Eastern Europe Economy Watch: Another bad day for the Leu

Well as might have been expected following all the political argument, today was another bad day for the Leu. Of course the euro passing through the $1:40 won't have helped any either.

What is Eastern Europe Economy Watch?

Eastern Europe Economy Watch is a weblog - run by Claus Vistesen and Edward Hugh - which is dedicated to following the day to day progress of the economies of the European Union Accession States - Bulgaria, Romania, Latvia, Estonia, Lithuania, Hungary, Slovakia, The Czech Republic, Slovakia and Slovenia. The Weblog arose out of our curiosity concerning the roots of the particular mix of economic problems which these economies now seem to be facing, about what can be done to address these problems, and about what might be learned from studying the development of these economies as they evolve.

The Eastern European economies have attracted a lot of interest from the international financial investment community in recent years, but the underlying macro economic reality is, in fact, very different from what many assume.

The Eastern European states share a common history and a common demography. This means they face - despite all the individual nuances - a historically unprecedented combination of structural problems, which in large measure stem from an extraordinarily high inward flow of funds (especially in the banking sector,which has tended to lead to excessively strong levels of credit-driven consumer demand) accompanied by an equally high outflow of labour through migration (which leads to insufficient domestic labour supply to meet the needs of the high growth rate produced by the funds inflow). The impact of the migration outflow is further aggravated by the rather low number of young labour market entrants who are now becoming available - a position which can only be anticipated to deteriorate over the coming years - since it is a direct consequence the collapse in fertility and live births which the all these countries experienced following the fall of the Berlin Wall in 1989.

The issue is further complicated by the fact that these economies all need to experience very rapid "catch up" growth to converge on the living standard levels of their Western European neighbours, and if they are indeed to become rich before they grow old, a move which is vital for them if they are to achieve the resources which will make supporting the increasing number of elderly dependents both viable and sustainable. The future of Eastern Europe is indeed a race against the clock.

Needless to say none of these problems were ever really contemplated when the present generation of economic text books were written. Dealing with this whole problem set has become a most pressing concern, both theoretically and practically, especially given the heavy degree of dependence on these economies which is shown by some export driven Western European economies like Germany and Austria.

A great deal more background and information about the theoretical perspective which informs this blog may be found over at the Demography Matters blog.

About

Edward 'the bonobo' is a Catalan economist of British extraction based in Barcelona. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again". He is currently working on a book with the provisional working title "Population, the Ultimate Non-renewable Resource". Apart from his participation in A Fistful of Euros, Edward also writes regularly for the demography blog Demography Matters. He also contributes to the Indian Economy blog . His personal weblog is Bonobo Land . Edward's website can be found at EdwardHugh.net.

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Thursday, September 20, 2007

Another bad day for the Leu

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