Europe view no 184

Europe.view
An unfinished revolution
Public life in the ex-communist world is again run by a well-connected elite. But things may be starting to change

May 19th 2010 | From The Economist online

The Europe.view column will henceforth appear as a weekly posting at Eastern Approaches, The Economist’s central and eastern Europe blog.

In the communist era, the countries of eastern and central Europe were run by tightly knit clans. Connections, particularly those of your parents, mattered more than ability. The same kind of people held the top jobs in the ruling party, in government, in media and in commerce and industry. One of the most potent fuels for the revolutions of 1989 was public discontent with this closed system and the unfairness and incompetence that went along with it.

It worked for a time. In the 1990s, social mobility, in both directions, was huge. Some of the former elite ended up washing dishes or selling insurance. People from the fringes of society (unemployed playwrights and electricians) rose to giddy heights. Capitalism opened huge possibilities for the flexible and ambitious. And if you didn’t like it, you could always leave: millions of people tasted the difference with work and study abroad.

They won that fight

But the new era proved brief. Instead of the old monopoly, a new cartel now holds sway. It is not so blatant. The communist parties’ statutory grip on power is gone, as are the grim, grey men of the secret police. But from the Baltic to the Black sea, public life has again started looking like a game for insiders. The same people, with backgrounds in the same elite universities, with wealthy and well-connected parents, dominate politics, the media and top jobs in officialdom. Social mobility is slowing in many parts of the developed world, particularly Britain and America. But it is tantalising to see it fade in “new Europe”, which once seemed so open and dynamic.

The problem is most acute in politics. Generous subsidies for established parties rig the system against outsiders and newcomers. Electoral rules have the same effect—candidates for election face onerous registration requirements, for example. When voices are muffled, so are choices. Emigration, and in extreme cases even depopulation, is the unwelcome result.

But change does seem to be afoot. Running as an independent, Indrek Tarand, a popular former official, won a surprise victory in Estonia’s elections to the European parliament last year. In Hungary, the green-tinged anti-corruption movement Lehet Más a Politika (Politics can be different) won an unexpected 7.5% of the vote in the recent parliamentary elections. Less pleasingly, in the same election the far-right anti-establishment Jobbik party won nearly 17%, helped by protest votes as well as its traditional racist base.

The trend is visible elsewhere in central Europe. As the print edition reports this week, new parties and protest movements are making inroads into the clubby politics of the Czech Republic and Slovakia. Some, such as the Slovak Sloboda a Solidarita (Freedom and Solidarity), make heavy use of the internet. In the Czech Republic, a movement called Change the Politicians uses smartly made video clips of cultural hotshots such as Aňa Geislerová, Aneta Langerová, Marta Kubišová and Jiří Stránský denouncing corruption and calling for change.

But complaining is easy, as is casting a protest vote. The newcomers will certainly put the old guard under greater scrutiny, dent cultures of impunity and give heart to others who want to change the system. But that is not enough. What the ex-communist countries need is a big new impetus, to complete the changes in officialdom and public services promised but not fully achieved after the collapse of communism. Accession to the European Union and NATO gave that process a boost, but it has proved only temporary. In some respects, the countries of the region are regressing. To restore momentum the new outsiders must show that they can win power and use it—and at the same time not fall into the mire that has engulfed their predecessors.

Important announcement

I have also been made International Editor, starting in September. However I will continue to write on the east European region for the print edition of the Economist, as well as running a new blog called Eastern Approaches.

I am delighted to receive material from outsiders. It need be no more than a short email and a link to something interesting, such as a news item, a pamphlet, or another blog. My aim is to post something new every day. I am also interested in books which I can feature in the “Book of the Week” slot.  My email is edwardlucas(at)economist.com

My column Europe View will now move to this blog as a regular weekly posting. It has had 183 outings in its current form, and (and another 100-odd in its humbler preincarnation as Wi(l)der Europe in European Voice).

I will continue to post my main articles from The Economist and other outlets on this blog, which is about to have a snazzy redesign.

