Alan McQuaid, Chief Economist at Bloxham Stockbrokers, analyses the consequences that Greece’s economic crisis are likely to have on its closest neighbours. Despite the government’s fiscal retrenchment, it looks as if the region will be suffering the consequences for some time to come.

The view coming out of Athens is that Greek Prime Minister George Papandreou can tap into massive political capital, an unrivalled pedigree and strong international credentials to rescue his country from a severe debt crisis. After a hesitant start, the Socialist moderniser bowed to months of EU pressure and imposed draconian fiscal austerity measures, convincing markets to lend him somewhat cheaper money to plug budget holes.
However, deeper recession, entrenched resistance to reform and wider financial market turmoil mean that Greece is not yet in calm waters. Mr. Papandreou set the stage last week for salary cuts and tax hikes ahead of visits to Germany and France to seek support from the EU. So far, markets and his EU peers have applauded the move. Moody’s ratings agency said the fiscal measures are a positive sign that the Greek government is really trying to grasp the nettle, but added that the agency was looking for near perfect delivery for Greece to maintain its current credit rating of A2 with a negative outlook. Back in Greece, though, trade unions immediately announced strikes and it will take hard work to keep the backing of a largely sympathetic public once the measures start to bite. Success of the fiscal austerity measures hinges on a peaceful social front.
Mr. Papandreou won October elections on a tax-and-spend ticket. A sociologist by training, he espoused “green growth” without being fully aware of the dire state of Greece’s public finances. Soon afterwards, he announced the deficit would be double that predicted by the outgoing conservative government, plunging the country into a crisis. He initially resisted pressure from markets and the European Union for tough, Irish-style fiscal retrenchment. Critics said it took him too long to understand the urgency of the problem. For weeks he tried to secure concrete EU support in exchange for tough measures, accusing Brussels of having turned a blind eye to his predecessors’ dodgy statistics and warning that Greece would turn to the IMF if its partners abandoned it. Mr. Papandreou seems to face no serious political challenge in pushing through austerity steps as his socialist party enjoys a comfortable majority and the main conservative opposition has committed itself to austerity in principle.
European leaders, grappling with crises at home, have been reluctant to extend help to a fellow member with chronically unreliable financial data, though French President Nicolas Sarkozy promised at the weekend that Eurozone countries would help Greece if its financial problems worsened and vowed a crackdown on market speculators whom the Greeks blame for their woes. Still, many market economists complain that one-off cuts fail to address Greece’s more entrenched problems.
However, if the measures convince markets Greece is serious about putting its house in order, it may be able to raise funds at reasonable rates and EU aid may never need to materialise. But the availability of such aid, if needed, may still turn out to be a crucial factor in maintaining market confidence. Mr. Papandreou has said repeatedly that Greece must repair its credibility, and there is little doubt that success will hinge on whether Greece manages to cut a 12.7% of GDP budget deficit by 4 percentage points this year and set the foundations for growth.
Athens has to borrow €53 billion this year, and needs to refinance about €20 billion of debt maturing in April and May, putting a growing time pressure on the EU to see Greece’s fiscal woes resolved. Although the EU treaty seeks to prevent bailouts of member states, legal issues could be overcome with enough political will. EU governments could offer many forms of aid, from speeding disbursement of structural economic aid to giving debt guarantees or creating a bailout fund. Because aid would have to be justified to taxpayers in rich EU states, it is unlikely to involve government-to-government transfers of cash. Instead, it would probably be indirect and designed to help Greece continue to borrow in debt markets.
Should the EU come to the aid of Greece this year, German taxpayers may become unwilling to provide support over the long-term if structural economic weakness keeps Athens dependent on EU aid for years. And the EU has shown little sign of reforming the way the bloc works to prevent such debt crises occurring with other members in future. It has said it will tighten monitoring of members, but it still has no guarantee that countries will maintain fiscal discipline or that their economies will be able to work well inside the Eurozone’s monetary straightjacket. Quite clearly, the crisis has threatened the credibility of the euro, and leaving Greece to fend for itself could unnerve markets further. Problems could then spread to other EU countries, in particular those in the southeast.
Indeed, the Greek debt crisis is poised to undermine already dwindling investment flows into south-eastern Europe’s emerging economies, adding to barriers to recovery in one of the continent’s most fragile regions. Greek lending in central and eastern Europe is concentrated mainly in Romania and Bulgaria, both struggling to recover from sharp economic contractions and most exposed to any scaling back in funding as Greece’s banks shore up their own finances. Greece has been a major investor in the region and although its problems have so far only had a limited impact on nearby states, the European Bank for Reconstruction and Development warned last week of potential hits to nearby bank systems and economies.
Greek firms are also not expected to invest heavily in their usual target areas as they digest severe government spending cuts at home. While there may not be a wholesale retreat from Romania and Bulgaria, there certainly won’t be an increase in investment flows and with a string of downgrades to Greece’s credit rating by rating agencies, banks are unlikely to expand their loan books abroad this year. Currently Greek banks control roughly 15% of banking assets in Romania and Serbia. In Bulgaria, the figure is 30%. And though officials in these countries are cautiously optimistic, Greece’s troubles are too recent to show up in the data so underlying problems may take some time to come out into the open. South-east Europe as a whole is suffering from a general lack of foreign investment (in Romania, for example, it dropped to €4.9 billion in 2009 from €9.5 billion a year earlier) and the Greek crisis comes as a further blow to the region. Bucharest and Belgrade were forced to grab International Monetary Fund-led rescue loans to avoid crises last year and Bulgaria’s economy is still on shaky ground. That means investors looking to tap emerging Europe’s recovery may shift money to more stable countries like Poland, the only European Union state to avoid recession last year, or those with limited Greek exposure such as the Czech Republic.
Whatever the outcome of Papandreou’s fiscal tightening, it is likely that there will be a lot more twists and turns in this drama before the curtain finally comes down. Greece and its closest neighbours are not out of the woods yet.

