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Thursday, February 27, 2014

A Simple Chart Illustrating Why Japan Style Deflation Is Now More Or Less Inevitable In Spain

Here's one simple chart which illustrates why I think Japan style deflation is now more or less inevitable in Spain. Curiously it comes from the Ministry of Employment and illustrates the relation between the movement in average wages caused by actual movements in the real wage and those caused by what is known as the "compositional effect". This latter is known by this name because it is the result of movements in the composition of the workforce, whether this be in terms of the average skill level or the average level of experience (or seniority premium, if you prefer). Seniority has historically played a very important part in the Spanish wage structure - ie the longer you have worked the more you are likely to earn.



Now if you look at the data superficially, you find that in the first years of the crisis average real salaries went up sharply (the blue line). This surge in average salaries was not due to salaries actually rising to this extent, rather it was the result of the composition of the workforce having changed (the average skill level went up) as unskilled workers in construction lost their jobs. Hence the 2009 spike in the composition effect.

According to Bank of Spain data in 2008 skilled workers represented 23.55% of the total while by 2012 the proportion had risen to 28.2%. On the other hand, over the same time period unskilled workers fell from 14.8% to 10.2% of the total.This naturally had an impact on average wage levels.

Now, however, the labour market has stabilised, and unskilled workers are no longer losing their jobs (at least not in net terms). According to the Spanish newspaper Expansion the Spanish statistics office estimate average hourly labour costs (not unit labour costs, note) fell in Spain by 2.9% en 2012, 1.9% in 2013 and they are expected to fall another 1.7% this year.

Again, looking at the chart you can see that the green (compositional effect) line which surged in 2009 has now flattened.  It has flattened but the impact is still there and has stabilised at a more or less constant rate. Subsequently it is quite possible that the compositional effect will even turn negative due to the impact of the 2012 labour market reform:  average salaries are no longer falling due to labour shedding producing a changing skill composition but due to AGE CHURN. Older workers with long term contracts and lots of seniority are being steadily replaced by younger ones on less well paid contracts, thus dragging down the average wage. The line is flat and extends out in to the future. This can go on for years now, and indeed the compositional effect can even turn negative.This is exactly what has been happening over the years in Japan, and is the principal reason why Abenomics isn't working.


Incidentally, here I have been talking about average hourly labour costs NOT  those famous unit labour costs. These, as we all know, fell significantly in Spain after the onset of the crisis. What isn't so well understood is that this fall wasn't due to falling hourly wage costs (these didn't really start falling till mid 2010, see blue line in chart) but due to massive labour shedding. Spain's GDP has fallen by something like 7% while employment is down by around 20%.




On the surface this shows a large gain in productivity. Where this gain is actually coming from hasn't been sufficiently analysed yet, but part surely comes from a compositional shift in the labour force. One thing is, however, reasonably clear and that is that it hasn't come from industrial productivity, since industrial output is down by some 30% since the pre-crisis peak, even more than the reduction in employment.(I'm afraid you'll have to stare very hard at the industrial output chart if you want to see signs of the much proclaimed recovery - you'll have to stare very hard since there is so little sign of it).








So why do I think this suggests deflation may become endemic in Spain? Well, with average real wages falling, real pensions falling, and credit still shrinking by around 6% a year it is hard to see where the demand is going to come from, especially with very little happening in the way of new employment - the shortfall is becoming structurally implanted.




For more argument on all this (in Spanish) see my book which is being published by Ediciones Deusto next week. You can find a list of chapter headings here.

Saturday, October 05, 2013

Can demography explain Portugal's growth slump before the crash?




The above still comes from a recent Financial Times video entitled "Portugal's Brain Drain", which can be found here, and which I encourage everyone to watch. The issue being raised revolves around the current acceleration of emigration from countries on the EU periphery, largely towards the EU core. Typically the emigrants are young educated people who can't find work. There is nothing especially surprising in this, since the tendency has long existed for people to move from more depressed areas to economically more dynamic ones. The exodus from Detroit in the United States immediately comes to mind. Or Scottish people getting on the bus to make the fateful journey from Edinburgh or Glasgow to London. The Schengen accord simply extends this process which used to take place within nation states to single market zones, or currency unions. But does this extension have consequences for the participating states which were not anticipated at the outset, and are these consequences all benign?

