Estonia Warms to EU And Its Farm Subsidies --- Payments Help Encourage FreeMarket Investments; Mr. Helenius Buys a Dairy
By John W. Miller Dow Jones Newswires
1,418 words
9 December 2004
The Wall Street Journal Europe
A10
English
(Copyright (c) 2004, Dow Jones & Company, Inc.)
JOHVI, Estonia -- The European Union was built for people like Riina Tamme and
Joakim Helenius.
Ms. Tamme, a sturdy 30-year-old with a rosy complexion, runs a dairy farm with
more than 2,000 cows on this bleak northern prairie 55 kilometers from the Russian
border. Her job pays 500 euros a month, twice what she made on the strawberry
farm where she worked until last year. ʺItʹs all thanks to the EU,ʺ she says.
Mr. Helenius, a 40-year-old Finnish investor, plowed 3 million euros into the dairy
farm. He is starting to see evidence of a lucrative return: 345,000 euros in EU
subsidies during the past year.
Much maligned in Western Europe, where older EU members like France and the
U.K. face resistance in getting a skeptical public to approve a new constitution,
Brussels is growing more popular in eastern and central Europe, where Estonia and
seven other countries joined the bloc earlier this year.
Like many of her countrymen, Ms. Tamme has more warmly embraced the EU only
recently. ʺI thought weʹd get inflation, higher taxes and strict quotas that wouldnʹt let
us sell anything,ʺ she says, voicing fears that most Estonians, especially farmers, say
they once had.
A year ago, polls showed that only half of Estonians approved of EU membership.
Now that figure is 72%.
A big reason for the changing attitudes is money pouring in as EU agricultural
subsidies and fresh capital from investors like Mr. Helenius. Estonia is slated to get
about 253 million euros in agricultural subsidies from 2004 through 2006, a lot for an
economy with a gross domestic product of 9.2 billion euros last year.
Meanwhile, Estoniaʹs government has slashed taxes -- reinvested corporate profits
arenʹt taxed -- to lure foreign investment. So far the pro-growth policies are working.
GDP growth is predicted at 5.6% for 2004, compared to about 2% in the euro zone.
Foreign investment is forecast to be 800 million euros this year, up from 200 million
euros for 1996. Many of the biggest investments have been in call centers -- attracted
by a surplus of relatively highly educated, lower-wage workers who speak English -and in farming. ʺAgricultural areas need jobs,ʺ Prime Minister Juhan Parts says.
Not everybody is sharing in the prosperity. Uneducated and older workers, who
have trouble adapting to the automated systems that investors demand, are
suffering. By European standards, Estonia is still poor. Ms. Tammeʹs salary of 500
euros a month -- close to Estoniaʹs average -- is one-fifth of the EU average.
Unemployment in the Russian ethnic minority -- which makes up a third of Estoniaʹs
1.4 million population -- is 15%, and many have to cross the border into Russia to
find work. Even those best positioned to benefit from the EU worry that rising wages
and regulation that their membership also brings will prompt investors to bypass
Estonia in favor of lower-cost countries farther east.
Still, in Tallinnʹs bars and cafes, many Estonians say they like the EU simply because
of what it hasnʹt done: Prices have been stable and taxes have stayed low. Inflation is
forecast at 3.3% in 2004, which puts Estonia on a track to adopt the euro in 2007.
Silver Petersen, 26, opened the Euro Bar&Cafe in October, hoping to cash in even
before the common currency replaces Estoniaʹs kroon.
But among those who feel the EUʹs influence most directly are investors like Mr.
Helenius and workers well equipped to work in their enterprises, like Ms. Tamme.
Estoniaʹs free-market message is music to Mr. Helenius, who chairs Trigon Capital,
the Balticsʹ biggest venture-capital fund, with some 300 million euros in assets. He
has a folder of plans for using Tallinn as a base to do business in Finland and
Sweden. For example, he wants to run a landscaping operation out of Estonia for the
Helsinki market, which is 85 kilometers from Tallinn. Finland is the source of 27% of
foreign investment into Estonia, second only to Swedenʹs 42.8%.
A former executive with U.S. investment firms Goldman Sachs Group Inc. and
Merrill Lynch & Co., Mr. Helenius has been based in Tallinn since 1997. He spent
long hours before Estoniaʹs EU entry studying what opportunities membership
would create. In the end, he says, he decided the biggest payoff was in dairy farming,
because land is cheap, farms arenʹt heavily regulated, as in France, exporting to
Finland is easy and there are plenty of subsidies available from Brussels. From 2004
through 2006, the EU is due to dole out nearly 9.8 billion euros in agricultural
subsidies to the 10 members that joined May 1, including Cyprus and Malta. The
older 15 members received a combined 43.2 billion euros last year.
After Estonia was freed from the Soviet Union in 1991, it returned land to families
who had been Estonian in 1940, before occupation by the Soviet Union.
ʺA lot of these people have sold because they donʹt know what to do with the land,ʺ
Mr. Helenius says.
In 2003, he bought the dairy farm, called Revino after an 18th century manor house,
from the owner who ran it as a Soviet collective. He wonʹt say how much he paid,
only that land in Estonia, at 600 euros a hectare, is one-tenth the price of property in
Finland. Determined to turn it into ʺa U.S.-style dairy farm,ʺ he invested in the latest
milking technology, which can predict which cows are likely to be more productive
each day by measuring their movements and temperature.
