Who and how does Germany keep its economy running if the rest of Europe is falling apart ? How long can Greece keep it together - can they make it through the winter ? What does monti do - run for office on his record , play senior statesmen or wait to be reappointed without being elected once again ?

http://www.zerohedge.com/news/2012-12-19/who-will-keep-german-and-thus-europes-economy-running

Who Will Keep The German, And Thus Europe's, Economy Running?

Submitted by Tyler Durden on 12/19/2012 22:00 -0500

• Demographics
 
• Germany
 
• Goldman Sachs
 
• goldman sachs
 
• Greece
 
• Italy
 
• Portugal
 
• Unemployment
 
• United Kingdom

After a significant slowdown in the years before the crisis, Goldman Sachs notes that the number of immigrants coming to Germany is rising strongly again. While it isnot clear at this point how sustainable this development is, it will nonetheless help to ease the strains in the German labour market. But, given the underlying demographics, we suspect, like Goldman, that an increase in immigration by itself is unlikely to prevent a meaningful decline in the labour force after 2020. Only a continuous rise in the participation rate can offset these demographic trends.

Via Goldman Sachs: German demographics and crisis-related immigration

 A strong rise in immigration

As the economic situation in peripheral countries deteriorates, an increasing number of people are migrating to Germany. While the number of immigrants from Greece, Italy, Spain and Portugal stood at around 41,000 in 2007, this number more than doubled in 2011. Numbers for the first half of 2012 point to a further acceleration of this trend in 2012 (see Exhibit 1).

But people are not only moving from the Euro area periphery to Germany. Total net immigration rose from just 11,000 people in 2008 to around 279,000 in 2011. If we extrapolate the figures for the first half of 2012, total net immigration could even rise to more than 360,000 this year (see Exhibit 2). To put this into perspective, net immigration into the UK for the 12 months up to March 2012 (the latest data available) stood at 183,000.

One immediate effect of this increase in immigration is an easing of some of the strains in the German labour market.These strains have become more visible over the last two years and the current cyclical weakness – which we expect to be temporary – has not changed the fundamental picture in any meaningful way.

The unemployment rate, for example, was 6.9% in October, only marginally above its record low of 6.8%. Note that the national definition of the unemployment rate is rather strict. Using the ILO definition, the German unemployment rate was only 5.4%; the respective figures for the UK and the US are 7.8% and 7.7%. Moreover, the national figures blur some significant regional differences, with unemployment rates in Southern Germany (Bavaria and Baden Württemberg) well below 4%. Finally, the number of vacancies stood at a level of 459,000 in October, compared with an average figure of 364,000 since 2000.

Long-term decline in population and workforce

These strains in the German labour market are set to become even more significant in the coming years due to weak demographics, which if current trends continue would lead to an overall decline in the population.

Exhibit 3 shows two different population scenarios based on the latest population projection from the German statistical office. Under its base scenario, which assumes a broadly unchanged fertility rate of 1.4 and a net immigration of 100,000 per year, the population would decline from around 82mn currently to 80mn by 2020 and 70mn by 2050. Under a ‘high fertility and high immigration scenario’, assuming a fertility rate of 1.6 and annual net immigration of 200,000, the decline in the population would slow, although the population would still be expected to decline to below 80mn by 2030 (see Exhibit 3).

Even more significant than the overall decline in the population would be the shrinkage of the working age population. According to the statistical office’s base case, the working age population – we assume here that this would be everyone aged 20-67 – would decline from around 51mn currently to 50mn by 2020 and 42mn by 2050 (Exhibit 4). Again the 'high fertility, high immigration scenario' looks more benign, although it still implies a big decline in the labour force after 2020.

Population size and labour force: No perfect correlation

Such long-term simulations are necessarily fraught with uncertainty. This is particular true for the estimation of the labour force, which is not only determined by the overall size of the population, but also by other social-demographic factors such as the retirement age and the participation rate (the share of people in the working age population that are working). Because of this, population and labour force can diverge, and indeed such a divergence has been observed in Germany over the last ten years. While there was a decline in the overall population, the labour force reached a record high (Exhibit 5) as the share of the labour force in the total population rose from below 52% in 2000 to 53.5% now.

What matters ultimately, however, is not the labour force but the total number of hours worked, which is the number of people in the work force times the average annual working hours. An increase in the number of hours worked provides a further buffer to a decline in the population or the labour force.

How difficult would it be to keep the total number of working hours constant until 2020? The short answer is: not that difficult. Exhibit 6 shows two different scenarios for the number of total hours worked in the German economy. The base scenario assumes a gradual decline in the population in line with the base case projection of the statistical office and no change in either the participation rate or the average working hours. The other scenario assumes an annual increase in the participation rate of 0.1% to 54.4% by 2020 and an increase in the average annual working hours by 0.1%. Furthermore, it is assumed that net immigration rises to 200,000 per year from 100k in the base case. Under this scenario, the total number of hours worked increases by around 1% from 2011 until 2020. What this shows is that the weak demographics would not necessarily also lead to a decline in labour input, and thus the potential growth rate of the German economy. Which scenario will play out in the end, however, also depends on the flexibility of the German labour market to accommodate an increase in the participation rate.