In addition, this time round in an important sense something is different since these movements are occurring in the context of a long and difficult economic adjustment, indeed one could almost argue that the people leaving form part of that adjustment. What's more it is hard to accept that this is the kind of adjustment that countries like Spain and Portugal really need. Renovation in these countries implies these people and their talent are injected into the local economy to dynamise it, and not shot out the side like water from a high pressure hose with holes in it. So the big question I want to ask here is whether the economic programs which are being implemented in these countries take sufficient account of the demographic impacts they are inducing, and of the fact that the population loss involved - which most likely will become permanent - is going to cast a long shadow over the history of the countries concerned.

In earlier generations, migrants used to leave behind them what were comparatively high fertility societies. There were more children being born than the local economy could absorb.  We can still see this phenomenon in the world around us, as highlighted by the recent tragedy near Lampedusa, Italy. But the EU periphery case is rather different becuase - as the article I publish below indicates - the countries people are leaving are going to be short of working age population in a not too distant future.  Again, as blogger Valter Martins argues, maybe the impact of stagnating working age populations was already being felt before the global crisis broke out. Certainly, as I argue here, a case can be made that in Latvia it was the labour force limitation which lead to the excessive overheating and then the roller coaster landing that hit the country in 2008.

True, all these countries are suffering excessive levels of unemployment. But unlike the case of, say, Nigeria or Ecuador, this is not because there are too many young people for the economy to absorb, it is because the economy is stuck in a bad place and can't grow. Structural reforms are needed, but some of the reforms simply don't make sense. What is the point, for example, in lengthening the working life of older, less productive, workers while going to the airport to wave goodbye to their innovative and educated grandchildren who are forced to leave as a result. Surely a better solution would be sustainability in the pensions system - what goes out in total can be no greater than what comes in - and no reduction in the retirement age in the short term. Yes, this will mean lower pensions, but if the young leave the lower pensions will be even lower in the long run. There's a problem of priorities somewhere, and a generational imbalance in how the adjustment is being implemented which is not only unfair, it will lead to far from optimal outcomes in the longer run.

As it happens, just a couple of weeks ago three IMF economists (including chief economist Olivier Blanchard) presented  a paper to the Brookings Institute which  reviewed the performance of the Latvian economy since the EU-IMF intervention. It was a kind of informal post program evaluation. Interestingly enough, during the course of that paper they raise the very point I am raising here. “The question," they say, "is whether this emigration [from Latvia, EH] is, in some sense, a failure of the adjustment program."

They are right. This is exactly the question we should be asking ourselves. And in Portugal, Spain and Greece too. Their answer -  from an economic point of view emigration raises overall welfare:

 "In the United States, migration rather than unemployment is the major margin of adjustment to state specific shocks ….. These adjustments are typically seen as good, indeed as the main reason why the United States functions well as a common currency area: If there are jobs in other states, and if moving costs are low, it is better for workers to move to those jobs than to remain unemployed.”

This is the typical "non answer" we keep getting to this issue in the EU context. Obviously, from the point of view of optimal output, and the maximizing resources across a continent,  most probably such movements are beneficial. But to whom are they beneficial? Which "collective" community is it whose overall welfare is being raised here? Arguably not those in Latvia and Portugal. EU countries are not US states, and a United States of Europe does not exist. Again, this point is obvious, and agreed on by all, but when the problem this raises in terms of emigration from countries who have been running birthrates well below the replacement level  is put on the table all we get is silence.

Now assuming policymakers are not simply stupid this silence suggests that the whole issue touches on some very fundamental raw nerve. There is no answer in terms of sustainability for those countries who are net losers unless there are reverse direction transfers, as under the US Federal system, and that no one wants to talk about, at least in public. As the IMF economists admit in their paper - “the largely permanent departure of the younger and more educated workers may indeed be costly for those who stay”. So the question they pose - could things be done differently? - remains, at least from the demographic point of view, unanswered.

Portugal isn't Latvia, but it does have a very serious demographic problem. In Latvia  the total population declined by about 14 percent (340 thousand people) between 2000 and 2011. Emigration was responsible for about two thirds of this decline while low fertility accounted for the remainder. An estimated 200–215 thousand people left, mainly young people - roughly 9 percent of the population. Obviously Latvian emigration long predates the crisis. The average net emigration rate was 0.5% from 2000-2007. It increased to an average 1.3% from 2008 to 2011, but by 2012, was roughly back to its pre-crisis average. So emigration isn’t a product of the crisis, it was simply made worse by it. But the basic underlying reality is - given the ongoing fertility shortfall - even with the pre-crisis rate of emigration the population pyramid isn't sustainable.

