News David McWilliams

Tuesday 23 September 2014

David McWilliams: What if our brilliant young never make journey home?

Published 10/07/2013 | 17:00

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Germany's Chancellor Angela Merkel
Germany's Chancellor Angela Merkel wants to avoid a daunting choice

IN these soaring Mediterranean temperatures, spare a thought for the peoples of southern Europe and consider the similarities between what is happening there and what is happening in Ireland.

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The Mediterranean economies are large, historical countries with profound civilisations and substantial populations, but they risk becoming denuded of young people because – as in Ireland – youth unemployment is corroding the very heart of the societies and the young are moving off.

Consider some statistics on unemployment and emigration for a minute and then let us pause and think about the consequences for all societies.

Specifically, let us think about how likely is it that the Irish experience of my generation will be repeated?

By that I mean, my generation – myself included – emigrated in enormous numbers in the late 1980s and the early 1990s.

However, we came back in our thousands in the late 1990s and the early 2000s because the growth rate, driven largely by the Irish economy "catching up" technologically with the rest of Europe, created opportunities.

These opportunities were then enhanced by the arrival home of people whose skills had been boosted by their experience abroad. Ireland experienced the virtuous cycle much spoken of, but rarely actually seen, whereby emigrants returned and greatly contributed to the society they had left years earlier.

The amount of our young people in Australia hit home while watching the thousands of Irish Lions fans in Sydney and Melbourne. Will these young Irish come home as my generation did?

And if they don't, what are the implications for us? A similar exodus has occurred in southern Europe; what happens if they don't come home either?

The statistics about the human impact of the recession are quite startling and made more so when we acknowledge that behind every statistic and number is a person, a family and any number of intertwined lives.

Right now, there are more Spanish people on the dole than there are citizens of Denmark. There are almost 15 million Europeans below the age of 30 not in work, education or training. Fifteen million is about the population of the highly populated Netherlands. In Italy alone, there are 2.2 million people under 30 doing nothing – that's one in four of all Italian young people.

Like Ireland, many thousands of young people all across the Mediterranean are not hanging around, they are moving. According to the BBC: "Greek emigration to Germany jumped by more than 40pc last year. A recent study by the University of Thessaloniki found that more than 120,000 professionals, including doctors, engineers and scientists, have left Greece since the start of the crisis in 2010."

Emigration from Italy rose by nearly a third last year to 79,000. Those aged 20 to 40 made up 44.8pc of the total, up from 28.3pc in 2011. In a new development, many of the Italians who are heading off are not from the traditional emigration hotspots of the south, but from the historically much richer north of Italy – the heartland of Italian industry, technology and design.

The situation in Spain is even more worrying. In February, a study showed that "70pc of Spaniards younger than 30 have considered moving abroad".

Across the Iberian border, more than 2pc of Portugal's population has emigrated in the past two years. Most were young, highly educated people heading to Switzerland, Brazil or the oil-rich former Portuguese colony of Angola. Here in Ireland, during the past four years, more than 300,000 people have emigrated: 40pc were aged between 15 and 24.

In Ireland, you regularly hear people saying something like, "If it was not for emigration, we'd be doubly screwed because the unemployment figures would be much higher". But this is only half the picture.

When people leave a country they take their skills and enthusiasm with them. They contribute positively to other countries and obviously they pay tax and create businesses in other countries too.

The countries that suffer from emigration end up older and less productive by definition. This can have a permanent impact on economic growth if the emigrants don't come home.

Public pension systems all across Europe are essentially pyramid schemes. By this I mean the income of those retiring at the top of the pyramid are dependent on the amount of young workers coming in at the bottom of the pyramid. The more workers coming in and paying tax, the more money there is for the older ones who are retiring.

In order to get money for pensions, when the demographic dynamic changes for the worse, taxes will have to go up. As the rates of taxation in the periphery go up to maintain the previous commitments to the older populations and without extra tax revenue of the younger workers, the societies are left in a bind.

This wouldn't be so bad if the government debt ratios of the countries on the periphery of Europe were small and manageable, but they are not. As we have seen over the past few years, peripheral Europe is flirting time and again with bond market and government debt crises, which have only been staved off by massive central bank intervention (implicit and actual) in the debt markets of all the afflicted countries.

As a result, the recent calm in these government debt markets has been rented not earned.

So governments can't borrow to keep the system ticking over and as tens and hundreds of thousands of young people leave the countries of the periphery, these governments will have to make a choice between either debt service or pension and welfare provision – or of course the more obvious route of changing their currencies.

If they want to stay in the euro, keep their pensions, not default nor restructure their debts, then someone else will have to pay and that someone else is going to have to be the countries of northern Europe who themselves are recipients of the migrants.

Is it any wonder Mrs Merkel wants to avoid such a daunting choice at all costs?

Irish Independent

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