Last year saw a big tipping point in China that went relatively unnoticed: its working age population shrank, kicking off a trend that will carry on over the next 20 years.

The head of China’s national statistics bureau, quoted in the FT, carefully says that “there are different opinions on whether this means that the demographic dividend that has driven growth in China for many years is now coming to an end”, but admits that the trend is “worrying” – all the more so, presumably, since it hadn’t been expected this fast. Here’s HSBC’s co-head of economics, in the same article:

“Most projections … estimated that the decline in the working-age population would start around the middle of this decade. But [these numbers] show it has already happened, which suggests the decline over the next few decades will be faster than expected.”

To see this tipping point in its larger context, it’s worth taking another look at a presentation that David did for the British Council in 2010, available here on Global Dashboard. In it, he notes that the world has now split into three demographic groups:

-          One in which population is stable or shrinking, including Europe and Japan, and in which half of its people will be over 40 in 2015;

-          A second group of countries in which the population peak is in sight, including China and India, and in which half the population will be under 30 in 2015; and

-          A third group that includes the world’s most fragile states, mostly in Africa, where population growth is still rapid – and where half the population will be under 20 in 2015.

Each of these groups faces distinct challenges, he argued. For group 1, it’s how to “grow old gracefully” – not just coping with rapid ageing, but also using their last shot at being ‘rule-makers’ on the global stage. Group 3, meanwhile, faces the challenge of providing jobs for its mushrooming youth bulges, so that demographic change is a springboard for prosperity rather than a driver of anger and instability.

But for countries in group 2, like China, the challenge is especially demanding. They face a balancing act: on one hand, they need to work at home to build the infrastructure needed to underpin the next wave of prosperity, while managing both middle class aspirations and the needs of the poor. But at the same time, they face growing exposure to transboundary threats, and need to figure out where they fit in to managing them – and how this will affect growth strategies at home. No easy task…

ECFR has just published a brief multi-authored paper looking at what President Obama’s re-election means for Europe (I was one of the contributors).  The paper highlights that there are still many areas – from the Middle East to climate change – on which the US and Europeans differ.  But is a new transatlantic bargain possible?

How should Europe respond to Obama’s re-election? Two basic strategic choices are on offer. The first – and the most tempting – is to imagine that Europe and the US can work together on a common project for the future of the international system at a period of deep change in global politics. According to this vision, Obama and the EU can unite to reinvent the post-1945 liberal order for a multipolar world, fulfilling an agenda that many in the US and EU foresaw in 2008. The president may have strayed from this agenda, the argument goes, but now he is no longer constrained by the need to win a second term and can make up for lost time.

The strategic alternative is to assume that Obama’s highly pragmatic approach to international affairs will not fundamentally change in his second term. On this reading of the president, his tepid commitment to global governance and willingness to use tactics like drone strikes have not been aberrations. Instead, they represent his considered view of the best strategy available to the US at this time. If European leaders want to fit in with this realistic American worldview, they should focus on developing their own power and their outreach, leverage and alliance-building capacities with emerging democratic powers, and in particular managing crises in their own backyard, rather than trying to woo Washington. In fact, the US would welcome a tougher Europe of this kind.

Read the full analysis here.

The FT’s Gillian Tett reports today on a conference presentation given by historical sociologist Dennis Smith, who’s been working on the question of how humiliation operates at the cultural / collective psychological level – and what this means for the Eurozone.

The whole article‘s worth reading, but here are a couple of highlights. First, on how humiliation works:

Psychologists believe the process of “humiliation” has specific attributes, when it arises in people. Unlike shame, humiliation is not a phenomenon which is internally driven, that is, something that a person feels when they transgress a moral norm. Instead, the hallmark of humiliation is that it is done by somebody to someone else.

Typically, it occurs in three steps: first there is a loss of autonomy, or control; then there is a demotion of status; and last, a partial or complete exclusion from the group. This three-step process usually triggers short-term coping mechanisms, such as flight, rebellion or disassociation. There are longer-term responses also, most notably “acceptance” – via “escape” or “conciliation”, to use the jargon – or “challenge” – via “revenge” and “resistance”. Or, more usually, individuals react with a blend of those responses.