Portugal's case is not so severe, but the pattern is similar. Between 1998 and 2008  about 700,000 Portuguese nationals left their home country according to research carried out by the former Economy and Employment Minister Álvaro Santos Pereira. In the pre-crisis years the outpouring was to some extent offset by an inflow of immigrants from other countries, but now the migrants are leaving too so the country's working age and total population are both declining.

Which conveniently brings me to the second guest post I would like to present from the Portuguese blogger Valter Martins. As Martin's coherently argues below, the drying up of Portugal's labour supply was already affecting sustainable trend output before the crisis set, so what I am suggesting we might like to ask ourselves is one very simple question  - how is an adjustment which accelerates the longer term decline in the country's workforce, and leads some of its younger and abler members to abandon the country, possibly for good, going to help raise the country's long term growth rate? Instead of alleviating this problem it seems to me it is likely to make the long term situation worse.


Can demography explain Portugal's slump before the crash? 
Is the Eurozone suffering from a “Shortage of Japanese”? 

Guest post by Valter Martins


In Portugal, unlike other countries now experiencing economic difficulties in the Eurozone - Spain, Greece and Ireland, for example - anemic economic growth was all too evident well before the financial crisis of 2007-08.  Accession to the Euro club brought a significant reduction in interest rates in those countries that had experienced historically high ones, triggering real estate bubbles (in Ireland and Spain), and public overspending (in Greece) this cheap money allowed these countries to maintain rates of economic growth above their long term potential and also above the European average. Portugal, on the other hand, suffered a mild housing bubble and government overspending,  yet growth was much weaker and more in line with countries that  have had fairly lackluster performances in the European context:, like Germany or Italy. (See chart below)



So what lies behind the relatively low growth that took place in Portugal when compared with other  countries that are now in the same situation? To put it another way, what’s the factor that differentiated Portugal from the other countries before the crisis of 2007-08? A number of recent papers and articles have attempted to explain the causes of this relative weak performance, but although some of the factors mentioned  surely contributed to the weak Portuguese growth  they do not fully explain it since many of them  were also present in the other - higher growth - countries before the crisis.

So we need to look a bit deeper. Essentially, long term economic growth can be split into labor force growth and productivity growth.  Invariably, the main cause cited for the Portuguese low growth has been productivity growth, or the lack of it, but although this certainly has been a problem in the last decade, it was not so much of a problem before, and it hardly appears sufficient on its own  to explain the relative weak performance. The differences in productivity gains don't seem large enough to justify the sizable difference in GDP growth, even in the cases of Ireland and Greece (where productivity growth was higher than Portugal), and certainly not vis a vis Spain since productivity growth there was lower than Portugal, as can be seen in the chart below. In the last decade, productivity growth in Portugal was threefold that of Spain but its growth was less than half.


As such, we can safely conclude, that productivity on its own cannot explain the differences in economic growth between Portugal and the other group of countries. On the other hand, the stagnation and decline of the working-age population can not only help explain the weak economic growth that afflicted Portugal, but also the GDP growth differences between several countries in the Eurozone before the crises.



As explained in the previous post, between 2003 and 2008, working-age population growth in Portugal was negligible and as such the “workforce effect” - contribution of labor force growth to GDP growth - was non-existent, as can be seen in the chart above.  Starting in 2008, working-age population growth became negative and thus the “workforce effect” began to act as a drag on the economy. To maintain a strong rate of  economic growth Portugal needed to gradually increase its productivity growth, and/or alternatively increase its labor participation rates - to compensate for the declining workforce - but given that this is not easily attainable trend growth will surely steadily fall. Therefore, when the labor force starts to stagnate or decline it is likely that economic growth begins to stall. This phenomenon may well explain the relatively weak economic growth seen in a number of  European countries over the last decade. In particular, it explains why Portugal and Spain had very different economic performances before the 2007-08 financial crises and how the two began to converge subsequently. 

Population change is comprised of natural growth, the difference between births and deaths, and net migration, the difference between immigration and emigration. Natural growth, both for Portugal and Spain, had been barely edging positive at the turn of the century since in both countries the total fertility rate fell below replacement level in the early 80’s. In Portugal, natural growth turned negative in 2007, the year that for the first time there were more deaths than births. On the contrary, Spain experienced a slight recover of its natural growth in recent years, as a result of an increase in its total fertility rate, as can be seen in the chart below, although this is due almost exclusively to foreigners, who have a higher fertility rate than the native-born.


