Slovakia has recently taken some important "baby steps" on its path towards future euro membership. In particular the government in Bratislava has now officially asked the European Central Bank and European Commission to assess whether or not it is now ready to adopt the currency on 1 January 2009.
The response of the European Commission to the application will likely be made known on 7th May (with the European Parliament taking a decision shortly after in the event of a favourable decision).
On the surface it is easy to get the impression that what is now involved is a mere formality, with the ECB and the EU Commission coming under considerable political pressure to say yes after their recent cold-shouldering of Latvia and Lithuania, and given all the economic problems now being encountered in Hungary following the application of the Lisbon agenda inspired "austerity programme" isn't someone somewhere badly in need of some sort of success story to inspire the others? This indeed is how most analysts and much of the popular economic press are treating the situation - almost as if what we were now looking at was already some sort of "done deal".
Slovakia has applied to join the eurozone next January, dismissing the concerns of some European central bankers and economists that its economy is not ready for the rigours of membership. If the application at the weekend is successful, Slovakia will become the sixteenth of the European Union’s 27 countries to adopt the euro. It will also be the second former communist country to do so, following Slovenia, which joined last year.But are we? In recent days doubts have begun to surface. The most recent example perhaps took place last week when Pervenche Beres, chairwoman of the European Parliament's committee for Economic and Monetary affairs, who was leading a "fact finding" delegation to Bratislava rather noticeably dropped-into her on the record press remarks the emphatic observation that the debate about Slovakia's euro membership has now moved on from whether or not the country's economy met the formal euro inflation criteria to the issue of the "sustainability" of Slovakia's current inflation rate. That is to say the EU institutional structure is likely to look well beyond whether or not Slovakia's inflation level as registered during the 12 months to April 2008 meets a set of rather formal criteria to the much more thorn-ridden issue of what might subsequently happen to the inflation rate if Slovakia is given the "go ahead" on May 7.
That Commissioner Beres point was not simply incidental was underlined by the fact that the very same point was re-iterated by the Economy and Finance Commission representative during questions at last week's press briefing on the EU's March inflation numbers. Indeed, despite the fact that Slovakia has for some time now been within the Maastricht inflation criteria, the EU Commission has repeatedly expressed concerns over the sustainability of the current state of affairs, and in doing this not furthest from their minds will be the rate of inflation which is currently to be found in neighbouring Slovenia (Slovenia it will be remembered was admitted to the eurozone in January 2007). In March 2008 Slovenia's annual inflation rate was running at 6.6% - the highest in the eurozone - and rising. Indeed Slovenia's inflation rate has now more than doubled in the year and a quarter since she adopted the euro.
Thus - and quoting Pervenche Beres - the discussion has now moved on from the nominal compliance with the Maastricht criteria - to issues associated with the ongoing sustainability of Slovakia's present economic path, and these concerns about sustainability - taking their cue from what has happened in Slovenia - take us into a much larger arena, one which goes to the very heart of this problems of applicability for a one size fits all monetary policy to economies having the sort of structural characteristics which are currently being exhibited by the Eastern European EU accession members. Surely it is not mere accident, or so the argument goes, that inflation in Latvia is currently running at 16%, in Bulgaria at 13.2% , in Lithuania at 11.4%, in Estonia at 11.2%, in Romania at 8.7%, and in Hungary at 6.7%. Even in Poland and the Czech Republic - the two economies which (not entirely coincidentally) have historically allowed their currencies to float freely against the euro - inflation is raunning at 7.1% and 4.4% respectively and rising (and this despite very sizeable upward movements in both their currencies).
Economic memories may be short, but they are not that short, and most of the policy makers responsible for the current decision will remember only too well that a Slovenia which not so long ago appeared to meet the euro yardstick without difficulty, now faces a preoccupyingly high inflation level, a level which only feeds concerns that the absence of "homegrown" monetary policy may make it impossible to target emerging asset price bubbles (and there is an increasing consensus among central bankers about the need to at least try and do this) in a way which means that one East European economy after another (where they to follow an early euro adopion course) could be sent off down the boom bust path recently followed by Spain and Ireland. In economics, as in other areas, you live and learn.
And that's why EU institutions at various levels are now busily investigating whether a similar situation could also emerge in Slovakia. If the experts from the ECB and EU commission came to a conclusion that what just happened in Spain and Ireland could also happen in Slovakia, then the country will most likely not get the invitation to join the euro zone.