Estonia after the Euro

Just in case anyone is interested, here is a video of me and Toomas Hendrik Ilves discussing Estonia after the euro. Part two is here and part three here

Battle of Britain book review

Britain and the second world war

Boys in blue
May 13th 2010
From The Economist print edition

The Battle of Britain: Five Months That Changed History, May-October 1940. By James Holland. Bantam Press; 677 pages; £25. Buy from Amazon.co.uk

Every country’s version of the second world war is selective. For Russians, it starts with Hitler’s unprovoked attack in 1941 and highlights the colossal battles in the east. For Americans, it starts with Pearl Harbour and features the Normandy beaches and Guadalcanal. Germans may privately start the story rather earlier, with the humiliation at Versailles which brought economic collapse and fuelled Hitler’s rise to power.

Each version is true up to a point. And each seems a bit odd to outsiders. James Holland’s comprehensive and readable history of the battle of Britain exemplifies the particular British blend of amnesia and nostalgia that the war arouses.

Yet in any terms, this is a tremendous story. In September 1939, Britain was fighting a phoney war alongside a seemingly powerful ally, France. Less than a year later, the country’s survival depended on whether a fragile array of a few hundred fighter planes, flown by exhausted young men, could prevent Hitler’s Luftwaffe from gaining the air superiority necessary for “Operation Sealion”: the first invasion of England since 1066.

The happy combination of youthful gallantry triumphing against overwhelming odds with brainy boffins giving the vital technological edge (through radar, and the brilliantly designed Spitfires and Hurricanes), as well as inspirational leaders using flawless tactics and matchless rhetoric, is irresistible. The author has an encyclopedic knowledge of his subject, weaving together reminiscences from both sides, statistics and technical details into the broader picture.

He describes the collapse in France and the near-miraculous rescue in mid-1940 of nearly 340,000 British and French soldiers from the beaches of Dunkirk. He also tells the story of the carnage of poorly protected merchant shipping in the early months of the war which threatened to strangle Britain’s supply lines. He ends with Hitler’s fateful decision to postpone Sealion in September of the same year. The Luftwaffe had lost too many planes and pilots to the RAF’s fighters, while Bomber Command had punctured Germany’s myth of invincibility. It was, as Winston Churchill said, not the beginning of the end but the end of the beginning.

Published to mark the 70th anniversary of the battle of Britain, this book should sell well. But it will leave many readers unsatisfied. One problem is its glibness. Hitler can rightly be criticised for his many disastrous mistakes. But to write of the Nazi leader’s “almost complete lack of military understanding” is wrong: his problem was too much (self-taught) military knowledge, not too little. Similarly, to call the German general Gerd von Rundstedt a “pigheaded fool” is lazy language that would be out of place in a schoolboy essay, let alone in something that purports to be the work of a professional historian. Throughout the book, the language is unsettlingly colloquial and anachronistic. Confusingly, Mr Holland calls the pilots by their first names, though they refer to each other in diaries and memoirs by their surnames.

A bigger problem is that the author’s enthusiasm for his subject is not matched by his grip of history. He peddles the Anglocentric myth that Britain was “alone” in the summer of 1940 (insultingly forgetting Greece, Poland and the entire British empire). Too many characters appear, with annoyingly similar potted biographies. Their tinnily-told stories swamp the rather skimpy treatment of the underlying war-winning narrative, such as the innovative tactics of a brilliant New Zealander, Keith Park, and the way that Max Aitken revolutionised aircraft production. Heroism is indeed captivating. But it was more than heroism that kept Britain out of Nazi captivity.

new rachman novel

New fiction

Inky fingers
May 13th 2010
From The Economist print edition

The Imperfectionists. By Tom Rachman. Dial Press; 272 pages; $25. Quercus; £16.99. Buy from Amazon.com, Amazon.co.uk

For younger readers, stories about newspapers in their heyday may have a whiff of industrial archaeology, akin to tales about whaling or steam trains. Tom Rachman’s first novel is set in Rome, on a once-mighty American-owned international newspaper, surely quite unlike the (Paris-based) International Herald Tribune, where he used to work. The book links together 11 characters, each sharply drawn in a separate chapter. Read singly, each would be a good short story. Together they make an excellent novel.