As a result, both in Portugal and Spain, population growth in the last decades depended almost exclusively on having a positive net migration, and this resulted in a large influx of immigrants. But while in Portugal this growth started to slow down beginning in 2002, in Spain immigration exploded until the boom burst in  2007, as can be seen in the chart below. "No modern country on Earth experienced such a massive increase in its immigrant population as Spain. In 1990, one in 50 people in Spain was an immigrant. Today, it's one in seven."



Portugal not only received fewer emigrants from 2000 onwards, but also witnessed a massive exodus of its nationals.  As Edward Hugh pointed out, the entry in the European Union was accompanied by steady emigration flows, which clearly sets Portugal apart from the other countries, Spain in particular (see map on page 11), and resembles more the path that would be later trodden by Eastern Europeans countries when of their accession to the European Union.  Consequently, and according to the Instituto Nacional de Estatística (Statistics Portugal), during the inter-census period, the resident population of Portugal increased by only 1.9% while in Spain, the increase was 12.9%. (Chart below)


With the accession to the European Monetary System and later the Euro, interest rates declined significantly for both Portugal and Spain and as a result the two increased their debt levels. According to the McKinsey report, Debt and deleveraging (see page 14), in the second quarter of 2011 Portugal and Spain had total debt of 356 and 363 (as % of GDP), respectively. The consequence of cheap and easy credit was to create a housing bubble, both in Portugal and in Spain, but while the Portuguese began to deflate in 2002, the Spanish continued to inflate until 2008. This outcome was the result of the substantial increase in Spain’s population as a result of immigration, many of them Portuguese, while the increase in immigration in Portugal was just enough to replace the ones who were leaving. This population growth allowed the housing bubble to continue for much longer in Spain, while in Portugal there were no longer enough people to buy the excess homes being built, and so prices didn't skyrocket; but the housing units were built regardless. As such, rather than a classical bubble with inflated house prices, in Portugal, it was more a case of oversupply, given that 800,000 homes were built in the last decade while the population only grew by 200,000. On the contrary, in Spain, in addition to the excess construction, prices went through the roof, with migration pressures making a substantial contribution to both. It is estimated that the immigration inflow increased house prices by about 52% and was responsible for 37% of the total construction of new housing units between 1998 and 2008. Between 2002 and the 2007-08 financial crises the growth of the Portuguese economy started to fall more in line with the growth of economies where the labor force was stagnant or declining, namely Italy and Germany, as can be seen in the chart below.



The chart above is easier to understand if we group countries into two groups: countries with weak economic growth – Portugal, Germany and Italy-, and countries with more healthy growth - Spain, Ireland and Greece.  With the exception of Greece, countries with sound economic growth before the recession were also the countries with higher labor force growth in the same period, as shown in the graph below.  By contrast, in countries where economic growth was weaker, the labor force growth was also more moderate or even negative, as in Germany. (Chart below)



However, the dynamics changed completely with the onset of the 2007-08 recession. In Spain, where working-age population growth depended exclusively on immigration, the rates of labor growth collapsed, only matched by the plunge of its GDP growth, and its workforce has actually started to shrink. In Ireland, despite a more abrupt fall, growth nonetheless remained positive, this was due to the fact that its population growth did not depend only on net migration but had an important natural component as well.  In fact, Ireland has the highest fertility rate amongst European countries and therefore, unless emigration returns to numbers only seen in previous centuries, growth of its working-age population should stabilize in positive territory, although at a level well below the pre-crisis one.

In Portugal and Greece, even before the 2007-08 recession, labor force growth already showed clear signs of a slowdown, as growth came to a standstill in 2005, and despite a slight recovery after, more pronounced in Greece than Portugal, working-age population went into decline with the onset of the recession.  Italy, which had reversed the decline of its working-age population initiated in the 90’s, appears to have once again slid back into negative territory. On the other hand, in Germany, the workforce began to grow for the first time since 1998 due to an increase in immigration, many of them Portuguese, Spanish, Italian and Greek.

As explained by Daniel Gros, when comparing economic growth performance between countries with very different rates of population growth, the best indicator is undoubtedly GDP per Working Age Person (GDP/WAP).