The main document that will offer us the European Commission’s current view of Slovakia’s preparedness for Euro adoption will be the Convergence Report, due out on May 7. On the basis of this report, the EC will either propose Slovakia’s membership of the Eurozone or remain silent. Should the Commission recommend membership – and such a decision requires there be a consensus on desireability among all 27 Commissioners – Slovakia’s bid would then need to be approved i) by the European Council, ii) by the European Parliament, and iii) by ECOFIN on July 3. This latter body is the council of EU Finance Ministers, should the application move forward - it is at the ECOFIN meeting that will the final conversion rate for the Slovak Koruna will be decided.
However, as I am indicating, evidence is now accumulating that Slovakia's application - at least for this year - may well not get past the initial Convergence Report hurdle. The most recent piece of evidence suggesting this outcome was offered by a report in Bloomberg this weekend about the existence of a draft version of the ECB document which will accompany the Convergence Report - a document of which Bloomberg reporters seem to have had sight. According to the Bloomberg story (citing two people described as "familiar" with the document)the draft expresses "serious concern" about the outlook for Slovak inflation. The draft, which is effectively a progress report on Slovakia was circulated earlier this month to EU central banks for comments before the final version is approved by the ECB General Council. When approached by Bloomberg ECB spokesman Wiktor Krzyzanowski declined to comment on the content of the draft report, but implicitly accepting its existence. All I can do, he said, is "confirm that we are in the process of preparing a convergence report for all countries with derogations".
The next piece of evidence we will have of EU Commission and ECB thinking on Slovakia's application is likely to come on April 28, when the EC publishes its latest forecasts for all the EU economies - including the Slovakian one. This forecast should help to shed light on many of the key issues surrounding Slovakia’s bid, and in particular the sustainability of low inflation, since the Commission itself will need to offer its own inflation forecast.
Lying at the heart of the present debate is the recent trajectory of Slovakia's EU harmonized inflation rate, which is the index the EU uses to assess euro requirements. Inflation on this measure rose for a seventh consecutive month in March to 3.6 percent, a 15 month high. As can be seen from the chart below, and if you look at the recent trend inflation line, everything now hangs on what you expact to happen next.
Formally, to adopt the euro, applicants must have 12-month average inflation within 1.5 percentage points of the average of the three EU countries with the slowest price growth. The EU target in March was 3.2 percent and Slovakia's 12-month average rate was 2.2 percent, well inside the limit. Slovakia also already meets the other principal euro-adoption requirements including those relating to the size of the budget deficit and level of accumulated government debt.
Consumer-price growth in Slovakia has accelerated from a record low of 1.2 percent achieved last August. The central bank on January 29 forecast a rate of 2.8 percent for the end of 2008 and 2.9 percent for a year later. Coincidentally the Slovak central bank is due to release new forecasts on April 29. I say coincidentally, since with the Commission publishing separate forecasts the day before, in the event that the two forecasts differ the debate is going to be well served.
And in fact differences are already apparent, since while thinking at the Commission and the ECB inclines towards the idea that the rising inflation in Slovakia is a result of demand pressures, the Slovak central bank does not agree, and argues that structural supply side factors like oil and food prices are to blame. Of course, both demand pull and supply push elements are at work, the real issue is in what proportions. Putting his cards straight down on the table is Slovak central bank governor Ivan Sramko, who recently stated that the risks to the forcecast mentioned in the Bank's inflation report are "well known", but not demand driven. He accepted that the Slovak central bank and the EU commission have differing views on whether the current pace of economic growth in Slovakia is inflationary and as well as on the extent of the koruna strengthening effect on inflation.
"Our view is not quite the same as the commission's" he said "We think that the effect of koruna's strengthening isn't as big as presented." ..... the pickup in inflation isn't driven by domestic demand and the economy "isn't overheating".
GDP Growth Surge
One of the reasons for the Commission's unease is the sudden growth spurt that took place in Slovakia at the end of 2007, with the economy expanding by a record 14.3 percent in the fourth quarter, the fastest pace anywhere in the European Union. This was higher than the preliminary estimate of 14.1 percent reported by the Slovak Statistical Office on February 14, and compares with a 9.4 percent annual rate in the third quarter.