So what does that mean for European politics? Well, Tett continues, the Eurozone’s periphery countries have indeed experienced “a loss of control, a demotion in relative status and exclusion from decision making processes (if not the actual euro, or not yet)” – and it’s interesting to observe how different European countries have used different coping strategies:

National stereotypes are, of course controversial and dangerous. But Prof Smith believes, for example, that Ireland already has extensive cultural coping mechanisms to deal with humiliation, having lived with British dominance in decades past. This underdog habit was briefly interrupted by the credit boom, but too briefly to let the Irish forget those habits. Thus they have responded to the latest humiliation with escape (ie emigration), pragmatic conciliation (reform) and defiant compliance (laced with humour).“This tactic parades the supposedly demeaning identity as a kind of banner, with amusement or contempt, showing that carrying this label is quite bearable,” says Prof Smith. For example, he says, Irish fans about to fly off to the European football championship in June 2012 displayed an Irish flag with the words: “Angela Merkel Thinks We’re At Work”.

However, Greece has historically been marked by a high level of national pride. “During 25 years of prosperity, many Greek citizens had been rescued by the expansion of the public sector . . . they had buried the painful past in forgetfulness and become used to the more comfortable present (now the recent past),” Prof Smith argues. Thus, the current humiliation, and squeeze on the public sector, has been a profound shock. Instead of pragmatic conciliation, “a desire for revenge is a much more prominent response than in Ireland”, he says, noting that “politicians are physically attacked in the streets. Major public buildings are set on fire. German politicians are caricatured as Nazis in the press . . . the radical right and the radical left are both resurgent.”

Prof Smith’s research has not attempted to place Spain on the coach. But I suspect the nation is nearer to Greece in its instincts than Ireland; humiliation is not something Spain has had much experience of “coping” with in the past. Whether the Spanish agree with this assessment or not, the key issue is this: if Angela Merkel or the other strong eurozone leaders want to forge a workable solution to the crisis, they need to start thinking harder about that “H” word. Otherwise, the national psychologies could yet turn more pathogical.

Continuing an occasional series about why the UK could take a leaf out of Norway’s foreign policy book on, well, pretty much every front (previous instalments here and here), here’s the BBC’s Richard Galpin on how Norway is dealing with terrorism a year on from Utoeya:

At the political level, the Prime Minister Jens Stoltenberg pledged to do everything to ensure the country’s core values were not undermined.”The Norwegian response to violence is more democracy, more openness and greater political participation,” he said.

A year later it seems the prime minister has kept his word. There have been no changes to the law to increase the powers of the police and security services, terrorism legislation remains the same and there have been no special provisions made for the trial of suspected terrorists. On the streets of Oslo, CCTV cameras are still a comparatively rare sight and the police can only carry weapons after getting special permission.

Even the gate leading to the parliament building in the heart of Oslo remains open and unguarded. “It is still easy to get access to parliament and we hope it will stay that way, ” said Lise Christoffersen, a Labour party MP.

Via Bruce Schneier. Full disclosure: I am slightly Norwegian (and feeling more so every day…)

What on earth is all this about?

When the winter comes in the squirrel has already stored 3000 nuts in different tree holes that provide the food storage to overcome the harshest season of the year. The nuts have been collected in past months and will be shared with the other members of the community if someone is in need. The squirrel is small but has adapted to live in all sorts of environments including European capitals. It’s agile, collaborative and last but not least independent.

On the other hand, the cow needs to take shelter in the stable during winter. It would not survive without the famer taking care it of all needs. Its life is quiet and relaxed. It just needs to feed, reproduce, and produce milk. But it consumes a lot of resources and life ends always in the abattoir. Its life depends entirely on others for maintenance and aims. Cows live all together but don’t collaborate. The farmer is in charge.

That is in fact the baseline concept for a conference being organized this September by a consortium of Danish and Swedish institutes on “how the European Union can foster and support such pioneers through the new socio-economic policies, namely social business and social innovation.”  Does it all seem clearer now?  Maybe not…

This metaphorical comparison aims to help civil society leaders and social entrepreneurs picture the transformation our society is going through: less leadership and help from governments and corporations, and the need for self-organisation, funding, support and development of solutions to social problems. We have to rethink our strategy, collaborate and innovate in order to transform from the cow to the squirrel.

The traditional resources as public funding and sponsorships are shrinking but new opportunities and synergies are emerging.

Fair enough.  But where does the EU fit into this metaphor?  Is it the cow?  Or the tree the squirrels hide their nuts in?  Or the abattoir?  I’m confused…

Image: Colbrain crowdfunding

Following the collapse of the bank he was running until earlier this year, Rodrigo Rato probably thought he would be able to slip into a quiet, if tarnished retirement.

A former managing director of the IMF and minister of the economy during Spain’s boom years, Rato stepped down as executive chairman of Bankia in May after steering the group onto the jagged rocks of a €4.5b government bailout. Rato had bragged about the bank’s huge portfolio of loans and deposits, and it was floated with great fanfare on the stock exchange last summer. Within a year, however, buckling under the weight of a mountain of bad loans, the bank had had to be part-nationalised (for a description of how it happened, see this FT article). As well as institutional investors, hundreds of thousands of unwary Bankia customers and thousands of members of staff persuaded by their trade union that the stock was a safe investment found themselves out of pocket.