Hence, if we compare the per working-age person GDP growth between the various countries in the last decade, as such taking working-age population growth out of the equation, it can be said that growth in Spain and Ireland was not so spectacular as it looked on paper, nor was growth in Portugal, Germany and Italy so dire when taken in comparison. In fact, only Greece seems to have had a spectacular growth, which would be in line with its productivity growth before the recession, but Greece’s population statistics might be underestimated, as Greece has not only a large population of illegal immigrants but some weakness in data collection that have also been highlighted. Anyway, a part of Greek growth was probably due to other - unrepeatable - factors, like the Olympic Games. It also should be highlighted the economic growth which was achieved in Germany despite the decline of its workforce, proving that growth is possible with a declining population.



Despite some regional variation as a result of internal migration, the reality is that working-age population in the Eurozone as a whole has now initiated a long downward trend that will have major repercussions in terms of its economic growth, as explained in the previous post, and therefore, we can also conclude that Europe is starting to suffer from a "shortage of Japanese" as shown in the graph below.


As such we cannot fully comprehend the situation that Portugal, Spain and Greece face at the moment without looking into their adverse demographics.  This already exerted an disproportional role in the last decade, namely in Spain,  whose migration-induced working-age population growth  goes a long way explaining its outstanding economic growth, while for Portugal the contrary it’s true, as the lack of population growth made its economy  lose steam  as it joined the Euro. More worryingly tough, is that working-age population in Europe as a whole has started a long, perhaps irreversible, path of decline that will act as a drag on its economic growth, making the economic recovery for these countries even more difficult.

Wednesday, September 11, 2013

Is The Perfect Always And Everywhere The Enemy Of The Good?

Against a backdrop which offers an eerie parallel with events which took place somewhat to the North more than 30 years ago, Catalonia is now threatening to separate from Spain. In so doing the region seems to be putting at risk both the future of the host country and beyond that the outlook for the Euro currency and the process of European unification.

The parallel is of course with the drive for Baltic independence and its impact on Mikhail Gorbachev’s ill-fated attempt to peacefully reform the disintegrating Soviet Union. In the words of Aleksandr Yakovlev, one of his closest associates at the time, the ideas of those seeking independence were ''out of touch with reality'' and any expectation that the Baltic republics could regain the independent status they had before Soviet annexation in 1940 was ''simply unrealistic.'' As late as February 1991 Gorbachov himself was still describing the Lithuanian vote – described by the countries leaders as simply a non-binding opinion poll - as illegal, and this a matter of days before it was actually held.

Sound familiar? It should do, since these very same arguments are now being played out in another pole of Europe. Not only is the Spanish administration taking precisely the view that any vote in Catalonia on whether or not to separate from Spain would be illegal, the attitudes of those outside the country are largely being conditioned, not by the merits or otherwise of the Catalan case, but by the fear of what might happen to Spain if Catalonia left.

While Catalans busy themselves assuring each other that any new state would be economically viable, few on the outside doubt that this would be the case. To give but one example, former chief economist at the IMF Kenneth Rogoff recently commented that Catalonia taken on its own constitutes one of the richest regions in Europe. This is simply stating the obvious. What has external observers really worried is the subsequent viability of Spain, and with it the future of the Euro. If Spain is too big to be allowed to fail, then Catalonia is too small to have inalienable rights the argument seems to run.

It is for this reason, I feel, that the Catalan cause is attracting little sympathy beyond the confines of what is often called “The Principate”.

Many feel that Catalonia is being selfish – just as they felt in their day that the citizens of the Baltics were - in putting their own particularist interests (a better fiscal distribution, the right to a national football team) before those of the collective (economic recovery, closer political union in Europe, etc.). But this way of looking at things is essentially flawed, just as it was in Estonia, Latvia and Lithuania. The movement for Catalan independence is primarily, and at its core, a democratic one. So what should matter to the outside world is not whether the vote will be considered legal by the central government in Madrid, or whether the Catalans have a good case. If the Catalans vote peacefully and democratically, and by a significant majority, that they want to form a separate state, then it is clear that the region's days inside the frontiers of the Kingdom of Spain are numbered. Unless that is the Catalans be retained within those frontiers by the use of force, in which case some of the fundamental principles of the Treaty of Europe will be put in question. Hence the fundamental dilemma which the Catalan independence drive presents to the whole European Union.

Under these circumstances what outside observers should focus on is what the result of the vote, when it does finally take place, will be. After all what the Catalans are demanding at the moment is “the right to decide”, and at the end of the day it is they who will decide. My country, as the saying goes, right or wrong.