He spent 2 million euros on 2,000 cows to add to the 100 that were there before. His
plan is to export much of the farmʹs annual 5.2 million liters of milk to Finland,
where prices are the highest on the continent.
Mr. Helenius expects his revenue to grow to 2.5 million euros next year from 2
million euros this year. Brussels chipped in 200,000 euros in agricultural subsidies in
2004, plus a one-time 145,000 euro subsidy for his investment. ʺWeʹd be doing OK
without subsidies,ʺ Mr. Helenius says, breaking into grin. ʺWith subsidies, weʹll be
making good money.ʺ
After breaking even this year, Mr. Helenius expects 320,000 euros in profit next year.
In three years, he hopes to produce 10% of Estoniaʹs milk and get investors to help
him expand into Russia, Ukraine, Latvia and Lithuania.
That is good news for Ms. Tamme, the barn manager Mr. Helenius hired last year
because of her reputation as the best animal handler in the region. She grew up in
Valaste Kula, a tiny town near the Baltic Sea. Her parents worked on a Soviet
cooperative farm that produced cucumbers, tomatoes, cauliflowers and dairy
products. Her mother milked cows and her father worked with wood. She earned a
degree in dairy farming from Estonian Agricultural University in Tartu and worked
at several jobs, including a fish-processing plant, until Mr. Helenius called her last
summer.
On a recent morning at Revino, Ms. Tamme watches Einar Pauman, a worker for the
local processor, pump the morning milk into his 12,000-liter truck. The farm is
located near the highway between Tallinn and Narva. EU money has rebuilt most of
the road, though one bumpy section remains that was laid by German World War II
prisoners. The road crosses stark landscapes of empty fields, metal factories and
villages of Stalin-era cottages. Because of its poor soil, Estoniaʹs northern plains are
best suited to industry or animal farming.
Coming in from the minus-10-degrees Celsius cold, Ms. Tamme checks daily output
on her office computer.
ʺEverything is mechanical now,ʺ she says, explaining how she manages her extensive
herd with only 13 people. ʺWe donʹt want too many people working here; we want
low costs and efficiency.ʺ With opportunity, she adds, has come a realization ʺthat
only the strong will survive.ʺ
Ms. Tamme is determined to be one of the strong. In five years, she reckons she
might be working somewhere else. ʺIʹm gaining a lot of experience and I think I
could be valuable,ʺ she says.
Shaken By Controversy, Eurostat Wonʹt Stir Much
By John W. Miller
Of DOW JONES NEWSWIRES
1,007 words
2 November 2004
23:00
Dow Jones International News
English
(c) 2004 Dow Jones & Company, Inc.
LUXEMBOURG (Dow Jones)--The home of the European Unionʹs statistics office seems
fitting for an agency accustomed to living in obscurity.
Far from the E.U.ʹs glitzy glass-and-steel buildings in Brussels, Eurostatʹs headquarters are
tucked in a nondescript gray building behind a shopping mall in Luxembourg. Hallways
are empty, walls bare of artwork. Belgian Michel Vanden Abeele, who heads a staff of 650,
is a self-described ʺeurocratʺ who refuses to answer questions about anything he calls
politics.
But next year, Eurostat could get a higher profile - and greater clout, or as Vanden Abeele
says, ʺwhat we call in Flemish ʹa stick behind the door.ʹʺ
Burned by disclosure last month that Greece fiddled with its budget numbers for years to
qualify for adopting the euro in the late 1990s, the European Commission member
overseeing Eurostat suggested the agency be given the power to audit data submitted by
member governments. E.U. finance ministers asked the commission by study the
suggestion by monetary affairs commissioner Joaquin Almunia, who is expected to stay in
his job regardless of the outcome of a current fight over a new slate of commissioners. A
report is due by next June.
So far, some national governments have resisted the idea, instead saying their own
national statistics offices should be given more independence. ʺWe employ 6,500
statisticians in France,ʺ Franceʹs Nicolas Sarkozy said at a recent meeting of E.U. finance
ministers. ʺCan you imagine doing the same job out of Luxembourg for all 25 E.U.
countries?ʺ
Analysts and diplomats expect a compromise solution, perhaps also involving a broader
role for the E.U.ʹs Court of Auditors, which reviews the unionʹs internal budget.
Whatever the outcome, the controversy over Greeceʹs budget numbers plus a scandal of
Eurostatʹs own making last year have cast a rare spotlight on the agency.
Founded in 1953 as the small statistics bureau of a fledging postwar alliance, Eurostat has
grown into one of the unionʹs most prolific agencies, delivering data on inflation, gross
domestic product and national deficits to the commission and European Central Bank.
Last July, former Eurostat director-general Yves Franchet and another top official were
moved to other E.U. jobs after investigators alleged that EUR900,000 had been wired from
Eurostat to Luxembourg-based bank accounts. Franchet, who has since retired, said the
accounts were set up to more easily manage payments from private companies buying
Eurostat statistical reports. No criminal charges have been filed.
Appointed by the commission to replace Franchet, Vanden Abeele, 62, is a pragmatic
Belgian economist with three decades of experience in European institutions. He has
earned plaudits for changes introduced. Eurostat used to charge Web site visitors for
information. Now itʹs free.
