Facebook Blogging

Edward Hugh has a lively and enjoyable Facebook community where he publishes frequent breaking news economics links and short updates. If you would like to receive these updates on a regular basis and join the debate please invite Edward as a friend by clicking the Facebook link at the top of the right sidebar.

Monday, July 30, 2007

Latvia More Euroskeptic?

The Baltic Times today had this article about the latest Eurobarometer findings on the Baltics:

Three years on from the euphoric scenes that accompanied the Baltic States’ accession to the EU, Balts have become much more varied in their attitude to Brussels, according to a new survey.

The annual Eurobarometer survey includes responses from more than 1,000 citizens of each Baltic State, and reveals some trends that will be of major concern to national and european institutions. Asked whether or not they believed that their country’s membership of the EU is a good thing, Estonians rank among the most europhile countries with 66 percent believing that it is. Lithuanians are slightly more sanguine at 63 percent, whereas Latvians are among the most euroskeptic countries with just 37 percent giving the EU their unqualified backing. A larger number of Latvians – 46 percent – are of the opinion that the EU is neither good nor bad, displaying a ‘take it or leave it’ attitude that should cause eurocrats to sit up and take notice. However, the report’s authors are quick to lay the blame for the crisis in Latvian confidence a long way from Brussels: “Latvian respondents’ attitude to the EU became more negative reflecting dissatisfaction with Latvian domestic issues,” they say.

“The increasingly optimistic trends in Latvia shown in the last few surveys are not apparent in the latest survey.” That conclusion seems to be borne out by news that the level of trust in the Latvian national government has decreased dramatically by 12 percentage points to just 20 percent, well below the EU average. The survey suggests that differences between the Baltic States’ attitudes are growing. Estonia has changed from being the most euroskeptic country to the most europhile. Lithuania, in the past year and a half, had become more negative towards the EU, but now is becoming more positive and has reached the same level as when Lithuania joined the EU. In Latvia there has been an increase in negative attitudes turning it into the third most euroskeptic country in the EU, behind the UK and Austria.


Latvian abroad said...

Latvians have always been a bit Euroskeptic. The decision to join EU was made on pragmatic grounds (EU development money and other economic benefits + faint hope EU might help in our arguments with Russia). This rationale was endorsed by a big majority in a referendum but that doesn't imply that Latvians ever believed in a "grand European project". On the contrary, a lot of us always silently dreamed for a world in which a Latvia outside of any unions would be the best pragmatic solution (while realizing that in the real life, EU is the best pragmatic solution). There have been small ups and downs in Eurobarometer polls but the fundamental reality has always been as I just described.

On to the government's low popularity, it's mainly due to a string of corruption scandals. And it could make a difference in government's ability to push through tighter budgets. A lot depends on what strategy the opposition chooses...

Latvian abroad said...

There is a new poll on confidence in government which has the approval rating of Kalvitis (the Latvian Prime Minister) at 45% approve, 46% disapprove. He is not highly popular but it's not like 20% that Baltic Times quote, either.

I think there has been a trend in Latvia with "Do you trust government?" getting much smaller percentage of "Yes" than "Do you trust [name of prime minister or minister]?" and 20% of Baltic Times poll is an example of that.

Edward Hugh said...

Hi Latvian Abroad

Thanks for all this. I actually put the post up not because I attach any deep significance to such results (and especially not to the government popularity rating part: I freely admit to being completely at a loss on Latvian politics :), although the point you make about how you "frame" the question does seem important).

I just found the Euroskepticism aspect rather intriguing, especially after reading Aapo's AFOE post on the recent Finish elections.

Also it is curious for me to see the pragmatism in the Latvian attitude towards the EU. Here in Catalonia, where there is also a certain reticence towards large states and grand power blocs, people have been very much pragmatically in favour of getting Spain very locked in to Europe (and this is one of the reasons why Aznar's recent distancing was very unpopular here), but I do think there is a very strong underlying "pro EU" sentiment.

Incidentally, I have just put a longish response to your question up in the comments on DM.

Aleks said...

Hello Edward:

First of all, apologies for not getting back to you. And second of all, thanks for your message.

Concerning Latvian attitude toward EU, I think it's a typical Latvian reaction to any politician or a political body. If in other countries, particularly in the U.S., public tends to trust its government, though questions its motives, here in Latvia, any political rhetoric is greeted with skepticism and down right sarcasm.

EU is nice, people say, but they closed two sugar factories here, thus leaving people without work. Traveling abroad and working there is great, but at the same time, bureaucracy is on the rise, which is to say a lot because Latvia is probably the most bureaucratic of the three Baltic States.

The European Union is a double-edged sword for Latvians. On the one hand, it offers them tons of opportunities. On the other hand, it ties their hands in some areas.

