greece's national currency) with the euro in 2001.
Although Prime Minister Karamanlis and New Democracy were initially expected to easily secure re-election, the government has come under heavy criticism for its allegedly inadequate handling of a series of devastating wild fires last month. In fact, opinion polls suggest a very close outcome in which neither ND nor PASOK may win an outright parliamentary majority in next Sunday's vote, with the smaller parties holding the balance of power in the next Vouli (at the time of writing, it is likely KKE will return to Parliament, while SYRIZA and LAOS are hovering just above the three percent barrier). If such an outcome comes to pass, it may give the phrase "trial by fire" a whole new meaning.
Update
The New Democracy government of Greek Prime Minister Kostas Karamanlis won a second term in Sunday's legislative election, but its parliamentary majority has been drastically cut from 30 seats to just four.
According to Greece's Ministry of the Interior National Elections 2007 website, preliminary results of Sunday's vote (with all voting stations reporting) were as follows:
New Democracy (ND) - 2,995,494 votes (41.8%), 152 seats
Pan Hellenic Socialist Movement (PASOK) - 2,727,837 votes (38.1%), 102 seats
Communist Party of Greece (KKE) - 583,818 votes (8.2%), 22 seats
Coalition of the Radical Left (SYRIZA) - 361,213 votes (5.0%), 14 seats
Popular Orthodox Rally (LAOS) - 271,763 votes (3.8%), 10 seats
Others - 220,142 votes (3.1%), no seats
The election, which had a 74.1% voter turnout rate (slightly down from 76.5% in 2004), was a major setback for PASOK leader Georgios Papandreou, who lost to Prime Minister Karamanlis for the second time in a row, in what became the opposition party's worst showing in thirty years.
Both ND and PASOK lost ground to the three smaller parties, which fared well in the election. The rightist LAOS, which had won no seats in 2004, overcame the three percent threshold and secured parliamentary representation, while the far-left KKE and SYRIZA had their best results in nearly two decades, with the combined KKE-SYRIZA share of the vote matching the result polled by the Coalition of the Left and Progress in the June 1989 legislative election. The new electoral system also worked to the advantage of both leftist parties, and the new Vouli will have the largest number ever of parliamentarians to the left of PASOK since the re-establishment of democracy in Greece in 1974.
Meanwhile, Karamanlis' new government will have the smallest parliamentary majority since 1990, when New Democracy won exactly half the Vouli seats but was able to form a government with the help of a center-right parliamentarian (who subsequently joined the party), and managed to hold on to power for three-and-a-half years despite its very small parliamentary majority. While historical precedent suggests Karamanlis' government may prove as well to be durable, the lingering prospect of a further early election could nonetheless hamper its performance.
Sunday, September 16, 2007
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Special Feature, The German Economy At A Glance
Welcome to the Global Economy Matters Blog. Below you will find the normal chronological blog posts. But first here is our Monthly Special Feature which in January 2008 focuses on Germany. Here you will find charts which provide background data on the German economy. We hope these will be of some help to the first time reader here, making it easier to contextualise, assess and get to grips with the general argument being presented on the blog. The big question which arose concerning the Germany economy in 2007 was whether or not the new found dynamism in German economic activity constituted some form of remaissance, and formed part of a global decoupling process whereby a sustainable recovery in domestic demand was taking place. Analysts on this blog never really accepted this view. The key question and central enigma associated with the German economy is really why domestic demand should have remained so congenitally weak over such a considerable period of time.
Since this phenomenon is also to be observed in the the two other societes with very high (circa 43) population median ages - Italy and Japan - we postulate that demographics and population ageing processes offer some part of the explanation here.
Basically what we can observe as societies move above the 40 median age mark are a number of stylised facts. Weakness in domestic private consumption would be one of these, absence of consumer credit driven property booms would be another, growing pressure on the national debt as the elderly dependence ratio steadily rises would be another, and growing dependence on export growth for sustaining GDP growth would be the central feature of the whole edifice.
We hope you will find the background data presented here useful in assessing the argument which we are presenting on this blog, which is basically that a key component in the longer term growth stagnation from which Germany is suffering has its roots in the underlying demographics. Basically and in the long run (possibly with a 30 year lag) fertility does matter. Please click on thumbnails for better viewing.
What follows is a very rough and ready attempt to describe in broad brush strokes how the contemporary German economy actually works. First off, and as is well known, German society is ageing, and at the same time the German population has started declining. Not only is Germany's median age rising, the proportion of the population in the key 25-49 age group is now falling.
As can be seen from the chart this crucial age group touched its highpoint in 1997/98. This could be thought of as the moment of maximum capacity for the German economy since it includes the crucial 25 to 40 household-former, first-time-homebuyer group. In terms of credit expansion, it is this group which drives a significant part of internal demand.
The age group also includes another important group, the 35 to 50 years one. This group drives an economy in productive terms, since these are the prime age workers. If you think of a society as a 100 metres sprint athlete, then there is an age when this athlete is at the maximum of his or her running potential, an age after which each time they can only run the 100 metres more slowly.