Eurostat used to publish euro-zone data on prices, GDP and employment 35 days after the
end of each month, forcing many economists to call national capitals to collect their own
figures. Now the agency publishes ʺflashʺ estimates for inflation and retail sales at the end
of each month.
ʺMarkets are now paying attention,ʺ says Gwyn Hacche, an economist at HSBC in
London. ʺTheyʹve quickened things up a bit.ʺ
But if a country sends in wrong numbers, thereʹs little Eurostat can do. It collects its data
from national statistics agencies. If Europe is to prosper with a single currency, argue
advocates of greater Eurostat power, it needs numbers markets can trust the kind of
reliability backed up by a statistics agency with the teeth to question suspect national
numbers.
Advocates cite Greeceʹs budget numbers as a case in point. In the late 1990s, Athens cut its
budget deficit by several percentage points in a successful last-ditch effort to adopt the
euro, meeting an E.U. test that countries using the common currency must keep deficits
below 3% of their GDP.
Since taking over in March, a new Greek government has disclosed that the country
underreported its budget deficit by billions of euros every year since 2000. In 2003, for
example, it was 4.6% of GDP, not 1.7%.
ʺThis is the sort of thing we expect out of Bolivia, not Brussels,ʺ says Peter Morici, an
economist at the University of Maryland who is an expert on the euro and supports
expanding Eurostatʹs power. After the revised Greek numbers were reported, European
Central Bank President Jean-Claude Trichet told a European Parliament committee that
unreliable statistics threatened the euro zoneʹs credibility.
When the stakes are high, thereʹs an incentive to ʺmanipulateʺ figures, says Vanden
Abeele. Now Eurostatʹs only recourse is a ʺgentlemenʹs agreementʺ to ask for clarification.
The country doesnʹt have to comply.
Eurostat spokesman Philippe Bautier says giving the agency the right to audit politically
sensitive data such as budget deficits, GDP and inflation wouldnʹt require a big upgrade
in EUR56 million annual budget and staff - ʺa few more statisticians and a few hundred
thousand euros to pay for their trips to capitals.ʺ
But German Finance Minister Hans Eichel says the Greek situation doesnʹt mean ʺthat
everybody has to suffer.ʺ Some new E.U. members, which could be delayed in adopting
euro if doubts linger about the reliability of their numbers, also oppose giving Eurostat
more power. ʺThe solution is stronger domestic accounting,ʺ says Slovenian finance
minister Dusan Mramor.
Even within Eurostat, some statisticians remain reluctant to challenge national politicians.
ʺWe have to be neutral toward our data,ʺ says Ingo Kuhnert, a 38-year-old German who
compiles national GDP numbers.
Bart Meganck, Eurostatʹs director of economic statistics and economic monetary
convergence who has visited Athens three times since March, says Greeceʹs original
numbers didnʹt amount to ʺcheating.ʺ Rather, he says, ʺthe parameters they have used
here are not the best ones.ʺ
-By John W. Miller, Dow Jones Newswires; 322-285-0131; [email protected]
Recovery At Risk, But German Shoppers Help
By John W. Miller
Of DOW JONES NEWSWIRES
590 words
1 September 2004
06:48
Dow Jones International News
English
(c) 2004 Dow Jones & Company, Inc.
LONDON (Dow Jones)--With global demand slowing, Europe badly needs its
consumers to start spending again.
They did last month in Germany, where retail sales doubled expectations, but it
wonʹt be enough to cement a full recovery for the euro-zone economy.
For the recovery to take root, Europeʹs companies need to invest. Thatʹs still not
happening.
The Purchasing Managersʹ Index for the euro-zone manufacturing sector, a factbased survey of 3,000 companies, backtracked more-than-expected in August to 53.9
from 54.7 in July. Dragged down by high oil prices and slow global demand, the
measureʹs significant indexes fell, including Employment, which dropped to 49.4
from 49.7 last month.
The overall picture ʺis weaker than expectedʺ and virtually guarantees that the
European Central Bank will not raise interest rates above the current 2% when it
meets Thursday, said Howard Archer, economist at Global Insight.
Economists still expect a better economy by next year, with growth over 2%, but that
rebound faces two external, and growing, threats: oil prices and anemic worldwide
demand, particularly in the U.S. and China.
The high petroleum prices have been driving up the cost of fuel and other raw
materials. According to the PMI, input prices, at 66.2, expanded for the 11th straight
month, but dropped from 70.2 in July, easing fears of inflation.
The E.U. Commission estimates that every sustained 10-dollar increase in the price of
crude will trim 0.5 percentage points off Europeʹs growth. Average oil prices,
currently trading around $42 a barrel, are forecast at $34.60 in 2004 and $31.80 in
2005.
High Input Prices, however, have a silver lining: they mean that demand from
European manufacturers is improving, and that suppliers will get more contracts.
Strong global demand also is critical to Europeʹs success. Its consumers here have
been saving, not spending, forcing European companies to rely on exports. With
world GDP growing at a brisk 4.5% this year, that hasnʹt been a problem.
But demand is expected to cool, and exports will be further hurt by the strong euro.
ʺIf, the current soft patch in global growth persists, then euro-zone growth is likely to
fall short of current expectations,ʺ said David Mackie, European economist for J.P.