Business Editor Jason Somerville takes a look behind some of the seemingly positive labour market statistics that have indicated the bottoming out of the Irish economy.

At the end of February, unemployment inched back to 12.6% from 12.7% the previous month. Economists have been pointing to the continued improvement over the last three months in the jobless figures as a signal that things are looking up for the Irish economy. However, beneath the figures is a much bleaker story.
Recent statistics from the Central Statistics Office (CSO) show that in 2009, 93% of Irish emigrants were under the age of 44. This implies that the majority of those who left the country last year did so in search of work. Ultimately this improves the official estimates of the level of unemployment, but it masks a more worrying underlying trend.
Ireland has one of the most highly-educated workforces in the world. Indeed, 61% of the total population have attained a third-level degree. Furthermore, this figure is likely to increase as the benefits of “free education for all” filter through to the next generation.
Connecting the dots, it is clear why such a high level of emigration can be detrimental to the future growth potential of the Irish economy. The so-called “brain drain” is not new to Ireland. The 1980s were marked by mass emigration, primarily by highly-educated young people, in search of employment. This became so widespread that the world-renowned psychologist Hans Eysenck postulated that the Irish had become a genetically inferior race. His argument, while extremely simplistic, was that the most highly-educated Irish citizens would leave Ireland in search of work due to a lack of available domestic opportunities. By emigrating, their DNA would be excluded from the genetic pool. It is a shame that Eysenck died in 1997, just as the Celtic Tiger was taking hold and Ireland was being propelled into the league of the world’s most advanced economies. Indeed, such an achievement was built upon a “knowledge-based economy”, contrary to Eysenck’s grim prediction.
While Eysenck was wrong about the genetic inferiority of the Irish, a valid point can be derived from his observation. If the most talented graduates in the country are persistently forced to emigrate in search of job opportunities, Ireland’s reputation as a “knowledge-based economy” may become severely compromised. No level of corporation tax could compensate multinationals for this development.
So what can be done to offset this vicious circle? The answer is obvious: stimulate growth and employment. However, the method by which such a result could be achieved is less straightforward. In 2009, of the 213 countries in the world, Ireland’s economic performance ranked 206th, underscoring the need for immediate action.
Traditionally, when governments want to increase employment, they borrow and stimulate the economy. However, as it stands, Ireland already needs to borrow €20 billion from private markets this year alone to run the country on a day-to-day basis. This is despite €4 billion in cuts introduced in this year’s budget.
An alternative method of employment generation lies with monetary policy. However, given the ECB’s tough stance on inflation and the return to a positive growth in the Eurozone as a whole, this is unlikely to materialise.      
Indeed, despite his optimism surrounding the Irish labour market, Bloxham Chief Economist Alan McQuaid warns that “there will be a high level of unskilled workers permanently on the dole queues even when the Irish economy returns to positive growth”.
He notes that“there is no doubt that the lower rates of monthly increase in the numbers signing on in recent months can be put down to increased emigration, more people than usual returning to education and Government schemes aimed at cutting the numbers on the Live Register. This culmination of factors has been responsible for the marginal improvement in the unemployment rate over the past few months. It has not been driven by a “real” shift in prospects for the Irish economy.
The Live Register is only a proxy measure of unemployment. Indeed, we must delve into the Quarterly National Household Survey if we are to arrive at a clear picture of the Irish labour market. Unfortunately, a similar story is to be found. The most recent data from the CSO are for the third quarter of 2009. They reveal that the number of people in the labour force at the end of the period fell by 2.8% in the year. The decline in the size of the labour market was largely attributable to a decline in participation of 53,600 individuals, as represented by the fall in the employment participation rate from 64.2% to 62.5%. This confirms many of the intuitive fears of economists.
In a recent interview with Trinity News, Deputy Richard Bruton was eager to drive this concern home: “66% of the jobs lost have been amongst people who are under 25, and almost 90% among those under 30 ... this has been very much a young person’s recession”. However, even his party’s ambitious plan of a “program for employment” that plans to invest €11 billion in key infrastructures will have to face up to a number of economic realities if it is to be implemented.
It has hard to be anything but pessimistic about prospects surrounding the Irish economy. Worryingly, the more conditions deteriorate in the labour market, the more damage will be done to the long-term growth potential of the economy. In the 1980s the government focused all of its efforts on stabilising the budget deficit and hoped for a miracle in order to boost growth. That miracle came in the form of the booming US economy of the 1990s. This time around we cannot afford to wait patiently for such a miracle. It is unfortunate then that we have little other choice.