The opening picture is of the paper’s elderly Paris correspondent, whose skills as a hack have deserted him after a lifetime of dissolution. The last is of the drippy scion of the once-formidable founding family, who fails even to announce the paper’s closure properly. In between comes an agonisingly incompetent new freelance correspondent in Cairo, a memorably ferocious pedant who guards the paper’s prose and accuracy, and the paper’s most loyal reader, an Italian nobildonna who, Miss Havisham-like, prefers ancient editions of the paper to the up-to-date issues.

Most of the characters have interestingly unhappy love lives, with neat twists to their betrayals and disappointments. Though bleakly portrayed, they still attract the reader’s sympathy, not least for their precarious, ill-paid jobs and filthy working conditions (the office carpets not cleaned since 1977, according to the paper’s lore). One longs for them to leave and get proper jobs.

Novels about journalism by journalists tend to be strong on score-settling and colour, but rarely survive the feuds they describe. Mr Rachman’s escapes that category. Though it lacks the transcendent absurdity of Evelyn Waugh’s “Scoop” (1938), it could sit well on a bookshelf next to Michael Frayn’s “Towards the End of the Morning” (1967), which so vividly captured the feel of the old newspaper industry in the 1960s, on the brink of its television-led transformation into the power and prestige of the “media”.

This novel describes the final echoes of the newspaper story: dedication and ambition fighting a losing battle against backbiting and cheeseparing, and ending in a largely unlamented closure. Readers will look forward to Mr Rachman’s next novel. They may hope he picks a more cheerful theme.

Estonia and the Euro

(from the Economist print edition)

The Baltic states

Euro not bust
May 13th 2010
From The Economist print edition

Estonia gets a green light to join the euro. Other Baltic states will benefit too

Surprises are Estonia’s stock in trade. Its return to the world map in 1991 after a 51-year absence startled outsiders. So did what came next: a fast-growing economy, based on flat taxes, free trade and a currency board. In 2004 it confounded pessimists’ expectations by joining the European Union and NATO. Now it is set to pull off another coup, gaining green lights from the European Commission and the European Central Bank in its bid to adopt the euro on January 1st 2011.

Many thought that highly unlikely. Only two years ago a property bubble in the country popped, rocking the banking system and sending GDP plunging by 14.1% in 2009. Doom-mongers said devaluation was inevitable. But they were wrong. Flexible wages and prices have helped the economy stabilise: unit labour costs fell by 7.5% in the final quarter of 2009. Exports were up by a sixth in the first quarter of 2010 and the central bank forecasts growth this year of 1% (although that depends on the pace of recovery in Sweden and other export markets).

Thanks to a fiscal tightening of a stonking 7.5% of GDP, Estonia easily meets the euro zone’s public-finance rules. Its gross debt in 2009 was only 7.2% of GDP (compared with 115% in Italy), and the government deficit is 1.7% (Greece’s is 13.6%). The concern is sustainability: will future governments be so thrifty? Inflation is low: in the past 12 months the average figure was negative, at -0.7% well below the euro zone’s 1% target. But the ECB report calls for “continued vigilance”, as well as efforts to raise productivity and competitiveness.

The real problem for Estonia is political, not economic. Some euro-zone members (France is often mentioned) think that allowing an obscure and volatile ex-communist economy to join a currency union that already has too many dodgy members should not be a priority. If Estonia is really so solid, why not wait a year to be sure?

Yet that would send a perverse message. Estonia is almost the only country in the whole EU that actually meets the common currency’s rules. All those that use the euro have gaily breached the deficit and debt limits. The grit shown by Estonian politicians and the public in shrinking spending, raising taxes and cutting wages has been exemplary. Punishing Estonia, which obeyed the rules, while bailing out Greece, which has breached them flagrantly, would do little for the euro’s credibility with governments and investors alike.

Estonia has two more hurdles to jump before it can scotch the scoffers: an EU committee meeting at the end of May, followed by a finance ministers’ summit in early June. Few think that France and other doubters will actually block Estonia’s bid; persuasion and horse-trading will probably bring agreement. Then the decision will be irrevocable. That will give heart to Latvia and Lithuania, which hope to join the euro later in the decade. Like Estonia, their currencies are pegged to the euro, so they bear the pain of a rigid monetary regime, but also miss out on the lower borrowing costs and higher investment that membership of the currency can bring.