 

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_20/12/2012_475315

Stournaras says recovery to come late 2013 if political system holds Finance Minister Yannis Stournaras says the possibility of a Greek default has not disappeared despite the release of more bailout funding by the EU and IMF and that the coalition government will have to resist social tension next year for the adjustment program to remain on track. “We can make it next year if we can stick to the program agreed with the EU and IMF,” Stournaras said in an interview with the Financial Times published on Thuesday. “The break would be if the political system finds the situation too difficult to handle.” Stournaras stressed that the government now has to focus on implementing the structural reforms it has agreed with its lenders. He said the main goals next year are to crack down on tax evasion, meet privatization targets and improve conditions for investors. The finance minister sees the recession easing towards the end of next year and growth returning in 2014. “There will be a light showing by the end of next year,” he told the FT. “It is going to be a very difficult year . . . but if we continue on this track, reduce the budget deficit and also complete measures to improve competitiveness, 2014 and 2015 will be much easier.” http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_19/12/2012_475276 Schools left without heating  Teachers’ federation warns that some may have to suspend classes Many towns and villages in northern and central Greece have yet to receive funds from the central government to heat their schools next year, as a teachers’ union yesterday warned that some of them may have to close down rather than let pupils shiver. “Many schools are facing serious problems with heating oil supplies and it won’t be long before they will have to suspend classes because of the cold weather,” the Teachers’ Federation (DOE) said in a statement yesterday. The federation slammed the Ministry of Interior for delaying the disbursement of funds. It also criticized municipal authorities, which are responsible, in collaboration with so-called school councils, for the schools’ operational needs, such as heating. DOE demanded that heating subsidies be granted directly to schools without the interference of municipal authorities. It also appeared to criticize the lack of transparency in the administration of finances by local government officials (OTA). “The unjustified delays, the varying standards in the funding of each school and the absence of any monitoring (to establish, for example, if oil is being used to heat schools or other municipal buildings as well),” DOE said, all suggest the need for a change in the legal framework. Schools are still waiting for the fourth, 20-million-euro installment to meet their operational needs. Total funding for schools went down from 110 million euros in 2011 to 80 million this year. Greeks pay a special consumption tax on heating oil that makes up about 42 percent of the total cost. School councils have unsuccessfully campaigned for an exemption from the tax. http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_19/12/2012_475280 Finance Ministry shakes up tax collection to boost revenues  Dozens of officials being moved as Greece tries to improve gathering of revenues  People line up at a branch of Public Power Corporation in central Athens to pay their electricity bills and their property taxes. A major shake-up at Greece’s tax authorities was launched on Wednesday, with 164 directors, deputy directors and Finance Ministry observers being moved to different departments as part of efforts to improve tax collection, a longstanding demand of Greece’s lenders. Some of the directors will retain their positions but be moved to different departments, while others will be demoted. Twenty new officials will be hired to take up positions at the Financial Crimes Squad (SDOE) and other bodies that carry out inspections. Among those being moved is SDOE’s head of operational planning, Nikos Lekkas, sources said. However, Kathimerini understands that some of the staff who will be affected by the move have threatened to take legal action against the ministry. They claim that an evaluation process has to be completed before the government can change their positions. It also emerged on Wednesday that the Finance Ministry had decided to continue a measure that encourages taxpayers to collect receipts for another year. In an appendage to the tax bill already submitted to Parliament, Greeks will have to collect receipts worth 25 percent of their gross income. If they fail to do so, they will face a further tax of 22 percent on the difference between what they collect and the target set by the Finance Ministry. For example, someone earning 30,000 euros a year will have to gather 7,500 euros in receipts. If they gather 5,000 euros, they will be taxed 22 percent of 2,500, which is 550 euros. The Finance Ministry notched up a small victory on Wednesday when the Supreme Court ruled that an emergency property tax introduced in 2011 could still be levied via electricity bills. Judges accepted the government’s appeal against a first instance court ruling that the Public Power Corporation could not collect the tax, following complaints by consumer groups. The tax is vital to the government’s revenue targets and having to collect it via another method would have disrupted its fiscal efforts. Rumblings Monti may run for office after all..... blurb from eurointelligence Mario Monti will run for office after all 20.12.2012 Several newspapers report that Mario Monti has decided to become the leader of a centrist political list for the upcoming Italian elections;  an official announcement is expected sometime this weekend, after the dissolution of parliament; President Giorgio Napolitano wants to set Febuary 24 as the election date; Silvio Berlusconi has said that he would support Monti – but nobody is quite sure of what that means; there has been an escalation in the conflict between Spain’s central government and Catalonia, with a contingency plan by Mariano Rajoy to ban Catalonia’s premier Artur Mas from office; the central government also plans to challenge both the referendum law, and, if it happens, the referendum itself; for registered users only. and from the Guardian http://www.guardian.co.uk/business/2012/dec/20/eurozone-crisis-greece-finance-minister-warning Monti Italian prime minister, Mario Monti. Photograph: Angelo Carconi/EPA The Will he? Won't he? speculation over Mario Monti continues this morning, with conflicting press reports on whether Italy's technocratic PM will run as a candidate. According to the FT, Monti indicated yesterday that he will run, at a meeting with Pier Ferdinando Casini, head of the small UDC party, and Luca Cordero di Montezemolo, the head of Ferrari. 'Monti would be the political chief of the operation,' one source said. However, Italy's Corriere della Sera newspaper takes the opposite line. It reckons Monti will not be an official candidate in Italy's elections but will back a centrist coalition. That means he could then be appointed to the government after the vote. Either way, Monti is still expected to reveal his plans over the weekend. Updated at 10.54am GMT