Morgan.
Unless, of course, Europeans themselves start spending. That could be happening,
starting in Germany, where retail sales rose 1.5% in July. Although that remains a
historically average rate, economists say it could be a sign of a rebound, especially
because household incomes are also gradually improving.
Europeans would spend more money collectively if more of them had jobs.
Unemployment is around 9% in the euro-zone, well above the 5% in the U.S. And
companies showed Wednesday they are not yet ready to start hiring. The
Employment Index of the manufacturersʹ PMI fell to 49.4 from 49.7, dropping in
France and Italy.
It did rise, but only slightly, in Germany, not by coincidence the only country that
has recently enacted significant labor-market reforms. Berlin has taken people
unemployed for over 12 months off its welfare rolls, creating unrest but driving more
Germans to apply for jobs. Full German employment figures for July and August
will be released Thursday.
-By John W. Miller, Dow Jones Newswires, [email protected], 322-285-0131
In Era Of Loose Budget Rules, Greece Rides For Free
By John W. Miller
Of DOW JONES NEWSWIRES
1,007 words
15 September 2004
07:40
Dow Jones International News
English
(c) 2004 Dow Jones & Company, Inc.
BRUSSELS (Dow Jones)--If ever a country deserved punishment for breaking the budget
rules underpinning the euro, it would be Greece.
Athens announced earlier this week that its 2004 budget deficit would be 5.3% of gross
domestic product, the highest ever for a euro-zone country. National debt stands at
EUR184 billion, 112% of GDP or EUR50,000 for every citizen.
And yet, donʹt expect Brussels,which requires members of the euro zone to keep their
deficits below 3% and their debts below 60% of GDP, to order up a stiff fine.
ʺThereʹs no chance whatsoever of sanctions,ʺ says Katinka Barysch, chief economist of the
Centre for European Reform. ʺCan you imagine them waiving fines against France and
Germany, then going after a smaller country? That would be politically impossible.ʺ
Greeceʹs escape underscores some big holes in Europeʹs fiscal policies - namely their weak
enforcement mechanism and the risk that profligate countries benefit from low interest
rates and a strong currency thanks to the good behavior of others and the implicit
assumption that the European Central Bank will never let a member of the currency zone
go bust.
The so-called stability and growth pact was effective in forcing Greece and others to clean
up their public finances in order to adopt the euro. It still is effective in controlling the
behavior of would-be entrants.
Once a country is a member of the euroʹs currency club, however, the rules no longer
work. Instead of strengthening its budget supervision,the E.U. Commission announced
this month proposals for diluting it. Countries with low debts will receive more room for
pump-priming and exceptions to the 3% rules will be given during periods of slow
growth.
The Greek example shows how the budget rules originally worked. In 1990, Greece had an
inflation rate of 20%, a budget deficit of 16% of GDP and a peak interest rate of 32%.
Because it wanted the euro, successive governments cut spending, privatized some
industries and loosened labor markets. Greece was able to get its deficits under control. In
2001, the Greek deficit was only 0.8%.
Italy also had a habit of deficits over 10% until its desire to trade in the famously-cheap
lira for a stronger currency prompted its governments to control spending and raise taxes
to close the deficit.
When the E.U. executive in Brussels talked tough, countries listened.
In 2001, Portugal became the first country to break the rule, running a budget deficit of
4.1%. The E.U. Commission, backed by national governments, threatened sanctions. In
response, Prime Minister Jose Manuel Barroso, now president of the E.U. Commission, cut
spending drastically to get his countryʹs deficits down to 2.7% in 2002 and 2.8% in 2003.
ʺThey used to come down much harder,ʺ says Tony Joris, head of European Studies at the
University of Brussels.
What changed? The euroʹs big boys, France and Germany, first started overspending in
2002. Others followed suit: Six of the 12 euro countries now have deficits over 3%. When
Brussels tried to fine Paris and Berlin last year, governments blocked it.
The delinquency of the two heavyweights, says Daniel Gross, director of the Centre for
European Policy Studies, created ʺan excuse to soften the criteriaʺ.
Greece has taken advantage. It has been running an excessive deficit since 2003. Initially, it
hid the deteriorating public finances with shady accounting, uncovered by an E.U.
investigation earlier this year. The news of its deficits this month broke at exactly the right
time for Athens, just as the E.U. was diluting the power of its own enforcement.
Instead of condemning Greece, Brussels has accepted Athensʹ explanation that the
Olympics and a previous government are to blame. Prime minister Costas Caramanlis has
promised that his 2005 deficit, without the Olympics, will be only 2.8%.
Even if Caramanlis delivers, the continued deficit contradicts the E.U.ʹs new, watered
down budget rules. Under them, countries are given more leeway to run deficits greater
than 3% of GDP in difficult economic periods. They are expected to run surpluses in times
of strong economic growth. Greeceʹs growth rate this year is expected to be a robust 4.25%.
ʺGreeceʹs time of strong economic growth is right now,ʺ says Gwyn Hacche of HSBC.
Under the E.U.ʹs new rules, the threat of a stiff fine remains but a new emphasis is placed
on gentle peer pressure. The E.U. Commission and other finance ministers will evaluate
Greeceʹs promises at meetings in November. If they donʹt think the numbers add up,
Greece will have time to come up with another proposal. And so on. The earliest the E.U.
could impose fines on Greece? Not until 2007.