Well a society is the same in terms of its collective economic potential, without addressing underlying issues either through fertility or immigration, it can only move forward more and more slowly. Consumption becomes flat, and GDP growth - gioven the external dependence - fragile.
Private consumption has hovered pretty close to the 60% mark for many years now, while government consumption - after moving sharply upwards as a total share in the first half of the 1970s has subsequently remained pretty constant, moving around the 19% of GDP mark. The big difference has been in the importance of fixed capital formation (GFCF) which reached from 1975 to 2000hovered around the 22 - 24% of GDP mark.
Prior to 1975 GFCF was at a much higher level, while post 2000 it has dropped substantially And So what we can see is that the year between, say, 1975 and 2000, when GFCF remaind a more or less constant share of GDP, constituted - to use the language of neo-classical economics - the constant growth period of the German domestic economy.The years prior to 1975 were the convergence, or "catch-up" years
And especially the 1960s, after Germany finally broke out of the destruction and devastation of WWII - while the years after 2000 constitute what the neo-classicists would call the "balanced growth period", although as we can see, it isn't very balanced, and there certainly isn't a steady state.
2008 Forecasts: There is a consenus at the present time that the German economy is slowing. Where there is no real consensus is over the rate at which it is slowing and where and when it will settle. It is clear that GDP growth in 2007 will be below the heady 3.1% annual rate achieved in 2006. The OECD last December revised their 2007 German forecast down to 2.6%, and their 2008 one down to 1.8%. The IMF in their October World Economic Outlook forecast growth for 2007 at 2.4%, slowing to 2% in 2008. Morgan Stanley's Elga Bartsch, while optimistic that the German economy will whether the credit crunch better than most (and here she may well be right) is somewhat more sanguine, putting 2008 growth at 1.5%. In general though I rather doubt her overview that "Germany could well be on the way to becoming the new growth locomotive in Europe." and especially her suggestion that "the phase of underperformance in terms of GDP growth, which has plagued Europe’s largest economy for years, is clearly over." Unfortunately, what we are arguing on this blog is that Germany's GDP growth rates since the mid 1990s are not some special kind of "underperformance", but what can be expected from a society with a rapidly rising median age which is increasingly dependent on exports rather than domestic consumption for growth.
The EU commission in it's November 2007 forecast was also convinced that the German economy was now on a "solid growth path", forecasting 2.5% growth for 2007 and 2.1% for 2008.
I personally will be very surprised if we see growth in the region of 2% for the German economy in 2008, and I even consider the 1.8% from the OECD and 1.5% from Morgan Stanley still on the high side given the extent of downside risk. Basically the reasonably favourable depreciation rules which currently apply to German investment have been changed as of 1 January 2008, and we might reasonably expect to see some sort of impact on investment comparable with the negative shock which hit private domestic consumption following the VAT rise on 1 Jan 2007. In addition all the indications suggest that German consumption will continue to be weak in 2008. So if consumer consumption is at best flat, governemnt consumption equally so, and investment and construction weakening, we are simply lefy with export growth, and here the outlook is definitely more negative in 2008 than it was in 2007. The Spanish economy (one important German customer) is visibly wilting by the day, as is the UK (another big customer), but it is to Eastern Europe we must look for the biggest impact on German exports of any correction in 2008. Just one data point should suffice, Germany exports roughly the same value of goods to the Czech Republic (and more to Poland) as it does to China. This means that Geramny is proportionately not that exposed to any slowdown in China, but hugely exposed to any sudden shift in growth and demand in the East of Europe.
So I would say, that on current data, 1% growth in Germany in 2008 look a reasonable estimate at this point, but that this needs to be taken to mean with considerable downside risk. Germany is now tremendously dependent on what happens elsewhere, and until what does actually happen elsewhere becomes clearer it is difficult to be more precise on Germany.
The only apparent bright spot on the horizon is employment, but I am dubious that in the context of Germany's ageing workforce this will work through as some are hoping, as I expain at some considerable length in this post here. My opinion is that Germany will enter recession at some point during 2008, and that we may well have 2 consecutive quarters of negative growth. The continuing high euro will maintain pressure on German exports, and high oil and food prices will maintain pressure on the inflation front, at least in the first half of 2008. The ECB will probably switch stance towards rate reductions at some point, but since, as Elga Bartsch among many others so eloquently argues German internal consumption and investment are not especially dependent on credit conditions, easing from the ECB may not have as much impact as one would hope for.
Key Posts For Understanding The Present Path of the German Economy
Is The German Economy Heading For Recession in 2008?
Employment and Unemployment in Germany January 2008
Germany Economy, What Price the VAT Effect Now!
The German Economy, Employment, Export Shares and Age Structure
Structural Aspects of German Export Dependence
Does NeoClassical Steady State Growth Really Exist?
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