Nothing here is either unavoidable or inevitable. As in the case of Greek Euro exit, beyond the expedient there are no ex ante juridical limits to the bounds of the possible. What is important for everyone is that the eventual solution be an orderly one. In this context messages that the new country, should one be created, would need to apply for membership of the European Union constitute nothing more than mere hot air, just as the suggestions from the Spanish administration that any such application would be met with a veto on their part is no more than an empty threat. Such talk is not in the realm of the real, or the realistic. It is simply an attempt to alter the outcome of the vote, and a bad and ineffective one at that. Not for nothing does Catalonia’s President Mas describe the speechwriters of the Partido Popular as running a production line for manufacturing separatists.

If Spain’s sovereign debt is already on an unsustainable path, then how much less sustainable would it become if the country suddenly had its GDP reduced by 20%? Common sense dictates that negotiations would be held, negotiations in which Catalonia would be asked to accept a proportion of the legacy debt, just as common sense suggests that Catalonia’s financial system, which has assets of around 500 billion Euros (i.e. it is much larger than the Greek equivalent) would be allowed to remain in the Eurosystem. The alternatives – and their consequences well beyond the frontiers of Europe – are simply unthinkable. Naturally sometimes the unthinkable happens, especially when a majority of the key players assume it won’t. Catalonia has now decided to hold some sort of “consultation” or “opinion poll” during 2014. As in the Lithuanian case the outcome may not be binding, but few should draw comfort from that single fact and assume that the result will not be significant and even decisive for the short term future of Europe.

As I say, nothing here is inevitable, or foretold in advance. But avoiding predestination involves facing up to the facts, and not, as the IMF director general Christine Lagarde recently put it in the Greek context, engaging in wishful thinking. And the facts in this case are that dialogue between Catalonia and the rest of Spain has now broken down. Catalans feel themselves to be tired of not being listened to, while the rest of Spain feels itself tired of the Catalans and their constant demands for more autonomy. At one pole there is “Spain weariness” and at the other “Catalonia exhaustion”. Matters have now past the point where orderly solutions will be sought out and found internally.

Most external observers expected some sort of offer to be made by the central government after the last Catalan elections, but reading the result as a setback and defeat for President Mas the only “offer” which has been sent in the direction of Barcelona is one which involves “Hispanicising” children via the reform of the Catalan education system, a move which has effectively united the Catalans behind their new government. That is why a decisive intervention on the part of Europe’s political leaders is now crucial. Whether they like it or not they have no alternative but to become intermediaries in the search for viable solutions, if not neglect will only produce the result everyone seeks to avoid.

It is no accident that the Baltics saw their chance just in the moment of maximum Russian weakness, and that Catalans see their only realistic possibility of achieving their objective of having their own state just when Spain is effectively on the ropes, and possibly in terminal decline. Some, comforted perhaps by the writings of Francis Fukuyama, feel that what is happening to Spain is simply an unfortunate setback on the bumpy road to becoming a mature democracy, but darker readings are possible. The current economic crisis is not simply cyclical or conjunctural and there is a real possibility that the country’s problems are so complex that it will become impossible for Spain’s leaders to fix them without recourse to an Argentina style default. It is precisely the loss of confidence in the capacity of the Spanish political class to resolve the country’s dire economic situation, and the mounting frustration with their perpetual insistence that all will be well starting tomorrow that has the Catalans running for the exit door. If the building is about to burn down they don’t want to be trapped inside when it happens. As Janice Joplin once put it freedom is sometimes “just another word for having nothing left to lose”.

In the critical weeks and months that are to come, I think it important that all participants bear in mind that once the Baltic vote was taken, and once the demise of Gorbatchev became inevitable, attitudes towards the new countries rapidly changed. All three are now consolidated members of the European Union, and the past is simply that, what is over. Many Catalans tell me they are doing what they are doing, not for themselves but for their children and their grandchildren. Measured on such a timescale a few years of economic turbulence seem as nothing. In the interest of the common good solutions need to be found - solutions which are able to both satisfy the aspirations of the Catalans and guarantee stability in Europe. If this search is not initiated soon, then time will ineluctably run out and the likely will steadily become the inevitable, simple application of the rules of game theory tell us that. There isn’t a day to lose. You know it makes sense.

The above is a short chapter I wrote for the book "What's Up With Catalonia" published earlier this year by the Catalan Press.