ʺThey shouldnʹt get off the hook so easily,ʺ says Thomas Mayer of Deutsche Bank in
London, an expert on the pact. ʺYou canʹt blame your deficit on a big party.ʺ
To be sure, the budget rules still matter. Big spenders are being encouraged to keep their
euro printing presses in check. France, Germany and Italy might run 4% deficits, but thatʹs
peanuts compared to the 10% deficits common to some countries in the 1980s.
The rules also provide a useful tool for Brussels to control access to the euro for new E.U.
members. If they donʹt comply, they donʹt get in.
Thatʹs not a threat the E.U. can levy at Greece. While Standards & Poor has threatened to
downgrade the country, Athens will continue to enjoy the low interest rates and a strong
currency than come with euro membership. In the new climate of E.U. budget policy, it
can get away with spending almost as much as it pleases.
-By John W. Miller, Dow Jones Newswires; 322-285-0131; [email protected]
Certification Laws Stifle EU Growth --- Dated Worker-Permit Rules Hurt Job Rates,
Hinder Euro-Zone Productivity
By John W. Miller Dow Jones Newswires
1,259 words
16 August 2004
The Wall Street Journal Europe
A1
English
(Copyright (c) 2004, Dow Jones & Company, Inc.)
BRUSSELS -- As politicians throughout the European Union struggle with overhauling the
continentʹs underperforming economy, they might find one answer over a drink at a bar
tended by 36-year-old Solange Gellai. For two decades, she worked as a waitress pouring
beers, counting change and kicking out drunks.
But before Ms. Gellai opened her own cafe last year, Belgian law required her to spend
five months taking classes and eight months filling out paperwork to get the necessary
permits to start a business.
ʺA lot of running around to learn stuff I already knew,ʺ she says, pouring a Jupiler at
LʹEden, a 50-seat watering hole in northeast Brussels.
Millions of Europeans, from bartenders to soccer stars, have to deal with what might be
called the certification complex -- a requirement that they be certified to pursue their jobs
in a time-consuming process dating back to 19th-century apprenticeships. Economists say
it is a key reason behind Europeʹs high unemployment and lagging productivity.
Unemployment in the 12 countries that use the euro is averaging about 9%, compared
with about 5% in the U.S. And it is much harder in Europe to get a new job after a worker
is laid off. In the EU, 43% of unemployed people have been out of work for more than a
year; in the U.S., the figure is 12%. And yet, unlike Europeʹs stiff taxes on labor and
generous pensions, the drag from insisting workers be certified gets scant attention from
politicians seeking to overhaul the Continentʹs underperforming economy.
In most cases, the politicians argue, the system makes sense because society needs fully
qualified surgeons and police officers. ʺTheir argument is that it weeds out the
incompetent,ʺ says Peter Morici, professor of economics at the University of Maryland.
ʺThe problem is that it kills entrepreneurship and discourages people from seeking new
jobs.ʺ
Some of the emphasis on certification is understandable since it is more expensive to hire
and fire in Europe than in the U.S., where companies typically donʹt have to offer as much
advance notice or as expensive severance packages. Requiring more degrees and
certificates gives European employers greater confidence that they arenʹt hiring the wrong
person.
Moreover, in an American culture that enshrines the rags-to-riches story, employers tend
to give people a chance based on what they can do, not on what their degree says.
ʺIn the U.S., skills matter more than formal qualifications,ʺ says Andries Schleiger,
employment specialist at the Organization for Economic Cooperation and Development in
Paris. ʺIn Europe, not having the right certificate can be a barrier to your career, and
employers donʹt give you the benefit of the doubt.ʺ An OECD study done in 2000 shows a
stronger link in the U.S. between salaries and skills than between salaries and education.
In Europe, they are the same.
This difference, economists add, helps explain the U.S. edge in employing technology.
American companies typically have trusted employees, regardless of their previous
training, to learn new technologies on the job; those in Europe have tended to want only
licensed computer scientists to operate the new gizmos. So U.S. companies have been able
to outpace their European counterparts in productivity, says Gwyn Hacche, economist at
HSBC in London. ʺYou need a flexible labor force to take full advantage of changes in
technology.ʺ
Europeʹs mindset stems from its deep history of strong guilds and unions. In the 19th
century, when a population with scant general education worked in an economy requiring
narrow specialization, the apprenticeship system worked best. Workers spent a decade
learning woodwork, got a certificate attesting to their skill, then practiced it until they
died.
Germany still requires 41 professions, from well diggers to chimney sweeps, to pass
exams to get a ʺMeisterbrief,ʺ or master certificate, before they start a business. Its origins
go back to late-19th-century regulations under which only Meisterbrief holders could
teach apprentices. When the Nazis came to power in the 1930s, they extended that rule to
the self-employed.
The culture has spread to other areas of German life. Take soccer. With 57 goals and a
World Cup win, Jurgen Klinsmann knows the sport, but the former captain of the German
team had to pass a certification test before he became the national squadʹs coach.