Part of the reason for the acceleration was that cigarette producers stockpiled products to avoid a January increase in a tobacco excise tax - according to the Bratislava-based office - but still, if this was the only factor it would mean one hell of a lot of cigarettes going into inventories. Not that the economy hasn't been expanding rapidly in recent times, and in fact it expanded by expanded by 10.4% in 2007, but this suden surge has all the hallmarks of an "overheating burst", and in particular when it is lined up against rising retail sales and falling unemployment.
Another circumstantial piece of evidence for the overheating hypothesis comes from the retail sales data. Slovakia's retail sales grew at a record annual rate 16.6 percent in February as wages rose steadily.
Sales picked up from a 15.6 percent annual rate in the previous January. At the same time average industrial wages increased by 5.6 percent in February, the fastest in a year, and up from a 4.1 annual rate in January.
One indicator of this newly unleashed consumer purchasing power can be found in the fact that Slovak new-car sales rose 15 percent in February from a year earlier, according to the Slovak Car Industry Association said. Dealers sold 7,375 new passenger cars and light trucks in February, up from 6,421 a year earlier accoring to the association. They also reported that in the first two months of 2008 14,237 new vehicles were registered in Slovakia, up 27 percent from the same period last year.
Employment and Unemployment
Further evidence for the idea that the Slovak economy may be running above its capacity level can be found in the relations between levels of job creation and unemployment, since the unemployment rate fell to a record low of 7.6 percent in March (down from 7.8 percent in February). The number of unemployed available for work in the country (which has a population of around 5.4 million) was down to 198,011 from 204,574 in February.
Thus the unemployment rate has been halved over the past four years as foreign investors such as carmaker set up factories, creating new jobs and driving economic growth. But the decline in unemployment has raised concerns that grwoing labor shortages may begin to push up awages and inflation and hold back economic growth in ways which we are now becoming accustomed to all across Central and Eastern Europe. In fact the numbers of unemployed dropped by 33,000 (or 14%) between March 2007 and March 2008, and with Slovakia's low fertility background meaning that less and less young people arrive on the labour market looking for work questions arise about the sustainability of this process.
If we look at employment growth, this has also been rising steadily, with total employment up about 10% (or 200,000 - from 2.17 million to 2.4 million) between the start of 2005 and the end of 2007.
There is, however, considerable evidence that Slovakia - and some other CEE countries - have a kind of dual economy, with some export oriented sectors receiving strong FDI flows and achieving high productivity and employment growth, while others remain almost stagnant in total employment and productivity growth terms. For example, the production of transport equipment was up by 42% in November 2007 when compared with January 2007, machinery and equipment by 26% and electrical and optical equipment 37%. Meantime output growth in the resource sector and in labour-intensive industries was virtually unchanged – textiles were up by 1%, leather declined 4% and the wood industry by 2%. Moreover, the stronger industries – machinery and equipment and electrical and optical equipment – have tripled their output since 2000.
One good example here are Slovakia's new carmakers, who currently expect to produce some 675,000 vehicles in 2008, up from 572,586 in 2007, and 295,373 in 2006, according to representatives of Volkswagen Slovakia, the Slovak units of Kia Motors and PSA Peugeot Citroen in a joint statement during the AutoSlovakia08 conference held recently in Bratislava. The companies have all recently set up plants in Slovakia for a variety of reasons, including the fact that wages in the country are generally lower than in western Europe and that the strategic location in central Europe makes it easy to deliver cars throughout the continent. Although wages have risen, these increases are still not enough to deter the companies involved. But clearly this can change if the increases continue.
There have been consistent warnings about the growing labor shortages which are accumulating - especially among the relatively more scarce younger workers - and this may start to create a problem for other investors, including the auto-parts companies that are intending to follow the carmakers.
Slovakia's unemployment rate was at 8.1 percent in January 2008, compared with 14.47percent in May 2004, when Slovakia joined the European Union. The average monthly gross wage has risen 39 percent during the same period and now stands at 22,224 koruna ($1,010). The Slovak Economy Ministry expects the number of people employed in the car industry to reach 100,000 in 2010 from some 67,000 in 2007.
Indications that foreign companies now arriving in Slovakia are having difficulty finding employees are now widespread, and local newspaper Hospodarske Noviny daily recently ran a feature story on the issue where the general tenor was a steady flow of complaints that those who could and wanted to work are no longer available, while those who are available are mainly long-term unemployed (50% of the unemployed have now been unemployed for more than a year) with little education. While the situation seems to have been quite different only a year or so ago, companies now increasingly feel have little choice, and are obliged to employ workers who haven't even completed a basic education.