A few weeks after Rato’s resignation, his successor revealed that the net profit of €309m in 2011 that the bank had reported was in reality a €3b loss. The stricken entity would need an additional €19b bailout, and become the major trigger for the European Union rescue package announced by an embarrassed Spanish government earlier this month.

This latter revelation sparked the interest of Spain’s “indignados”, the loose association of young protesters who spent much of the middle part of 2011 camped out in the main squares of Spain’s biggest cities. The movement has been fairly quiet of late, but the Bankia debacle has roused it from its slumber. Deciding that Spain’s bankers had been getting away for too long with misleading the government, shareholders, customers and, well, everyone else, they took action.

The target was Rodrigo Rato, the idea to sue him and his colleagues for falsifying the firm’s accounts in the lead-up to the IPO. Having obtained support and crucial information on the board’s activities from a group of ten disgruntled shareholders, the indignados’ umbrella organisation 15-M needed to find €15,000 to meet the costs of filing the suit (the breakdown of those costs is detailed on the group’s website). Many of its members are unemployed, many others are students or low-paid workers. None had the means to take legal action single-handedly. What to do?

Ingeniously, they turned to crowdfunding to raise the money. Like its more famous cousin Kickstarter, the website goteo.org allows those in need to solicit funds from anyone who feels like contributing. In late May, therefore, as El País reports, 15-M began a Twitter campaign to drum up interest, under the hashtag #15MpaRato. At 9am on 5 June, the goteo.org page was launched. Within an hour it had received 11,000 visits. By 2pm it was in danger of crashing because of so many donations, and had to change servers. Within 24 hours, the fundraising target had been surpassed, with a total of €19,413 accumulated in donations of between €1 and €500. ‘Of every 40 attempts,’ reported a 15-M member based in Seville, ‘only one managed to make a successful donation.’

Rato and his colleagues will now have to stand trial, and the success of the fundraising effort has encouraged dozens of other Bankia shareholders to add their weight to the campaign. 15-M are seeking punishments of up to six years for those responsible for the bank’s demise, and preventive custody and an embargo on their assets in the meantime. In the pre-internet days, it would have taken months or years to raise the money to pursue such a case, but as one 15-M member remarked to Spain’s national TV station, with the power of crowdfunding, ‘fear has changed sides in the battle between those at the top and those at the bottom.’

The FT has this as lead story this morning:

The European Union would gain far-reaching powers to rewrite national budgets for eurozone countries that breach debt and deficit rules under proposals likely to be discussed at a summit this week, according to a draft report seen by the Financial Times. The proposals are part of an ambitious plan to turn the eurozone into a closer fiscal union, giving Brussels more powers to serve like a finance ministry for all 17 members of the currency union.

Some thoughts:

First, it’s welcome that we’re finally seeing evidence of some seriousness of thinking in Europe about what it will take to get through this crisis, rather than the crappy one-step-at-a-time incrementalism that’s characterised everyone’s response so far.

Second, this probably is a necessary component of a solution that will actually work, if the plan is to keep the Euro going.

Third, if this did happen, note the distinction that would then exist between the EU and US approaches: in America, the consequence of fiscal irresponsibility isn’t to pass the back up the chain (to the federal government), but rather to throw it down the chain (hence how many cities and municipalities are facing bankruptcy).

Fourth, Commission staff must be almost fainting with excitement at the idea of so much power shifting to Brussels.

Fifth, if EU leaders did decide they were willing to contemplate this major shift, then they would have to get serious, at last, about Europe’s democratic deficit. For all that NGOs love to paint the IMF as anti-democratic, actually countries do face a choice about whether to seek an IMF bailout (with conditions attached, yes) or not. Under this proposal, if I understand it correctly, EU states who’ve messed up their finances would not: they would have no option but to shape their budgets according to the wishes of a bunch of unelected bureaucrats in Brussels. Hard to see that working out as a politically sustainable arrangement.

Sixth, if EU leaders were to get serious about Europe’s democratic deficit, then we’d be straight back to the whole circus that was the attempt to agree a European Constitution last decade. Open question: is the Eurozone crisis serious enough that the French and other European electorates would be better disposed to such an agenda now than they were in 2005?

Seventh:  against this backdrop, it becomes obvious why the UK government’s strategy of separating the governance of the Eurozone from the governance of the EU as a whole makes zero sense.

