By Manuel Alvarez-Rivera, Puerto Rico
The Swiss Confederation holds a federal parliamentary election on Sunday, October 21, 2007. Voters will choose 199 members of the 200-seat Nationalrat (National Council), the lower house of the Swiss Parliament; in the small canton of Nidwalden, the Free Democratic Party (FDP) candidate had no opponent and was declared elected last September 25.
In addition, elections will take place for 41 of 46 seats in the Council of States, the upper house of Parliament; the cantons of Zug and Appenzell Innerrhoden elected their Council of States members in October 2006 and April 2007, respectively, while FDP and Christian Democratic People's Party (CVP) candidates were elected unopposed last month in the single-seat cantons of Obwalden and Nidwalden. Federal Elections in Switzerland - Elections to the Nationalrat (National Council) has further information on the country's electoral system, with parliamentary election results from 1971 to 2003.
By Western European standards, voter turnout in Swiss parliamentary elections has been decidedly low for many years: since 1979, fewer than fifty percent of the electorate has taken part in successive National Council elections. In fact, among Western democracies only the United States has lower election turnout rates.
Switzerland's low voter turnout in federal elections may be attributed to a variety of factors. First, the country has been ruled for nearly a half-century by a grand coalition of the four major parties - the conservative Swiss People's Party/Democratic Center Union (SVP/UDC), the left-of-center Social Democrats/Socialists (SPS/PSS), the centrist Free Democrats/Radical Democrats (FDP/PRD) and the center-right Christian Democrats (CVP/PDC); despite growing acrimony between them, it is very likely the same four parties will remain in power after the election. In other words, it is not anticipated the upcoming vote will bring about a change of government.
Second, in Switzerland a popular referendum may be held over any bill voted by Parliament; only 50,000 signatures (just over one percent of the electorate) are required to call a referendum: the measure must then be passed by a double majority: a majority of voters in the entire country, and a majority of cantons (the federal states of Switzerland, which are endowed with considerable powers). Constitutional amendments must also be approved by voters. In fact, as little as 100,000 of these (around two percent of the electorate) can propose a constitutional amendment, which must be decided as well by popular referendum, after being debated in Parliament. As such, the electorate can veto any bill passed by Parliament, effectively diluting the power of the legislature.
And third, in Switzerland nationwide referenda are usually held several times a year, resulting in electoral exhaustion; in fact, most referenda are characterized by low turnout rates as well. Nonetheless, it should be noted there were slight voter turnout increases in the 1999 and 2003 federal elections, after having hit an all-time low of 42.2% in 1995.
For most of the 20th century, SPS/PSS, FDP/PRD and CVP/PDC had been Switzerland's three largest parties. However, in the 1999 and 2003 general elections SVP/UDC, until then country's perennial fourth party, made substantial gains at the expense of other right-wing and centrist parties, while the Free Democrats/Radical Democrats and the Christian Democrats declined noticeably. Opinion polls suggest SVP/UDC will remain the largest party, ahead of SPS/PSS, with FDP/PRD and CVP/PDC vying for third place. Meanwhile, the Green Party of Switzerland (GPS/PES) - the largest non-government party - stands to make substantial gains.
As in the 2003 general election, SVP/UDC is running on a nationalist, anti-immigration platform, illustrated by a controversial campaign poster that shows three white sheep, one of which is kicking a black sheep off the Swiss flag; the poster's caption translates as "For Greater Security." In addition, the party is collecting signatures for an initiative to expel foreign criminals from the country. However, one event that could upset all predictions was the riot that took place in Bern last October 6, in which far-left groups disrupted a SVP rally. Although the United Nations' xenophobia watchdog has denounced the SVP/UDC campaign poster as openly racist, the violent incident in the Swiss capital could play to the rightist party's advantage.
Update
Complete election results published by the Swiss Federal Statistical Office's Elections 2007 website show both the right-wing Swiss People's Party/Democratic Center Union (SVP/UDC) and the environmentalist Green Party of Switzerland (GPS) made significant seat gains, mainly at the expense of the centrist Free Democratic Party/Radical Democratic Party (FDP/PRD) and the Social Democratic Party of Switzerland/Swiss Socialist Party, which lost considerable ground. Meanwhile, the Christian Democratic People's Party/Christian Democratic Party (CVP/PDC) picked up additional seats.
With all twenty-six cantons reporting, the distribution of National Council seats in the 2007 federal election is as follows (figures in parentheses show gains or losses with respect to the 2003 federal election): SVP/UDC, 62 (+7); SPS/PSS, 43 (-9); FDP/PRD, 31 (-5); CVP/PDC, 31 (+3); GPS/PES, 20 (+7); Others, 13 (-3). Voter turnout increased to 48.3% - the highest in twenty years.
While it's expected the four major parties will remain in grand coalition, the growth of the Green Party raises the possibility the party may seek representation in the Federal Council, Switzerland's seven-member collegiate presidency. That said, the Greens would need majority support in Parliament in order to secure a seat in the nation's governing body, and that seat would inevitably come at the expense of the other parties.
However, the Greens have called for SVP/UDC to be thrown out of government for failing to follow the highly valued principle of consensus politics. That's rather unlikely to happen, precisely because Swiss politics are based on a broad political consensus, and on that account it would be nearly inconceivable to exclude the largest party from power, particularly in light of its recent election success. Nonetheless, relations between the Swiss People's Party and the other three major parties have been less than cordial as of late, and a Social Democratic-Radical Democratic-Christian Democratic-Green coalition would still command a comfortable fifty-seat majority in the National Council...
Sunday, October 21, 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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