Labour-market experts say that while attention was paid to attracting new investors to less developed areas, hardly anyone bothered to research the local education structure. At the same time, the low salaries on offer are dissuading some people from taking simple manual jobs, while those who do accept are often forced to work overtime and weekends simply so that their companies can meet deadlines.
One of the aggravating factors here has obviously been out migration, although the Poles and citizens from the Baltics have evidently attracted a lot more media attention than the Slovaks. The vast majority of the 765,630 East Eupean migrants working in the UK in 1976 were Poles (505,300 Poles), but these were then followed in importance by 77,000 each from Lithuania and Slovakia. Much smaller numbers in fact came from the Czech Republic, Hungary, Latvia, Estonia and Slovenia. Even in the neighbouring Czech Republic the largest group of foreign migrants with rights to work comes from Slovakia, and at the end of last year 101,233 Slovakians were legally working in there. However even the Czechs are now noticing that labour supply in Slovakia is no longer what it was, since their badly understaffed health service can no longer rely on nurses recruited in Slovakia.
But looking a little beyond the immediate problems caused by out-migration, at the end of the day the reason that Slovakia can't grow for any great length of time at 6 or 7% without sending inflation spiralling up out of control is the age structure of its population, and this age structure is a product of long term below replacement fertility, and a substantial decrease in the annual number of births which produces much smaller "entry level" cohorts and means that the labour market "supply side" component is very tightly restricted. Annual births in Slovakia reached an all time high of around 100,000 a year in the late 1970s. By the late 1980s the number had dropped to around 80,000, and reached a low of around 50,000 in 2000 (or a 50% fall from the peak) where they have stubbornly more or less remained ever since.
This decline in births is reflected in a decline in the total fertility rate, which fell to an all time low of 1.2 TFR (or roughly half population) rate in 2004 before "rebounding" slightly to 1.25 in 2006.
One of the other criteria for euro membership relates to the fiscal deficit, and the size of the accumulated government debt to GDP ration. On the former count Slovakia has no worries at all, since Slovak government debt was well below the stipulated 60% of GDP level, at 30.7% in 2006 and falling. On the annual fiscal deficit side the situation is rather more complex, since the country has often run what would be considered "excess deficits" (ie over 3% of GDP) in the past, and indeed the EU Commission did open an excess deficits procedure against Slovakia, although in 2007 the deficit was down to 2.2 percent of GDP, 0.7 percentage point less than the original 2.9% target.
Evidently a number of issues raise themselves at this point. The first of these would be the sustainability question. It is one thing to run a deficit below the 3% during the candidate year for euro membership, and quite another thing to hold it there, as we have already seen in a number of rather infamous cases.
Slovakia's government revised has in fact recently revised its budget-deficit targets for 2008 and 2009 to meet EU Commission demands for further spending cuts and the original 2008 deficit target of 2.3 percent of gross domestic product has now been cut to 2 percent of GDP. The 2009 target has also been trimmed to 1.7 percent of GDP from an earlier 1.8%. As I say Slovakia in fact has been subject to the EC’s Excessive Deficit Procedure since 2004, and needs to have this procedure withdrawn before the EC can recommend it for Eurozone membership. This withdrawal seems very likely, but will only be confirmed after the forecasts are published on April 27th.
But there is an additional issue here, and that concerns the possibility that the Slovak economy may be overheating. Given that the Slovak central bank if gradually reducing control over monetary policy, with its key policy rate being now held at only 0.25% over the ECBs refi rate, and the koruna exchange rate being increasingly alinged with the central parity rate being set for euro membership, fiscal policy is basically the only demand management tool which is open to the Slovak authorities, and the European Union has consistently urged Slovakia to cut the shortfall more as the economy has grown at a faster and faster pace. Basically the EU Commission hold that the Slovak government should use tighter fiscal policy to counter inflation pressures, which are set to rise when price growth will no longer be tamed by a strengthening currency. My own personal feeling is that if the Commission and the ECB want a "get-out clause" for postponing Slovak membership this issue will give them the lever they need, since at the present time Slovak still targets a deficit of 0.8% of GDP in 2010 and is only contemplating achieving balance by 2011. Given what happend to GDP growth in Q4 2007, and the present spurt in inflation, there seems little justification for this position.
