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582 000 people over the last ten years in a country of 7 3 million inhabitants this is a big deal further it has lost a total of 1 5 million of its population since 1985 a record in depopulation not just for the eu but also by global standards the country which had a population of almost nine million in 1985 now has almost the same number of inhabitants as in 1945 after world war ii and of course the decline continues as well as shrinking the population is ageing in 2001 16 8 of the population were over 65 just 10 years later the equivalent figure had risen to 18 9 naturally this means the median population age is rising steadily it is precisely part of my argument that this surge in median age over 40 has important consequences for saving and borrowing patterns at the aggregate level patterns which have not yet been adequately measured and identified thus the macroeconomic dynamics of a country change the impact of these changes has not yet been incorporated into the traditional models most analysts use in forecasting naturally the workforce itself is in rapid decline the causes of bulgaria s rapid ageing and shrinking population problem are twofold low fertility and emigration this is what makes the country look more like the old ddr and less like japan in fact bulgaria s situation is an extreme case of what is happening in many east european countries especially romania and the baltics if you want another reference point ukraine would be in this group but even worse since it is even outside the eu details of migrant numbers are scarce and at best hedgy the data we have is surely a significant underestimate as the oecd pointed out in its latest country migration report figures on declared emigration show an increase from 19 000 in 2009 to 27 700 in 2010 however actual outflows are considered to be much greater based on immigration statistics of th e main destination countries spain the most important destination country in recent years recorded 10 400 bulgarians entering in 2010 7 more than in 2009 outflows of bulgarian citizens from spain also increased in 2010 to 7 600 from almost 5 000 in the previous year 52 the number of bulgarians in spain increased by 14 500 in 2010 and a further 13 000 in 2011 there are no consistent data for greece the second main destination of bulgarian immigrants in recent years but it seems that the stock increased less in 2010 than in previous years remittances data gathered by the world bank give the general picture basically there was a large surge following the severe crisis of the late 1990s and since that time the level of payments has only weakened slightly on the back of the severity of the crisis in the main destination countries bulgaria is also pretty much what the old ddr would look like if it hadn t fused with western germany namely it much more similar to hungary than it is to japan in the sense i discussed in this post as it has a significant negative balance on the net international investment position though not as large as hungary s which means as well as being quite poor it is totally unprepared for rapid population ageing since the text book way to sustain pension and health benefits in a context of increasingly weaker headling gdp growth is normally thought to be to draw down on overseas assets bulgaria also bears comparison with hungary for the way it has carried out a rapid correction on its external position this is due largely to remittances and services exports since the goods balance is still in deficit but still the turnround is impressive as elsewhere exports have performed very strongly but again to no real avail since domestic demand is deflating so strongly that the economy struggles to find air and growth in this sense it is hard to agree with the imf executive directors when they state in their latest public information notice following conclusion of the fund s 2012 article iv consultation they broadly agreed that the currency board arrangement has served bulgaria well if allowing a country to drift towards long term melt down is doing well i would hate to see what something which they thought was an impediment would do some thing is rotten in the state of denmark and that something isn t being identified or dealt with naturally part of the problem is that the flow of credit has dried up but the other part is surely the one krugman identified in japan the growing shortage of japanese sorry bulgarians it is hard to see how you can get serious retail sales growth in a population that is shrinking so rapidly the end result is that the economy grew steadily into the global crisis and subsequently has stagnated this stagnation isn t simply conjunctural anymore it has become structural as the decline in domestic demand associated with ongoing deleveraging and population ageing and shrinkage precisely offsets the positive impact of all that export growth not everyone is convinced of course the imf expect the bulgarian economy to return to a rate of growth of between 3 and 4 after 2014 but looking at the demographics and comparing it with what we are seeing elsewhere that seems pretty unrealistic what is the expression christine lagarde would use wishful thinking perhaps in any event in the short term the country looks set to significantly underperform any such rosy expectations focuseconomics consensus forecast panellists expect the economy to expand 1 4 this year in 2014 the panel expects economic growth to reach the impressive rate of 2 4 growing political discontent since bulgaria is a small country and a poor one to boot most of the above had been going on virtually unnoticed by the rest of the world then last week the bulgarian government suddenly resigned en bloc the immediate cause of the crisis which lead to the resignation was the continuing rise in energy costs a rise which was largely blamed on the czech provider cez to appease the street protestors the government has now initiated a procedure to revoke the company s licence a move which has started to raise concerns about institutional protection in the country according to the report in bloomberg bulgaria s state financial inspection agency started a probe into cez s bulgarian units last year and submitted a report on feb 8 saying that cez evaded requirements of the law for public tenders the energy and economy ministry in sofia said on feb 18 the ministry asked the authority to conduct a similar investigation into the local units of austria s evn ag and prague based energo pro it said bulgaria sold seven power distributors in 2005 to eon se cez and evn before joining the european union eon sold its bulgarian companies to energo pro in 2011 czech prime minister petr necas was not slow to respond i regard the statements by bulgarian officials about cez and other foreign companies as very non standard and see the whole issue as highly politicized because of the approaching parliamentary elections necas said i expect bulgaria as a member of the european union to stick to its international obligations european law and its own laws on protection of foreign investments naturally energy prices are not the only issue the population is tiring of austerity and living standards that don t rise even as unemployment does one symptom of this is that bulgaria s government sacked finance minister simeon djankov at the start of last week djankov was closely identified with austerity policies and it isn t hard to read his departure