The EU rule of law Mission in Kosovo (EULEX) is adopting an unusual PR strategy:

“EULEX is doing nothing in the fight against high level corruption” is the slogan of a new campaign that has just been launched on TV stations in Kosovo. The campaign spot is being broadcast on all major TV stations, more than 35,000 flyers with the same message are being distributed around Kosovo and T-shirts and car air fresheners in support of Kosovo’s Anti-Corruption Agency are also being distributed.

The EU isn’t really doing nothing: EULEX’s campaign explains that it is tackling corruption.  But it’s just conceivable that this cunning wheeze could backfire.

From a GS research note published this morning:

Scenario #1: Muddling through

In the most likely scenario, the new Greek government emerging from the June 17 election neither chooses to exit the euro nor agrees unconditionally to implement the existing EU/IMF programme. This will lead to a cessation of troika payments, but would not of itself constitute Greek exclusion from the Euro area, provided Greek banks continue to enjoy access to ECB facilities. Such a scenario is consistent with our forecast for European macro variables and asset prices.

At the same time, there will also be (slow) progress toward deeper policy integration (financial market and banking regulations, fiscal coordination, and ex ante risk-sharing), in order to build the firewall necessary to make the Euro area resilient to a possible future Greek exit. In this scenario, the very large insurance premium priced into US Treasuries and German Bunds should gradually dissipate. Equities would likely rise, but initially only modestly given the continued weak growth picture.

Scenario #2: Fast exit; Greece walks away

Were Greece to unilaterally exit and introduce its own currency, the ECB would presumably halt the flow of Euro liquidity to Greece. Greece would be cut off from capital markets, forcing the government to a primary cash balance. The knock-on dislocations to the real economy could lower Euro area GDP by up to 2 percentage points, even assuming that robust counter measures are taken by the policy authorities. Our expectation would be that the policy response would be substantial. The hit to earnings expectations would likely push the SXXP down to 225, although uncertainty could push the ERP even higher (from 8.7% currently), pushing the SXXP back to at least the 215 low of last September or more and 10-yr rates to as low as 1.5% and 1.0% in the US and Germany respectively.

Scenario #3: Slow exit; Greece is excluded

There is no legal mechanism to force Greece out, but in practice it would be possible de facto by denying Greek banks access to ECB facilities. We see this as less likely than #1 but more likely than #2; it is more market friendly than #2 being a more “managed” exercise. Most likely, peripheral countries’ would have received assurance that the ECB will intervene in bond markets to limit contagion preventing a sharp widening in spreads. The likely hit to GDP of up to 1% is already discounted in equities although uncertainty may result in an initial overshoot. If the policy response was powerful, we could see a strong rally from any lower levels.

Via the Guardian.

Nick Clegg spoke at the British embassy in Berlin today. The audience was impressed by his fluent German. But why on earth did the Foreign Office decorate the embassy with what  appear (to be very generous) to be two gigantic deformed parsnips?

Here’s a piece I’ve done for Yale Global magazine on democracy under strain in Europe.

Politicians in power since the 2008 financial collapse, regardless of their political stripes, find themselves in peril. Analysis of the recent French and Greek elections followed three lines of thought: voters soundly rejecting strict austerity measures, blaming incumbents, and abandoning mainstream political parties for more extremist leadership, both right and left. The three interpretations are linked.  Read more

A while back I posted an excerpt from an essay by George Orwell about Hitler that, for me, was a perfect piece of political commentary. It was concise, sharp and witty even though it was written during the Second World War. Today, I have stumbled across a piece of political writing that has all the opposite characteristics. In an op-ed on the G8 Conrad Black – the press magnate, peer and former convict – abuses almost all the major economies. But he saves his nastiest paragraph for France:

Among the traditional Great Powers, the grand prize for purblindness goes to the inimitable French, who have elected an unmitigated cipher as president on a platform of sharply higher taxes, bigger deficits, indiscriminate pump-priming, and further concessions to the solid majority of public-sector employees and welfare recipients. A new page will be turned in flogging those who earn the money, and pouring largesse on the unproductive, regardless of merit. Never in its history, apart from the capture of the mountebank Emperor Napoleon III at Sedan by Bismarck’s armies, and when the Third Republic voted itself out of existence at the Vichy casino in 1940 under the jackboots of the returning German army, has France committed such an act of self-emasculation.

Come now Conrad, why be so coy?