There are certain books which once you pick them up you cannot put them down again; they scream for attention and compel the reader to finish them before even thinking about starting anything else. The Good Shopping Guide is not one of them. This reference book, intended as a consumer how-to-be-good-to-your-neighbour bible, is hard-going from the outset.
The stated goal of this book is to help the reader to “make informed decisions about what consumer brands are best for the planet, best for animals and best for people everywhere”. This is a worthy aim but the coupling of a friendly and helpful format with the seriousness of the issues that it addresses is somewhat jarring. Do consumers really want to get their information about the way in which the products they buy are manufactured from brightly coloured tables with helpful symbols to distinguish the ‘goodies’ from the ‘baddies’?
Although a great deal of research has gone into the classification of these high-profile manufacturers by the Ethical Consumer Research Association (ECRA), the reader would never know. A list of the reports published by the ECRA on which this book is based is provided, but without footnoting or referencing it appears that we are expected to take it on faith that Budweiser operates in oppressive regimes but has a good record for workers’ rights, or that Knorr tests on animals in an unethical way. This for me is the most disappointing aspect of the book: it offers only a snapshot of a select bunch of companies (granted they are the most popular ones) and gives the reader a report on their performance according to certain categories which are so broad as to confuse. Even the explanation contained in the introduction of how the companies are classified is general enough to leave the discerning reader with plenty of questions.
However I must admit that The Good Shopping Guide does in fact have something to contribute to the debate about ethical production and consumption. Readers should not make the mistake I did in attempting to read it cover to cover. Instead, it is best to leaf through it and to select a page a random. If the content of that page intrigues you – for example, why is Teacher’s whiskey classified as engaging in very irresponsible marketing? – the internet must be the next port of call. The ECRA maintain a free online database which allows the public to access information on the behaviour of almost 20,000 corporations (although detailed information requires a subscription), but this kind of information is also available from other sources like the Fairtrade Foundation or Genetically Manipulated.
The Good Shopping Guide aims to merely stimulate the reader to think critically about where the products he or she buys come from and how they are produced. Not a guide to be slavishly followed, it instead points the way to more careful consideration of the effect which the choices we make on the high-street have on the rest of the world and empowers the consumer by focusing on the premise that making small changes (like switching brands) can have global effects.

Jonathan Wyse takes a look at the downside of the Fairtrade movement from the free-market economist’s perspective and argues that the organisation may be doing more harm than good.