ʺIt doesnʹt matter who you are,ʺ says Rainer Thoma, head of qualification at the Hessen
Football Association in Frankfurt. ʺYou need to study and learn the theory and the
practice.ʺ
In postwar Europe, unions lobbied hard to strengthen these rules. In Italy, the law
requires journalists to pass a six-hour test -- on a typewriter. An exam is required to guide
tours in Rome. ʺIʹve been arrested once at Trevi Fountain and twice at St. Peters for
guiding tours without having a license,ʺ says an American who doesnʹt want to be named.
Economists say such rules often no longer make sense when the pool of potentially
qualified workers for many jobs has expanded dramatically -- such as in Rome, now
overflowing with both information-hungry tourists and erudite, unemployed Italians.
Apprenticeship ʺworked fine when only 5% of the population is educated, but not in a
society where 75% of the population is educated,ʺ says the University of Marylandʹs Mr.
Morici.
But attitudes change slowly.
In France, where attending an elite Grande Ecole is a virtual prerequisite for career success
in politics or business, rules have molded peopleʹs mindsets, and vocabulary. Often a job
candidateʹs educational background is favored over his or her experience, and many in
France still believe people are meant to have one job in their lives, the one they hold a
degree for. In small French towns, it is common to hear passersby addressed as ʺMr.
Doctorʺ or ʺMr. Lawyer.ʺ
Across the Continent, businesses are calling for change. ʺWe should be able to employ
people with the right skills and the wrong papers,ʺ says Mark Andries, a labor consultant
for the Flemish Employers Association in Belgium. ʺEmployers should be allowed and
encouraged to give on-the-job training to people without degrees, but the unions donʹt
want that.ʺ
Governments have been slow to act. Germany last year did exempt 53 of 94 trades from
having to pass qualifying exams -- lower-risk jobs such as hairdressers and florists -- but
there are no plans to go further. German business, government and unions see the rules as
guarantees of the countryʹs traditional emphasis on quality.
Trade unions, which governments often consult before changing the law, like certification
requirements because they help the unions regulate the number of jobs in the professions
they represent. ʺWeʹre wary of scrapping requirements because it makes workers and
consumers vulnerable,ʺ says Daniel Richard, spokesman for the FGTB, Belgiumʹs socialist
workersʹ union.
Ms. Gellai, the Brussels cafe operator, says she understands the philosophy behind the
rules. And now that she has the required certificate, she says her business is thriving. But
she is still irked it took so long. ʺMy biggest surprise,ʺ she says, ʺwas that it took a few
days for the bank to approve a 40,000 euro loan and a year for the government to decide I
was qualified.ʺ
Ellen Thalman in Berlin, Adam Najberg in Frankfurt, Luca di Leo in Rome and Kenneth Maxwell in
Paris contributed to this article.
Europeʹs Retirement Dreams Could Be Economic Nightmare
By John W. Miller
Of DOW JONES NEWSWIRES
1,230 words
16 June 2004
00:45
Dow Jones International News
English
(c) 2004 Dow Jones & Company, Inc.
BRUSSELS (Dow Jones)--Joel Crevecoeur canʹt wait to turn 60. ʺThatʹs the day I stop
working,ʺ he declares, as he lines up a pool shot and nails the eight ball. ʺIʹll also get the
pension Iʹve been working for my whole life.ʺ
Like many Europeans, the 44-year-old financial analyst for Bank Degroof yearns for,
believes in and thinks he deserves a comfortable post-career life.
ʺAmericans can work until theyʹre 85,ʺ he says on a recent afternoon off at The New
London bar. ʺIn Europe, retirement is a sacred right.ʺ
This sacred right has become a public policy headache. With the population aging fast,
Europeʹs culture of retirement by 60 - and often even 55 - has become an economic
liability. Baby-boom retirement is bankrupting pension and health systems and curbing
European competitiveness. Governments and economists recognize and are trying to solve
the problem, but political obstacles and deep-seated cultural preferences stand in the way.
The numbers are stark. Only 40% of Europeans between ages 55 and 64 work, compared
with 66% in the U.S. Right now there are four workers for every retiree. By 2050, if current
trends continue, thereʹll be two. Belgium suffers from one of the worst employment
records in the E.U.: 27% of its 55- to 64-year-old work force is employed. Only the Slovak
Republic (21%), Hungary (22%) and Luxembourg (24%) score worse.
In order to maintain the current level of pensions, public expenditure will need to rise by
up to 10 percentage points of gross domestic product, according to Kieran McMorrow, a
European Union Commission economist and co-author of the book ʺThe Economic and
Financial Market Consequences of Global Ageing.ʺ
Because of the increased spending and the loss of so many potentially productive working
hours, McMorrow estimates that average E.U growth over the next few decades will be a
mere 1.25%. But if everybody in the E.U. worked until 65, growth would be a full
percentage point higher.
Pensions, Culture At Issue
What drives Europeans to retire early? The easy answer is that pension systems here are
too generous and rigid labor markets make finding a job hard. In Belgium, people who
retire at age 60 can collect up to 80% of their working income. Many Belgians eagerly
claim their pensions - with those who still want to work finding part-time jobs on the
black market - rather than keep working with A TOP income tax rate of 50%.
ʺItʹs more advantageous for older people to stop working than to continue,ʺ says Jeroen
Lanjerock, spokesman for the Belgian Federation of Employers.
Another important, less-discussed part of the problem, however, is cultural. Early
retirement has become to French, Germans and Italians what leaving home for college at
18 is to Americans: not mandated by law, but something youʹre just supposed to do when
you get to that age. In the U.S., economists say most 60-year-olds believe they should still
be working, while Europeans of the same age think they should be painting or gardening.