And Latvians tend to look at the glass and see it half-empty, that's all.



Latvian abroad said...

Hi Edward,

I'm doubtful about our ability to cause panic in Latvia, whatever we say:
a) we have too small audience;
b) there is enough negative information already floating around in Latvian language media: BICEPS report, reprints/summaries of FT/Economist article, etc.

I'd be glad to talk with you and Aleks on Skype, though.

Edward Hugh said...

Hello LA,

"I'm doubtful about our ability to cause panic in Latvia, whatever we say:"

I obviously agree. We are the pimple on the back of a rhinoceros, even if Latvia makes for a pretty small rhinoceros :).

Otoh, it's looking "back from the future" that is exercising my mind.

point is I obviously don't know, any more than anyone else does, what is actually going to happen in Latvia (or the rest of the Blatics,Hungary, or Romania and Bulgaria, or Poland,or Italy, in that sort of order if things really get out of hand. Contagion, they call it, don't they?), but what I want to avoid in any
unforeseen eventuality, is people being able to point the finger at
us, and say "a group of irresponsible bloggers bla, bla, bla".

If what I think might happen does, then I would like us to be able to
be a source of reliable information and analysis. When all around us are losing their heads, I would like to be keeping mine.

I guess everyone else thinks I am being excessively cautious here, well prudence for once might be a virtue, especially since:

"BICEPS report, reprints/summaries of FT/Economist article, etc."

what I would really have to say might be a lot stronger and more explicit than any of this.

We are very small, and dare I say insignificant, but do, however, remember the Google "outreach" factor. Most people aren't interested in Latvia, so are unlikely to find us. But those who are may well do so. Why the hell do you think I used a boring old title like the Latvian Economy on Afoe?

I'm in at number 11 and 12, and you are in at number 14 on my search, just before all the official sites, flags and paraphenalia, etc.

So when they do get interested, if they do, they will find us.

Since people use rss readers, and visits from these don't show on sitemeter, you have effectively no idea who is reading you, or how many they are.

On broader matters I think the Cartesn Valgreen piece I have already mentioned is a good starting point, and then we need to think about balance sheet effects, and I have put up a list of papers on this here, of which the Krugman is definitely the most to the point.

See you soon.


Latvian abroad said...

"BICEPS report, reprints/summaries of FT/Economist article, etc."

what I would really have to say might be a lot stronger and more explicit than any of this.

I'd say that Latvian-language coverage of BICEPS or Valgren was significant more explicit than the original sources.

I'm quite sure you would be stronger than BICEPS/Valgren. I'm not sure if how much stronger you would compared to Latvian media reports of BICEPS. One of our newspapers even run a story "Thailand crisis: ten years later" with a clear implication that it's relevant to Latvia now.

Anyway, let's talk about it before writing it on our blogs.

Edward Hugh said...

"I'd say that Latvian-language coverage of BICEPS or Valgren was significant more explicit than the original sources."

Yep. This is what I can imagine, and this is, in a way, what I also feared. The big problem of superficial economic comment is that it is pro-cyclical. It is over optimistic on the upside, and then panics on the downside. This is very clear at the present time in the case of the US sub-prime situation. It is also one of the reasons for the large swings we sometimes get in business cycles.

Buttonwood in the Economist (and Valgreen who started him off) are also getting at this when they talk about the rating agencies, since at the end of the day these respond initially to institutional (corporate or public, the upside) and then to popular (and media) pressure (on the downside).

If panic sets in in the Baltics then this makes the outcome a foregone conclusion. It becomes self-fulfilling.

Off topic rather, but I am pretty concerned about this factor in Germany right now. Take a look at this Bloomberg article.

Reforms have virtually ground to a halt, but everyone "feels good" so the economy is going fine (it isn't that simple, but I am sure you get the point). But the question is what happens when people start to feel "not so good".

Since the underlying issues are not being addressed, then at some point some of the old problems will reemerge.

In the end this is not so off-topic, since if the expansion in Germany turns down this will be noticed across the whole of Eastern Europe (although in fact the chain mechanism in Germany might run the other way round, ie that problems in export markets in the East could go back to Germany).

"One of our newspapers even run a story "Thailand crisis: ten years later""

Again, this is the big underlying issue: what is the international climate going to be like? This is really what Buttonwood is trying to get at.

We are all nervously watching the volatility which is evident in the appetite for emerging market debt at the moment.

My feeling is that while there are no easy solutions to Latvia's problems, Latvia on its own won't "unwind". Nor is it likely to precipitate a more general unwind. What the Economist rather rudely calls the "pipsqueak" factor.

Hopefully there will be no general unwind, but I do think we are near the peak of this cycle. Even China will need to pause for breath at some point, and while India is certainly on the launch ramp, she is not sufficiently large (in GDP terms), or sufficiently integrated in the global economy at this point (the next cycle will be different in this sense) to make any decisive difference.

