The Great Portuguese Hollowing Out … With every passing day Portugal has less and less economy left, while fewer and fewer people remain to try to pay down the debt. As Portuguese President Aníbal Cavaco Silva once put it, "A country without children is a nation without a future." He was, of course, referring to his country's ultra-low birth rate, which is just over 1.3 (Tfr) and has been below replacement level (2.1Tfr) since the early 1980s. In 2012 only just over 90,000 children were born in the country, the lowest number in more than a century – you need to go back to the nineteenth century to find numbers like the ones we have been seeing since the crisis really took hold. – AFistfullofEuros
Dominant Social Theme: It's a bit rough but the Southern PIGS will recover from austerity and be the better for it.
Free-Market Analysis: The Southern PIGS have a third way when it comes to the horrible austerity-drama that is playing out in Europe. Call it the "collapse gambit."
First, some background. The disaster in Southern Europe was manmade and based on government profligacy and an EU monopoly currency. The solution would be devolution and allowing Southern European countries to work out their problems for themselves. This is not being allowed to happen.
Enter the IMF with "rigorous" – and failing – solutions. Those in Southern Europe have fought furiously against IMF sanctioned austerity that has raised taxes, slashed benefits and positioned government assets for rapid sell-off. As elsewhere (in developing countries) the IMF regime has proven disastrous. It has likely literally starved people to death and is the proximate cause for up to 50 percent youth unemployment in Greece and Spain.
Forecasting the IMF response, we believed either the tribes of Europe would fight or they would accept their fate. We wrote many articles explaining why we believed "fight" was going to be the preferable option. We think we were correct in our forecast. But it never occurred to us that "collapse" was a third option.
It is the Japanese solution. Lower birth rates, emigration and sociopolitical detachment. Here's more from the article excerpted above:
High unemployment levels and the lack of job opportunities are leading an ever increasing number of young Portuguese to emigrate. The numbers are large, possibly a million over the last decade, victims of the country's ridiculously low growth rate – under 1% a year. And the departures are accelerating. Jose Cesario, secretary of state for emigrant communities, estimated recently that up to 240,000 people may have left since the start of 2011.
Naturally this is one of the reasons why Portuguese unemployment numbers haven't hit the Spanish or Greek heights. According to data from the Portuguese Institute of Employment and Professional Training, during the first nine months of last year 24,689 people cancelled their unemployment registration due to a decision to emigrate. This compares with 16,977 in the first nine months of 2011. In September alone, 2,766 people signed off for the same reason, a 49% increase on September of 2011. Yet between January and September Portugal's EU harmonized unemployment rate rose from 14.7% to 16.3%, suggesting that without so many people packing their bags and leaving the figure would have been significantly higher, and offering some explanation as to why government officials don't do more to try and stop the flow.
Nobel economist Paul Krugman recently suggested that among the ailments Japan was suffering from was a shortage of Japanese. Or put another way Japan's slow growth is partly a by-product of the country's ageing an shrinking workforce. Looking at the country's population dynamics Portugal certainly looks a likely candidate to catch this most modern of modern diseases. Not only does Portugal have the key ingredient behind the Japanese workforce shrinkage – long term ultra-low fertility – it has some added issues to boot. Japan may be immigration averse, but its inhabitants aren't fleeing in droves.
Unfortunately population flight and steadily rising unemployment aren't the only problems the country is facing. The economy is also tanking, and getting smaller by the day.
The collapse gambit is yet another problem that Brussels Eurocrats will have to deal with. As the article put it, "Positive export performance does not compensate for shrinking domestic demand due to the smallish size of the export sector, generating a negative environment which ongoing reductions in government spending do nothing to assuage."
In other words, this is the opposite of a virtuous circle. As the population shrinks, the debt grows. "Gross government debt as a percentage of GDP hit the 120% of GDP level last year. And it isn't only public sector debt, the Portuguese private sector owed some 250% of GDP at the end of last year, according to Eurostat records, one of the highest levels in the EU."
It should also be noted that the Portuguese population is getting older as it shrinks. The presumptive obligations of the Portuguese government to take care of its aging population will be increasingly tested within the current environment, given the trends mentioned above. The same can be said for Japan.
Spain, Greece, Ireland, Portugal – gradually and in various ways the Southern half of Europe is collapsing into varying stages of violence and apathy. But if the Portuguese solution takes hold, then the damage that has been done in the past five years may extend a generation or more.
Europe may gain a euro but it will lose decades of vitality and innovation as its younger generations emigrate to more hospitable regions.