An additional problem which is likely to influence EU Commission thinking on Slovakia's application is the timing of any possible revaluation of the Koruna, since the Commission feel that a further revaluation of the Crown would complicate the assessment of whether the exchange rate has been stable enough to qualify for Euro adoption, or whether in fact the exchange rate regime was closer to what might best be described as a crawling peg one. This is really the principal reason that the National Bank of Slovakia has been marking time on what virtually all participants now consider to be a virtually inevitable future revaluation. On the other hand this issue is hardly likely in and of itself be a major obstacle to entry - although it could be added to the list of excuses for saying no if Damocles sword does, at the end of the day, fall to that side - since the exchange rate criterion is itself seen as rather obsolete given that it was shaped in the aftermath of a spate of devaluations in the late 1980s and early 1990s and is not really relevant as envisioned to the present circumstances of the catch-up growth countries.
However the koruna issue is relevant to the whole overheating debate, since the disinflation process which occurred in Slovakia during 2007 reflects both currency appreciation and slower price deregulation compared with the previous period. The impact of the exchange rate on inflation is measured by using the exchange rate pass-through coefficient, and it is just here that another thorny issue raises its head since the Slovak Ministry of Finance of Slovakia argues that the coefficient is close to 0.1 (a 10% appreciation reduces inflation by 1 percentage point) while the National Bank of Slovakia (NBS) sees the coefficient as lying somewhere between 0.1 and 0.2. The European Commission view on pass-through coefficient seem to be closer to the NBS estimate. What this effectively means is that the Commission take the view that Slovak inflation has been more restrained by currency appreciation than the government are willing to admit (and hence the underlying inflation rate which would be encountered once the currency can no longer rise after fushion with the euro is accordingly higher). Thus the Commission see the pass-through coefficient as yet more evidence for ongoing overheating, and the justification for the immediate application of a budget surplus as even stronger.
Under the assumption that Slovakia's membership is finally accepted (an eventuality that, as I write this article, seems to me to be getting less and less likely by the paragraph) then the consensus seems to be that there is a reasonable chance of a final revaluation of the central parity (currently 35.4424) to between 32.5 and 33.5 before July, in order to ensure that the conversion rate doesn’t represent devaluation from market levels - and indeed Finance Minister Jan Pociatek said on April 5 he "cannot rule out" revaluation. Any such de-facto “devaluation” associated with EMU convergence (ie if the koruna were not to be revalued, and remained at the current - below market value - central parity) would obviously become a further inflationary factor in 2008 and 2009, simply because the Koruna had been trading around 33.6 to the euro (5.2% higher than the current central parity) since March last year, and in recent weeks it has risen even higher, up towards the 32.30 - 32.40 range.
( Explanatory note: under criteria Slovakia must meet before it can adopt the euro, the koruna is allowed to trade 15 percent above or below the pegged value. This target is one of the five conditions for aspiring members of the euro region must comply with in order to test the stability of their exchange rates for at least a two-year period. There is no formal requirement that the conversion rate should coincide with the peg but it should be near the equilibrium value of the exchange rate to prevent tensions.
The koruna has gained 2.8 percent in the past year, and this has fuelled the speculation that the government will revise the planned conversion rate for the second time in 10 months. Slovakia last raised the central parity rate by 8.5 percent to its current level of 35.442 per euro in March 2007, from 38.455.)
So Will She Won't She?
This I suppose is the bottom line here. I think at the end of the day this decision is a very close one to call, and certainly much closer than most analysts are currently suggesting. My feeling is that the door may well not be opened to Slovakia this spring, and the clinching factor for me would not be the March inflation number, but rather the Q4 2007 GDP growth one and the recent trajectory of wages and retail sales in the early months of this year. In addition the apparent intransigence of the Slovak government on the need to run a budget surplus in an attempt to drain liquidity from the system would worry me, in the light of what might happen in the future. One year out of an excess deficit procedure really wouldn't be sufficient proof of intent from where I am sitting, even if you could argue that this is to make poor Slovakia pay the broken plates occasioned by the earlier behaviour of some larger, and arguably economically more important, existing members. So I would argue that prudence here urges caution, and caution suggests not saying yes, or at least not saying yes right now. But then I am not the one taking decisions, and have no special insight into how their thinking might work at this point.