The low dollar is also a factor here. In Europe we are not noticing the oil price effect, but in the US it is surely now a drag. Add to this the housing woes, and the fact that almost a majority of the population *believe* that the US is headed for a recession (and as I say "animal spirits" do matter here) and I think it is not unreasonable to imagine that the US will gradually (I hope gradually) slow.

At which point Bernanke will unlease his ammunition, and start to lower rates, which will present the ECB with a big headache. But it is more what will happen in financial markets at this point we need to be thinking about.

Once the ECB moves away from rate "normalisation" as a discourse, and we get into the possibilities of rate reductions again, then the global financial system will enter a "delicate moment", simply because what financial markets like best is a consistent story, and this is what we have been having. In the last few years it has been all about relative yield and the search for the differential. But when you get a change in the "zeitgeist", then you risk problems, for the simple reason that people don't know how to respond.

A new story has to be born, and until it is you get a lot of uncertainty (I suppose you could say that all of this is very like paradigm transition in science).

Of course, the whole thing is "path dependent" in the sense that the new story is in fact a result of the uncertainty process. I mean, the outcome can be better, or worse, depending. But if we look at what is happening now in relation to sub primes (which I would say are a problem, but not a catastrophe, shall we say they are not a "pipsqueak" but they certainly are only a "storm in a teacup") we can begin to get an impression about what might happen as the level of uncertainty rises.

Which brings us back to this again:

"One of our newspapers even run a story "Thailand crisis: ten years later" with a clear implication that it's relevant to Latvia now."

As I say, the Baltics are very unlikely to set off a new Asian crisis. Nor is Hungary likely to do so. To some extent both these issues are already factored in. The key thing about the trigger for a general rout, if you read the literature, is that no-one sees it coming.

It could be a problem, for example, in Japan, arising out of political instability, a retreat on the reform process and an inability of the BoJ to raise rates, or something untoward in Argentina (the Argentine markets have been very wobbly the last couple of weeks), or Ecuador could suddenly announce that they have decided to do a sovereign debt default. Or it could be none of these. Or it might never happen.

At the end of the day all of this is pretty useless speculation. What we need to do is keep our wits about us and our eyes open. The risk is there, but "risk" and "certainty" are not the same thing, as some market participants are learning to their cost these days.

The thing is the popular mindset has in some ways never been so far from the "reality" in which it moves. I guess virtually noone on the Latvian street could imagine at this point that their future depends on the decisions of a populist Ecuadorian president.

What I am saying is, I think, that the biggest imbalance of them all at the moment (what the Americans would probably call the "mother of all imbalances") would seem to be the one between the world of technological possibilities (mobile phones, the internet etc) and our psychological and cultural ability to grapple with the consequences of these. This imbalance is putting everything under strain, and makes our collective ability to foresee and respond to "what happens next" and "what just happened" much more restricted than we would wish to think it was.

"Anyway, let's talk about it before writing it on our blogs."

Exactly, even if I have to some extent done so here already. Although if few read the blog, then even fewer will be reading the comments :).

I am going to post some very general reflections on all this on the blog now.

Edward Hugh said...

Incidentally, this is what I was referring to in the US. If this survey really is representative, then the US is going towards recession, and everyone had better get ready. 90% of this now is psychological.

And in this whole picture the relative value of the dollar/euro must be taking its toll.

Let me give one simple example. I participate in a forum on the Japanese economy, and this often deteriorates into one of those football match type debates about economic models (even if some of the participants are rather prestigious). So just last week one US participant posted this:

I'm not sure how many countries have a "US model", "Swedish model" or "Japanese model" besides the US, Sweden and Japan, but looking at GDP/capita in 1970 and 2004*:

Japan $11,000 $25,000
Sweden $15,000 $27,000
US $17,000 $36,000

So Sweden's GDP/capita was almost 90% of the US in 1970 and is now closer to 75% of the US.

Now what is interesting about all of this is how simplistic it is, but it is very representative of one way of thinking. It is significant that the dollar equivalent for Sweden is for 2004 (although I am not saying that this was at all intentional). Obviously if you take the current dollar/krona value, you will get a very different picture.

As I say, in these terms I think such comparisons are virtually worthless, since if the euro goes down again, and the dollar rises, then we could just as easily go back to 2004, and what would we have learned?

No, my point is that looking at comments across blogs, and over some time now, the US mindset does seem to be pretty focused on this kind of point. And so this is why I feel the psychological impact of a weak dollar, and one which is on the ropes and taking a pounding, may well be much greater than many are imagining, and I think this dimension is often lacking from the global imbalances and dollar debate.

Just a thought :).