As some of you will know, “Fairtrade Fortnight”, overlapping the end of February and beginning of March, saw an exhaustive media campaign persuading consumers that they should switch over to Fairtrade products. It’s all very well-meaning, and certainly makes consumers feel good about themselves. But does Fairtrade actually make life better for the poorest farmers in the world? The more ethical policy would be to embrace free trade and stop keeping prices artificially high.
Fairtrade does actively try to identify the poorest farmers, but this has some unfortunate side-effects. Because this creates costs, it disadvantages the poor who have little access to capital and live hand-to-mouth. This explains why Fairtrade is most common in Mexico (a relatively affluent country) as opposed to Ethiopia or Rwanda (extremely poor countries that really need our help). So what are the unfortunate side-effects of this? The poorest countries lose business to more affluent farmers, because demand flows to the Fairtrade products coming from Mexico.
If poor farmers make it into the Fairtrade scheme though, things aren’t much better. Fairtrade bureaucrats will kick out farmers if they break rules meant to exclude the rich who don’t need help. What are some of the indicators that the farmer should be kept out of the scheme? If you’d rather maintain small business status than join a co-operative, Fairtrade doesn’t want your coffee. Apart from the unnecessary infringement on individual agency, the co-operatives are often corrupt and the incentives created discourage effort from individual farmers. But if they don’t join up, they’ll lose business.
Now, consider the Fairtrade farmer who’s considering expanding his farm and hiring full-time workers. It’s clearly an economical decision if he’s considering and can afford it. Indeed, mechanisation and economies of scale are the only way to develop these industries. But if the size of his farm goes beyond 12 acres, he’s kicked out of the Fairtrade scheme. Thus it’s more profitable to maintain his small farm and spurn the expansion of his enterprise – along with the boon to local employment this would bring. How do these regulations help the developing world?
So if you want to help people in the world’s poorest nations, it’s better to spurn Fairtrade and donate the difference in price to the countless charities promoting foreign economic development. Moreover, donating to them provides help that doesn’t require the recipient nation to spurn modern technology and continue using outdated techniques on crops that perhaps the climate of the country is ill-suited to (as Fairtrade does). These countries need our help, but they should be encouraged to look forwards, not backwards.
If you consume Fairtrade products, read the literature and educate yourself to the real harm that this well-meaning organisation is doing. Even if you question the reasoning behind them, you can’t challenge the facts: only about 5% of the price of a Fairtrade chocolate bar even makes it to the relevant country. So when you pay that 20% more for the Fairtrade feel-good factor, where do you think all that money goes?
Unfortunately, shops treat Fairtrade as a kind of high-quality line. They know that consumers will pay the premium in the hope that it is justified by the amount that actually supports farmers in the developing world. Thus, prices and profits rise to reflect the inelastic demand with respect to price. So where does that price premium go? If you’re an ethical consumer, you should be asking that question.

Jonathan Wyse blogs under the name of the Freemarketeer.

Fairtrade facts

Fairtrade follows a market-based approach to development. The main idea is to give poor farmers in Less Developed Countries access to markets, while ensuring that they remain protected from the volatility of commodity prices.
According to the Fairtrade website, the movement “is about better prices, decent working conditions, local sustainability, and fair terms of trade for farmers and workers in the developing world”. One of the key features of the organisation is that the producers must be paid a “sustainable price”.
The current social movement has its origins in Europe in the 1960s but attempts to develop a similar movement by NGOs date back to the 1940s and 50s.
The orgainisation has its own independent consumer label which guarantees that the products it certifies adhere to the principle of fair trade (fair prices for producers, concern for the environment etc).
The main products carrying the Fairtrade logo are: coffee, brazil nuts, bananas, cotton, tea, olive oil, citrus fruits and cocoa products.
In 2008, sales of Fairtrade products were valued at US$4.08 billion.
The organisation has come into conflict with thinkers on both sides of the political spectrum. Those on the right insist that the price supports are distortionary and harmful to the producer; some on the left criticise the movement for not adequately challenging the economic system.

Lisa Keenan examines the consequences which the prioritisation of qualities over skills has for employees and job seekers.