Business leaders in the U.K., the U.S. and Germany first dreamed up retirement in the late
1890s as a way of luring workers to their companies and weeding out the old and
inefficient. Before then, you worked until you died or amassed enough cash for comfort.
Except in Germany, where Chancellor Otto von Bismarck introduced ʺold-age insuranceʺ
in the 1880s, providing state payments to those 74 and over - well past the average life
expectancy at the time - who were unable to work.
Franklin Rooseveltʹs New Deal introduced public retirement benefits in the U.S. in the
1930s. In Europe, politicians wove the first social safety nets in the decade after World War
II.
In the 1970s, idealistic European politicians - arguing that they were freeing up jobs for
younger voters - invented schemes allowing workers to retire at 55, even 52. In the 1980s,
policy makers gave older workers more early retirement benefits and automatic
unemployment pay.
Consequently, Europeans over 55 took themselves out of the job market in large numbers.
The average retirement age in the E.U. fell to 59.8 in 2000 from 66.2 in 1950.
On paper, at least, the solution to the problem is simple, says Alberto Alesina, chair of the
economics department at Harvard: ʺRaise the retirement age and cut income taxes.ʺ
Politically, however, changes are difficult to impose. Belgiumʹs conservative-led
government has proposed raising the minimum retirement age to 65, but socialists and the
powerful trade unions have opposed the plan.
ʺWe donʹt think people should be forced to work until theyʹre 65,ʺ says Ginette Delplace,
regional secretary of Socialist union FGTB. ʺBy that age, youʹre worn out.ʺ
But some other countries are having moderate success changing this attitude. In March,
Germany raised the age limit for getting state pensions to 63 from 56.
ʺWeʹre still in a transition process,ʺ says Ewald Zimmerman, an economist with the
German parliamentʹs committee on pensions. Interviews with 50-year-old Germans
suggest many still expect to retire at around 60, and the employment rate for the 55-to-64
set is still only 38%.
The example of Finland shows how a combination of pension reform and a cultural
campaign can work best. Unlike Nordic neighbors Sweden, which has a 70% employment
rate for ages 55 to 64, and Norway, where 70% of people in that bracket remain at work,
Finland has long struggled getting its older people to work - only 45% of them stay in the
labor force.
But in 1998, Helsinki launched an ambitious program that mixed pension reform - people
who worked until 68 were given a pension bonus - with a campaign to convince older
workers that they belonged in the workforce ʺExperience,ʺ posters and billboards
proclaimed, ʺis a national asset.ʺ
The effect was to raise the retirement age to 59 from 57 over the past six years. The
program was so effective, say economists, because it attacked the problem culturally, not
just economically. ʺThe government convinced everybody that we had to change our
ways,ʺ says Stina Modeen, employment specialist at the Finnish delegation to the E.U.
ʺThe campaign goes against the previous assumption that people getting older are
useless,ʺ says Otto Bjorklund, 63-year-old vice president for trade policy for Nokia Corp.
(NOK). ʺEarly retirement used to be the dream people had, but now they realize that you
canʹt play golf every day.ʺ
In the end, Bjorklund insists, ʺretirement age is always a personal choice,ʺ different for
everybody.
Back in Brussels, Michelle Barroi, 63, left her anesthesiologist job last September. ʺBurned
out,ʺ she says. ʺI was ready to quit.ʺ She now takes art classes and dotes on grandchildren.
But her husband, Helmuth Loeb, 75, still manages a restaurant. He left his teaching post at
the Free University of Brussels 10 years ago but got bored.
ʺThe idea of quitting at age 55 is absurd,ʺ he says. ʺFor once, I agree with the politicians
trying to change the system.ʺ
-By John W. Miller, Dow Jones Newswires; +32-2-285-0131; [email protected]
Part of the series, not part of the entry as published in early 2005
EUʹs `Single Marketʹ Concept Is Challenged by Tax Battles --- Differences in
Philosophy About Level of Alcohol Levy Show What Lies Ahead
By John W. Miller Dow Jones Newswires
1,133 words
26 January 2005
The Wall Street Journal Europe
A2
English
(Copyright (c) 2005, Dow Jones & Company, Inc.)
TALLINN -- Markku Kaatrakoski calls his Estonian drinking trips ʺLittle Christmas.ʺ
For 50 euros, the Finnish oven-factory worker buys four cases -- each containing 24
half-liter bottles -- of Lapin Kulta, a beer from Finland-based brewer Oyj Hartwall APB
that is twice as expensive back home.
ʺI come here two or three times a year,ʺ he says, sampling his purchase at the
Sadamarket, a two-story bazaar by the Estonian capitalʹs port that is packed with
liquor stores.
Mr. Kaatrakoski isnʹt alone, which is a problem for European Union officials in
Brussels who are trying to build a single market of goods and services for the EUʹs 450
million consumers. The single-market concept crumbles -- and the field tips in favor of
certain countries and companies -- when people have to cross borders to get better
deals.
Although 25 countries might agree to cut off state subsidies for their favorite
companies and even adhere to a single agricultural policy, they are deadlocked over
retail taxes on specific products. Greece, for example, wants rates cut for motorcycle
helmets; the U.K. wants lower rates for church roofs.