as an attempt to curry favour with voters in elections which are due this summer having said that the country s government debt at under 14 of gdp is incredibly low so there is room for flexibility if it wasn t populist flexibility the real issue is that simply spending more this year or next won t fix the underlying problem and that problem is unlikely to be addressed until it is recognized as a problem by the institutions responsible for economic policy formulation as someone once said de nile is not only a river in egypt this post first appeared on my roubini global economonitor blog don t shoot the messenger postcript according to wikipedia there s a hole in my bucket or in the bucket is a children s song along the same lines as found a peanut the song is based on a dialogue about a leaky bucket between two characters called henry and liza the song describes a deadlock situation henry has got a leaky bucket and liza tells him to repair it but to fix the leaky bucket he needs straw to cut the straw he needs a knife to sharpen the knife he needs to wet the sharpening stone to wet the stone he needs water however when henry asks how to get the water liza s answer is in a bucket it is implied that only one bucket is available the leaky one which if it could carry water would not need repairing in the first place the origin of this song seems to go back oddly enough to the german collection of songs known as the bergliederbüchlein ironically henry s q a with liza fits the quandry facing the countries on europe s periphery and their lack of constructive dialogue with their core peers about the roots of their problems to a tee posted by edward hugh at 3 36 pm no comments thursday august 18 2011 eastern european growth coming rapidly off the boil the latest round of eu gdp data brought to light a reality which many who have been closely following the economies of eastern europe already suspected that the heavily export dependent economies in the region would almost inevitably be dragged down by the rapid slowdown in europe s principal economic motor the german economy see this post for background read more posted by edward hugh at 6 26 pm no comments thursday july 7 2011 smoke on the east european horizon the market is pricing these sovereigns at much wider levels than where their agency ratings would imply said diana allmendinger a director at fitch solutions cds on italy imply a rating of bbb five notches below its agency rating of aa minus and spain s implied rating is bb plus nine notches below its agency rating of aa plus with so much emphasis being placed on what has been happening farther to the south economic realities on europe s eastern periphery have largely been escaping the close scrutiny of media and analyst attention in the wake of the belated recognition of the region s vulnerability which followed the bout of acute stress experienced during the post lehman crisis a new consensus has now emerged for an in depth study of the latvian example see this piece that the imf guided programmes put in place at the time have essentially set things if not entirely straight then at least on the right track in particular as a result of the extensive fiscal discipline and willingness to sacrifice shown a much brighter future now awaits these countries well to the sidelines of all those horrible greek debt concerns certainly this is the picture you get from looking at the way the ratings agencies have been treating many of the countries in the region only last week fitch upgraded estonia to a citing the country s solid economic growth performance exceptionally strong public finances declining external debt ratios and increasing stabilization in the banking sector but since many reservations have been being expressed in europe of late about the validity of rating assessments i thought it might be interesting to seek out an alternative opinion and take a look at what the financial markets have been saying at least as far as the recent evolution of credit default swap prices go the recently upgraded estonia for example was being valued as recently as just two years agao as having the third riskiest sovereign debt in the european union but the country is now trading in quite another league and finds itself included among the european top ten sovereigns in terms of price as reported by bloomberg on 20 june estonian credit default swaps were trading at 87 basis points while france was being quoted at 83 7 the czech republic at 83 austria at 68 7 and the u k at 66 according to data provided by cma by way of comparison polish cds stood at 159 6 effectively poland was being considered as almost twice as risky as estonia the big question of course is whether this kind of realignment in valuations make any kind of economic sense is contagion risk being reasonably priced in and if it isn t do we face the risk of a sudden and destabilising adjustment in the not too distant future obviously it is clear that the estonian sovereign was never even during the worst moments of the financial crisis and under the most severe of worst case scenarios the third riskiest that was to be found within the frontiers of the eu estonia was the only eu country to have a budget surplus last year worth 0 1 percent of gdp while public debt totaled a mere 6 6 percent on the other hand it is the case that estonia faced an extremely challenging crisis in 2008 09 and had the euro peg collapsed in one of the four east european countries who had one at the time then the pressure of private debt could certainly have confronted the country with some very complex and difficult choices so if we all stop being emotional about cds for a moment and start to consider that they might be a traded instrument which can tell us not who is about to default but rather something about the perceived levels of country risk at a given moment in time then they might offer us some sort of yardstick for following how market sentiment is moving and even the case in point for my argument here whether market pricing of relative risks is in line with economic fundamentals so following the argument along a bit it is far from clear that the current level of estonian cds prices risk in in any more satisfactory way than they did at the height of the crisis since as we will see there are rather curious anomalies in the way in which some of the countries in the region are being priced while an excessive short term emphasis on fiscal deficits has perhaps mislead observers about real risks in europe whether these lie to the south italy or to the east it is not my intention here to single out estonia for special negative treatment that would not be warranted but the value being placed on the cds really is incredibly low for a country that just entered a euro area whose outlook could at the very least be considered as reasonably uncertain it is being priced as part of core europe when in reality it forms part of europe s periphery arguably were the euro to break in two estonia would incline towards riding with the german lead group but given the fact that the country now has a totally export dependent economy this is the part that i feel is least understood and a currency which was arguably over valued at the time of euro entry and the country now has ongoing above eurozone average inflation it is not clear how prepared the country would be to handle the challenges of being attached to the new and ultra high value currency which would be created of course som...