A lot has changed since the Fordist model first began to show signs of decay in the late sixties. The rise of the service industry coupled with the increased mechanisation of the primary and tertiary sectors of the economy mean that we now see extreme division of labour and the creation of a multitude of hyper-specialized jobs. Career paths are no longer linear – we don’t start with one company straight out of school and work our way up the ladder – so these days we change jobs as often as we change our car.
Whereas before it was enough to possess the right skill-set for the job, or even the ability to learn the required skills, now the prospective employee must display a wide range of desirable personality traits if he or she is to be seriously considered for a position. Employers are now suspicious of anyone who appears to be wedded to their career and take signs of other interests as a good indication of a well-rounded individual.
Involvement in extra-curricular activities is now almost as essential as a university degree. Interests and activities outside of employment serve as signals to employers. They show what kind of person you are and whether or not you are likely to “fit in” to the workplace in question (this is another departure from the traditional employment pattern: the question of candidates’ suitability for a post would never have been determined by their passion for modern art or their fondness for running marathons at weekends). The expansion of the criteria which the candidate must meet is not just evident at the higher echelons of the service sector but has instead trickled down to its menial service jobs.
Anecdotal evidence on the subject indicates that the quest to find the perfect employee now borders on the surreal. One well-known cosmetics store refused to take in curricula vitae and instead asked for a “fun” letter of application explaining what the job seeker was “all about”. A candidate was later hired on the basis of her ability to express her personality through the use of stickers and peppy self-descriptive adjectives. An equally well-known clothes shop requests access to candidates’ Facebook profiles as well as the inclusion of four photos of the applicant which sum him or her up.
This hyper-differentiation of employees can be viewed in a positive light. People who have other interests outside of work possess a range of qualities which can aid them in their job. For example, those who engage in team sports have experience working as part of a group in order to achieve a common goal. Such a talent is difficult to quantify but is logically a point in a candidate’s favour from the employer’s perspective. Engaging in these activities also demonstrates an ability to multi-task. However, placing such a burden on employees to distinguish themselves from the masses and job seekers does have rather negative effects on their psyche.
In 1983, Arlie Hochschild, building on Ervin Goffman’s insights in The Presentation of Self in Everyday Life, argued that expecting employees to possess and display certain qualities during their work day can in fact lead to “emotional numbness” and a loss of self. The flight attendants she surveyed spoke of the mental exhaustion they experienced after clocking out from a shift during which they were expected to embody relaxed friendliness at all times. In addition, for those who are looking for work or who have been “let go”, the extreme individualisation of the work experience means any “failure” in this regard is experienced as a personal failure by the individual, regardless of the wider economic context. What this means is that even if overall unemployment figures are high, the message people receive is that employment is out there for them so long as they can stay positive and present themselves to employers in an attractive light. This is particularly true in the American context.
In Bait and Switch, Barbra Ehrenreich wrote of her experience of life coaches, motivational speakers and CV doctors as she searched for a job in corporate America. Essentially the doctrine these people propagated was one of individual responsibility. Ehrenreich sums up the message of one of the many life coaches that she paid to help her in her quest for a job: “as for his philosophy, it’s straightforward victim blaming: your problem is you”. Suggestions that a difficult job market or a rigid corporate culture may in some way be to blame for the inability of many to find a job is met with derision by the gurus encountered throughout the book. 
Ehrenreich wrote Bait and Switch in 2006 and although the economic context has changed since then, the culture of victim blaming has not. In times of recession employers may wield the whip but, as any career coach will tell you, it is important that job hunters not show their awareness of this fact. The ideal employee must be eager to please but full of self-confidence and sure of his own self-worth. In fact, those looking for work are expected to engage in a kind of “double-think” that makes it impossible to consider the broader context in which they undertake their job search.
At the end of January a link to the Forbes website caught my eye; it claimed to have invaluable advice for job seekers in these very difficult times. The article turned out to be a catalogue of faux pas which must be avoided by applicants, chief of which was “not to let your job desperation show”. I was baffled. Could this mean that even in the middle of the worst recession since the Great Depression the unemployed were being asked to internalize the blame for their situation? I read on. It could. While acknowledging that job search can “often” be linked to survival (apparently for some it is simply a hobby), the author proceeds to talk about how off-putting the sight of the desperate candidate is to the employer: “If you’ve ever witnessed desperation in a relationship, you know how unappealing it can be to see someone willing to settle for something. Anything. It makes you wonder just how much that person values himself or herself.” Even at a time when job loss is widespread and money worries are foremost in many people’s minds, displaying something as vulgar as a pressing need to meet mortgage payments is a no-go area. The focus must instead be on maintaining a positive attitude and pursuing aggressive self-improvement.
The logical course of this prioritising of personality traits over qualifications is that the qualification aspect of the job will eventually slip into the background. Essentially, the quality replaces the skill as the criteria for employment. We can imagine a situation in which the division of labour becomes so extreme that the skill-set becomes almost irrelevant as qualities like an “upbeat attitude” take centre stage. The recently released movie Up in the Air illustrates this with a cost-cutting measure whereby inexperienced office workers take over the task of firing people by webcam, replacing the skilled consultants who had previously flown across the country to do it. The only requirement here would be an ability to stay calm and follow orders – and of course the capacity to read a flow chart mapping out the correct responses for every situation.
Ehrenreich argues that we can see the supremacy of the personality trait over the qualification in action today as jobs like pharmaceutical company sales reps become invaded with cheerleaders whose exaggerated smiles and generally attractive appearance (given that the majority of doctors are male) are deemed to produce better results (more sales of drugs) than qualifications in chemistry or biology. The change is underway and admiration for packaging rather than content is now just one more thing for prospective employees to worry about.