But if they do say no, then this does leave us with all sorts of very awkward questions about just where the decision will leave those who are still sitting it out in the waiting room. Clearly some East European economies are now hanging on a very narrow thread, a thread which spans the chasm which lies between having a nice orderly slowdown and having a very disorderly "hard landing". It is hard not to imagine that the decision on Slovakia's membership won't have some bearing on which of the possible outcomes we may see here. We might also spare a moment to think that this whole situation may well never have arisen if euro membership hadn't been insisted on by the EU as a membership condition for these countries, but having taken the trouble to have the thought we might then go on to think that equally there is no point in closing the farm door once the horse has bolted. But what we might also like to ask ourselves while we are at it is what exactly the risks are going to be if we do decide to close the farm door even before all the horses wanting to enter the barn are snugly tucked-up inside.
Well since writing this post Bloomberg have come in with yet another "scoop" here, since they have gotten their hands on a copy of a research paper prepared by the IMF for the Slovak government. In the paper the IMF apparently evaluate the exchange rate pass-through coefficient as lying in the 0.2 to 0.25 range (meaning that a 10% appreciation in the currency reduces inflation by 2 to 2.5 percentage points). Bloomberg interpret this as meaning that the IMF is siding with the Slovak government, but this is far too simplistic a way of looking at things. As I note in the post, the Slovak government hold the pass-through coefficient to be near to 0.1(meaning a 10% rise in the currency shaves only 1% off inflation), while the EU Commission and the National Bank of Slovakia hold this coefficient to be nearer to 0.2 (or at least in the 0.1 to 0.2 range). The IMF estimate - which may well be the most accurate one - seems to be even higher, but as such is nearer to the EC and NBS estimate than it is to the Slovak government one.
The point the IMF are probably making - but that the Bloomberg correspondent possibly doesn't understand, and I myself cannot be sure without seeing the report - is that since the koruna has only risen slightly over the last 12 months (about 2.8%, although it did rise around 10% in the year to March 2007, at which time Slovakia was allowed by the EU to raise the central parity of the koruna by 8.5% from the rate which was first set when Slovakia entered ERM-II in November 2005), then this rise cannot possibly carry the burden of explanation as to the earlier reduction in Slovakia's annual inflation - and in this sense the IMF seem to be saying that monetary policy and the reduction in the fiscal deficit must offer a much larger part of the explanation.
Slovakia's inflation rate fell to an all-time low of 1.2 percent in August, according to EU methodology, before global increases in food and energy prices pushed it back to 3.6 percent by March, a 15-month high. The drop in inflation in the 12-month period ending in August corresponded to a 12 percent strengthening of the koruna against the euro.
The IMF did however that Slovak inflation wasn't artificially manipulated by the regulation of utility prices - although I'm not sure that anyone has been suggesting it was.
``Regulated prices do not appear to have been artificially suppressed when benchmarked against unregulated prices of similar goods and services, against price levels and developments in the EU, and against underlying price pressures from commodity prices,'' the IMF said in the note
At the same time Slovak Prime Minister Robert Fico is out there and fighting:
Slovakia has met all the euro entry criteria and only a political decision by the European authorities could prevent it from joining the euro zone next year, Prime Minister Robert Fico said on Monday.
"In terms of the numbers Slovakia has met everything it was supposed to meet," Fico told a news conference. He said debate was still going on about inflation sustainability, but added Slovakia should not be disqualified as inflation is rising in all of Europe. "If somebody is thinking that Slovakia should not have the euro, it would have to be political consideration not an economic one," Fico also rejected arguments that inflation was kept artificially low by government pressure on energy prices.
Be all this as it may, the "revaluation" and "pass through" issue is - as I have been arguing - only a small part of the problem here, since in some senses this debate is now backward looking and what matters is the sustainability issue. The sustainability of Slovakia's fiscal deficit position (with ageing population issues looming) and the sustainability of the inflation rate as the labour market tightens and wages march onwards and upwards. I notice that with all the research going backward and forwards virtually no one is commissioning any research to get a NAIRU (non-inflationary natural unemployment rate)type triangulation on any of these economies at this point. The silence on this front is getting to be absolutely deafening. The whole situation would be laughable if it weren't so sad. I mean we are by and large talking about the wrong issues here (like currency revaluation) while in country after country (Ukraine and Russia too if you want to look) the inflation bonfire burns brighter and brighter on the back of structural problems on the labour supply side, problems which - to boot - have no simply and easy labour market reform "bandaid" fix.