The next task is to stoke growth and cut unemployment (now over 15%). After that, the aim should be to reach Nordic-quality public services and an economy based on brainpower by 2018, when Estonia celebrates its 100th birthday and also holds the presidency of the EU.

Europe view: Greece viewed from the region

Europe.view

Default, and other dogmas
May 13th 2010
From Economist.com

The experience of ex-communist countries in the 1990s undermines many of the claims now made about Greece

For anyone from the ex-communist world with a medium-term memory, the frantic efforts under way to save Greece (and the other wobbly southern members of the euro zone) are rather puzzling.

For a start, what is so bad about default and restructuring? In the 1990s Russia restructured $32 billion worth of Soviet debt into PRINs and IANs (both are now stored in the Museum of Financial Archaeology and may be viewed on application to the curator). In 1998 it defaulted on those debt instruments. People said Russia’s financial credibility would never recover. One banker said he would rather eat nuclear waste than invest in Russia again. But within a couple of years, Russia was flavour of the month.

It was the same story with Poland, which restructured its debt after 1989. Thanks to heavy politicking from America, the freely elected authorities were allowed to swap sovereign debt incurred by the communist regime into less onerous “Brady bonds” (stored in the same museum, also viewable on application). Hungary, which did not have the same backing from America, has had to pay its debt in full. That depressed its growth rate in the 1990s and meant lower government spending and higher taxes. Hungary should have benefited from this sacrifice by gaining a better credit rating. It didn’t. Funny things, markets.

The moral is that investors’ memories are short. If Greece were to restructure its debt, it would not take long for greed to trump fear and for capital to start flowing again.

A second piece of dogma undermined by the experiences of the ex-communist countries is that leaving a common currency area is all but impossible. The Czech and Slovak korunas separated without even a ripple of disturbance. The Yugoslav dinar disappeared in a puff of hyperinflation, but the currencies that succeeded it did pretty well almost from the word go. The death-agonies of the Soviet rouble were painful, but now the Russian currency is one of the most solid in the region. Dig out the drachma from the museum and it may float better than anyone expects.

But perhaps trumping these feelings of confusion is a kind of envy. Greece is benefiting from the kind of support of which the ex-communist half of Europe could have only dreamed in the 1990s. Imagine for a moment that Greece was an EU candidate country, rather than a full member of both the union and of the euro zone. To judge by the way Turkey has been treated in recent years, Brussels would be demanding not only a leaner public sector but a different political system: for example, secularisation of church-state relations, greater minority rights or a climbdown on issues such as the names the country calls its neighbours.

The big difference, of course, is that in 1981, when it joined the then EEC, Greece was just one small country emerging from authoritarian rule (and from a military regime that had been partly supported by the West). In 1989, the sentiment was different. The west Europeans felt intimidated by the ill-dressed needy hordes in the east and preferred to slow things down rather than speed them up. That led to a long process of negotiations with phoney benchmarks for reform and adoption of EU standards. That was a great business for bureaucrats and consultants. But at the end the decisions on which countries to admit were almost entirely political. Funny thing, politics.

The lesson of Greece is that faced with a big, urgent issue, Europe can get its act together. What will it take for Ukraine or Turkey, both of which arguably deserve EU membership just as much as Greece does, to gain the same kind of attention?

Euro latest

Estonia and the euro

Long euros
May 12th 2010
From Economist.com

Estonia gets a step closer to adopting the single currency

Surprises are Estonia’s stock in trade. Its return to the world map in 1991 after a 51-year absence startled outsiders. So did what came next: a fast-growing economy, based on flat taxes, free trade and a currency board. It confounded pessimists’ expectations by joining the European Union (in 2004) and NATO (in 2004). Now the country of 1.4m people is set to pull off another coup, gaining green lights from the European Commission and the European Central Bank for its bid to adopt the euro on January 1st 2011.

Many thought that highly unlikely. Only two years ago a property bubble collapsed, rocking the banking system and sending GDP plunging by 14.1% in 2009 (see story). Doom-mongers said devaluation was inevitable. But they were wrong. Flexible wages and prices have helped the economy stabilise: unit labour costs fell by 7.5% in the final quarter of 2009. Exports were up by a sixth in the first quarter of 2010 and the central bank forecasts growth this year of 1%. Estonia easily meets the euro zone’s rules on public finances. Its gross debt in 2009 was only 7.2% of GDP, and the government deficit is 1.7%. The only real concern is whether inflation will stay low: in the past 12 months the average was negative, at -0.7% comfortably below the 1% target. But the ECB report called for “continued vigilance” on that.