There was mild amusement yesterday when newly-minted President Hollande had to delay his arrival in Germany after lightning struck his government jet.  The jet in question (seen back on the tarmac above) looks quite modest from the outside.  Let’s hope that there was at least some Sarkozy-era bling on the inside.  After all, other world leaders have some pretty luxurious plane interiors.  Check out a fun series of photos here.  Dilma Rousseff of Brazil can enjoy an in-flight shower:

But the Brazilian shower looks positively suburban compared to the one on the Russian presidential jet, which Vladimir Putin is presumably glad to have back:

That said, the real surprise is that some countries are still able to maintain presidential jets at all. Cash-strapped Greece has one.  Italy has one for the president and a couple of extra for officials.  Spain has a whole air group devoted to bearing the King and senior politicians about… check out a helpful list here.  Sadly, the quality of the bathrooms involved in call cases is not clear, but in an age of austerity shouldn’t some of these planes be grounded?

So near, and yet so far – as so often in EU climate policy. Back in December of last year, at the Durban climate summit, it looked as though the EU was finally getting on the front foot and managing to set the agenda for once on international climate policy.

Where the 2009 Copenhagen climate summit had seen the EU and its partners badly outflanked by a low ambition consensus of the US and the BASIC countries (leading to a voluntary pledge-and-review approach rather than the binding targets-and-timetables approach that the EU wanted), it appeared at the 2011 Durban summit that a new dynamic might be emerging – based on a partnership between the EU and low income countries who were not only increasingly focusing on global mitigation scenarios, but also increasingly prepared to break ranks with the G77 and speak out about the need for emerging economies to do more to reduce their own emissions.

The surprising spectacle of the EU managing to gets its act together will have made many US and emerging economy policymakers sit up and take notice. But all of them will also have been wondering whether the EU and its partners would manage to build on this initial success and turn it in to an inflection point on the global climate agenda, with the new alliance not only maintaining political momentum, but also converting it into design principles for future climate policy.

Alas, the signs now emerging are not good if this Reuters piece today is to be believed:

The European Union recommitted to providing 7.2 billion euros ($9.4 billion) for the Green Climate Fund over 2010-12, according to draft conclusions seen by Reuters ahead of a meeting of EU finance ministers next week. But after that, how much cash will flow is unclear as the text, drafted against the backdrop of acute economic crisis in the euro zone, states the need to “scale up climate finance from 2013 to 2020″, but does not specify how.

The article goes on to detail that EU ministers are arguing over how much of the money should come from public and how much from private sources – needless to say, many ministers would find it a lot easier to exhort the private sector to do more than to do pony up the cash themselves.

Although the article doesn’t name names on which countries are causing the problems, it’s a fair bet that Poland figures prominently among them, especially given that Poland vetoed plans for the EU to adopt a 30% (rather than merely 20%) emissions reduction target by 2020. In the background, there’s the further problem that Italy and Spain – two countries who in the past tended to side with calls for more ambitious action – are likely to fall away as their economies implode.

Although the Green Climate Fund is far from being the biggest issue on the climate negotiating table, it matters a lot to many low income countries. If the EU looks like it can’t be trusted to stick with them on the issues they really mind about most, then it’s hard to see an EU-low income country alliance setting the pace on the larger global climate agenda over the next couple of years – and we can look forward to lots of crowing from emerging economies made gleeful by the opportunity to argue that this is what happens when G77 solidarity is allowed to fracture.

Robert Silvers is best-known for editing the New York Review of Books since its foundation, but he started out at The Paris Review, the classic “little magazine”.  But how did he get there?  It all began with a posting to NATO HQ in the 1950s:

I was a soldier at NATO military headquarters—called SHAPE—near Paris. One of the best things about working there was that, by some international understanding, practically everyone had Wednesday afternoon off—you could go to the Louvre, you could go to the Café de Flore. And there, one Wednesday afternoon, at the kiosk in front of the Flore, I bought a copy of The Paris Review and took it back to our international barracks at Rocquencourt and read it in my bunk. I thought I should know more about it.

For unknown to NATO, some of my old college friends at the Noonday Press in New York had asked me to be their scout in Paris and see what books I might find for translation. So on some of those Wednesday afternoons, I would see publishers.

One of the people he went to see was George Plimpton, who took him to a party:

The sun began to set over the Luxembourg Gardens nearby, and suddenly the lights came on in the street, and George said, “Pati Hill is having drinks on the Île Saint Louis, and why don’t we go over there?” So we walked down to the Île de la Cité and over the little bridge to the Quai d’Anjou and found the beautiful Pati Hill—once a model, now a writer for the Review—and she offered us tall glasses of blanc de blanc in her charming rooms near the Seine. And among the blur of American and French writers and artists there, I talked to John Train, who was one of the founders of The Paris Review, and he asked me to see him at his flat on the Avenue Franco-Russe the following Wednesday.

The rest is literary history.  Could a NATO official follow the same path now?