Nothing creates as big a stir as alcohol. Levies on beer, wine and spirits vary widely
throughout the continent. In Eastern European tax havens and in wine-loving
countries like Italy and France, they are low. In northern regions like the U.K. and
Scandinavia, where alcohol abuse is a public-health problem, the higher taxes are
considered part of a cure.
The EUʹs new taxation commissioner, Laszlo Kovacs of Hungary, has vowed to use his
five-year term to negotiate a deal that would set minimum and maximum rates. He has
been making the rounds, trying to garner support. During the past two weeks, he has
met with finance ministers Par Nuder of Sweden and Per-Kristian Foss of Norway. Mr.
Kovacs wants them to cut their high alcohol taxes as part of an EU-wide deal.
A final agreement wonʹt be easy, because tax issues require unanimous consent from
all 25 members. Even Malta, with its 397,000 population, has veto power. ʺItʹs a mess,ʺ
said Maria Assimakopoulou, Mr. Kovacsʹs spokeswoman. ʺEverybody has their own
agenda.ʺ
Wherever a border exists, discrepancies over tax rates cause problems. EU law allows
travelers to go from country to country with as much alcohol as they want, as long as it
is for personal consumption. But tax gaps lead to smuggling and alcohol tourism,
officials say.
Both cost governments money. A U.K. study found that in 2000 and 2001 the
government lost 1 billion euros in tax revenue from alcohol bought by citizens across
the English Channel. In coastal towns like Calais in France, entire streets cater to
British tourists. Britainʹs focus is on beating back smugglers, says Jonathan Allen,
spokesman for the U.K. mission to the EU. ʺWe donʹt support the idea of compulsory
tax rates.ʺ
Sometimes, the alcohol-tax gap leads to curious changes in beer taste. France last year
slapped a levy on fruity alcoholic beverages in an effort to deter teenagersʹ from
drinking cheap ʺalcopops.ʺ Unintentionally, it hit fruity Belgian beers like cherryflavored Kriek and the lemon Boomerang. A bottle of Boomerang was about to rise to
1.70 euros from 93 European cents. InBev, which makes both beers, changed their
recipes. French Boomerang now has less alcohol than the Belgian version, and French
Kriek has less sugar.
Nowhere is the difference in alcohol cultures, taxes and habit between two
neighboring countries as striking as it is with Finland and Estonia, countries otherwise
closely intertwined.
Helsinki and Tallinn lie on the Baltic Sea, only 80 kilometers apart. Under Soviet
occupation, Estonians, whose language is related to Finnish, watched Finnish TV to
escape the monotony of official entertainment from Moscow. Last year, there were 6.1
million trips to Estonia, a country of only 1.4 million, from Finland.
The ground floor of the Sadamarket, where Mr. Kaatrakoski, the Finnish tourist, is
drinking, has an aisle of a dozen alcohol shops. It is the first place you see when
entering the building from the walkway leading to the docks. Sellers here are
predominantly Russian.
But there is one language everybody understands: Taxes here are one-fourth to onetwentieth the rate in Finland. Standard table beer, for example, is taxed at 18% in
Estonia and at 80% in Finland.
The tax rates reflect deep cultural differences. After gaining independence in 1991,
Estonia set low taxes across the board. Income tax is 26%, and there is no tax on
reinvested corporate profits.
There is another factor: Doing it helps to maintain Estoniaʹs annual economic growth
rate of 6%. During the first six months of 2004, tourism receipts rose 11% from 2003, to
407 million euros.
ʺEstoniaʹs playing the role usually played by small islands,ʺ says Daniel Gros, director
of the Center for European Policy Studies in Brussels. ʺIt likes tourism, and one of the
ways you attract tourists is to offer cheap alcohol.ʺ
Many Finns, on the other hand, want higher taxes to reduce alcohol abuse. Mr.
Kaatrakoskiʹs trip and millions more by other Finns pushed Finland recently to cut
alcohol taxes by a range of 32% to 44%, depending on the content, and sparked a price
war that helps consumers but threatens Finnish beer makers. Irmeli Virtaranta, who
oversees alcohol-tax policy for the Finnish Ministry of Finance, says her country lost
300 million euros in tax revenue in 2004 from the lower taxes and crossborder
shoppers.
Finland has vowed to use its turn at the head of the EUʹs rotating presidency during
the second half of 2006 to push for a deal on alcohol taxes.
As Finnish beer companies try to keep customers, they have ʺhad a price war in retail
stores,ʺ says Katri Tuulensuu, communications manager for the Federation of the
Brewing and Soft Drinks Industry there. The price war has shrunk margins even
though beer consumption increased slightly last year.
The situation has led Finnish beer companies to seek alternative solutions. One, Olvi
Oyj, the countryʹs No. 3 producer, even built a brewery in Tartu in western Estonia so
it could cut costs. It controls 40% of the Estonian market. ʺBut it would be cheaper if
we could sell everything in Finlandʺ rather than here, Olvi Sales Director Markus
Gotthardt says.
Mr. Kaatrakoski doesnʹt care. He will celebrate his ʺlittle Christmasesʺ wherever beer is
cheap. ʺNow that Estonia is part of the European Union, I think Iʹll come here more
often,ʺ he says.