The real problem for Estonia is political, not economic. Some euro zone members (France is often mentioned) think that allowing an obscure and volatile ex-communist economy to join a currency union that has too many dodgy members already should not be a priority. If Estonia is really so solid, why not wait a year to be sure?

Yet that would send a perverse message. Estonia is one of two countries in the whole EU that actually meets the common currency’s rules (Sweden being the other). All the rest (even those that use the euro) have gaily breached the deficit and debt limits. The grit shown by Estonian politicians and the public in shrinking spending, raising taxes, and cutting wages has left outsiders awestruck (see leader). Punishing Estonia which obeyed the rules, while bailing out Greece which has breached them flagrantly, would do little for the euro’s credibility with governments and investors alike.

Estonia has two more hurdles to jump before it can humiliate the scoffers. An EU committee meets at the end of May, followed by a finance ministers’ summit in early June. Few think that France and other doubters will actually block its euro bid: a combination of persuasion and horse-trading will probably bring agreement. Then the decision will be irrevocable. That will give heart to Latvia and Lithuania too, who hope to join the euro later in the decade. Like Estonia, their currencies are pegged to the euro, so they have all the pain of a rigid monetary regime, but miss out on the lower borrowing costs and higher investment that the euro zone brings.

The longer-term question is what Estonia focuses on next. On May 10th it passed another benchmark, joining the Organisation for Economic Cooperation and Development, a Paris-based rich-country thinktank—the first country from the former Soviet Union to do so. The hunt is on for a new national project. Estonia’s presidency of the EU in 2018 will coincide with the country’s 100th birthday. Finding something to surprise outsiders then is a pleasant challenge for the future.

My election take

A welcome uncertainty, a shameful chaos. That is what Britain woke up to after the strangest election night in living memory.  The chaos is as simple to describe as it is hard to justify. Thousands of people waited in vain to vote but couldn’t because pollings stations were under-staffed or ran out of ballot papers.

That would disgrace a country learning about free elections after decades of totalitarian rule. If it happened in Afghanistan or Ukraine, British election observers would tut-tut in disapproval. It is shameful in the country that likes to think of itself as the epitome of parliamentary democracy. Nothing better could epitomise the overpaid, underworked, out-of-touch public sector created by Labour than the useless electoral officer in Sheffield who said “I’m not blaming anybody”. What he failed to realise was this: we were blaming him.

Failure to run and to reform public services properly, despite showering them with money, is one reason that Labour has lost so many seats. But it has not lost office automatically. The Conservatives have won, but not by enough to gain power straightaway. And the Liberal Democrats have failed to make their hoped-for breakthrough, but won enough seats for their voters’ wishes to matter more than ever.

Sure that means uncertainty, of a kind that is unfamiliar in Britain and harder to explain to outsiders. We are used to simple results. We have two parties, Labour and the Conservatives. One wins, the other loses. Minor parties such as the Liberal Democrats may poll quite well, but their votes don’t count.

That system was perhaps defensible in the days when the two main parties won 90% of the vote between them. But it doesn’t fit a system in which the electorate is split three ways. In this election, the Liberal Democrats won nearly a quarter of the votes and gained less than a tenth of the seats.

The first big question is whether Labour will be able to hang on by offering the Lib Dems a shift to a fair voting system. That could even include Gordon Brown resigning as Labour leader, making way for another prime minister. If that fails, then it will be time for the Conservatives to try—perhaps with a formal arrangement with the Liberal Democrats, perhaps in a minority government. The Conservatives had a good night—they pushed up their overall share of the vote to more than  36%. But their claims to have a convincing mandate sounded hollow. They made tremendous gains in the easy seats—but failed to win the difficult ones that would have given them a majority in the 326-member lower house of parliament.

Anywhere else in Europe, this kind of uncertainty is normal. Election results alone do not determine the government: that comes only after negotiations between the parties. Mostly, whichever government forms has the backing of a majority of the voters. That is something that Britain has not enjoyed since 1955 (even Margaret Thatcher’s greatest Conservative victory in 1983 came with just 44% of the vote)

In Britain, we are not used to this. The result comes in the midst of a huge economic crisis. The markets are unhappy. They want a government that can repair Britain’s shattered public finances. Our deficit at 12% of GDP, is likely to be bigger than Greece’s this year. We have to borrow billions of pounds every week. Who will lend it to us? Given the scale of spending cuts and tax rises ahead, some politicians may wonder if now is a good time to be in opposition, not government. Whichever government takes office is unlikely to last its full five-year term.

Yet for all that the uncertainty is welcome, because it brings the chance of a change in Britain’s outdated electoral system. This no longer delivers the one thing it is supposed to deliver: a clear result. It was always a scandal that votes for the smaller parties such as the Liberal Democrats piled up uselessly in third place in our first-past-the-post constituencies. Now the scandal is intolerable. For the first time in my lifetime, there is a real chance of that system changing.

Apple and Yalta

Cupertino’s cold warriors
May 6th 2010
From Economist.com

What has Apple got against eastern Europe?

What have the following places got in common?

America, Australia, Austria, Belgium, Brazil, Britain, Canada, Denmark, Finland, Germany, France, Hong Kong, Indonesia, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, the Netherlands, Norway, the Philippines, Portugal, Singapore, South Korea, Spain, Sweden, Switzerland, Thailand, Vietnam.

Clearly the size of the market is not the determinant. China and Russia don’t appear, but Luxembourg does. It is not about prosperity: Iceland—which, believe it or not, is still one of the richer countries in the world—is out, whereas Vietnam is in. Political freedom or the rule of law are not the binding factors. The Philippines and Thailand are on the list, whereas impeccable democracies such as Slovenia are not.

Perhaps the list comprises the target markets of some tiresome company from “old Europe” that has not noticed that the Berlin Wall has come down and that the division of Europe at Yalta into consumer-citizens in a rich, free west and captive east is long out of date.

But no, the list comes from a company that prides itself on being an icon of über-cool internationalism, with a post-modern disdain for clunky convention and tiresome rules. It is from the Apple Store, where eager customers from all over the world end up in the hope of buying an iPad, or a humble $25 gift card.

First-time visitors are assumed to be from America. If you come from one of the countries listed above, you can switch. But if not, you are out of luck. No matter if your country is in the European Union, NATO and the OECD. For Apple, the eastern half of Europe is still both terra incognita and non desiderata.

Still, you can always buy your Apple hardware from an authorised reseller. The real irritation comes when you want to buy electrons, not atoms. Sign up for an iTunes account, and the opening windows offer a glimmer of hope.  It offers not just two kinds of Portuguese, but Polish and Russian too, as well as the mysterious “Spanish (International Sort)”. It looks fine. So—at first sight—does the iTunes store, which offers a tempting array of countries.

But some are more equal than others. Visitors from Finland, for example, are presented with a full array of music. But register with an address in Estonia, just half an hour away by plane, and you get only a list, admittedly rich, of games, gimmicks and lectures. Films and music are out of bounds.

This approach annoys a lot of people. One organisation in Poland has been berating Apple for its approach to the biggest and most advanced market in eastern Europe. It is now celebrating a partial victory (Apple has agreed to open up its distribution market). But even in Poland, the company’s offering is nothing like what you get across the border in Germany. Other countries in the region have yet to see any improvement at all.

One of those most irked by the company’s approach is the iPhone-toting president of Estonia, Toomas Hendrik Ilves, a loyal customer since 1982, when he bought an Apple IIe. Estonia, he notes, is one of the most wired countries on earth. Tallinn is the centre of NATO’s cyber-warfare research, and Estonians invented another icon of internet cool: Skype. Skype’s director of new products, Sten Tamkivi, has an iPhone, an iPad and a Mac at home. He describes the Apple rule as “a weird relic of commercial east-west segregation inside what is otherwise known as the European Union”.

Why doesn’t Apple, a company so irritatingly up to date in its products and marketing, update its worldview when it comes to sales? Apple’s global headquarters did not respond to a request for comment. A spokeswoman in Britain promised to investigate. When we get an answer, we’ll post it here.

Older posts «

» Newer posts