Axe falls on EU budget; Britain 2013: Banana republic or first world country?; America's demographic cliff

1 Axe falls on EU budget (Khaleej Times) The axe finally fell on the multi-annual European Union budget. Leaders, in a grand compromise, agreed to reduce the continental budget by three per cent, which would see both commitments and payments go down by roughly 34 billion euros in the next seven years.

This is no small achievement as diverse opinions such as buoying spending to ensuring stringent cuts have been accommodated in a rare manner. Britain is too overwhelmed as it advocated drastic cuts in the EU budget enabling respective countries to keep a bigger pie for their developmental concerns. But on the other hand, France and Italy, who had sought to protect spending, are taken back at the Brussels compromise. So is the case with Germany, which had accepted the prescription as a way to go forward in adversity hoping that it will grant Europe the ability to look after its own affairs. 

But one thing is for sure: the deal proved that member states are more concerned about their domestic politics than worrying for regional integration — an aspect that doesn’t bode well for the very concept of single currency and a unified economic master plan. Nonetheless, the deal made a strong point that trans-European interest is secondary to none, and the leaders have a responsibility to be seen acting in unison.

2 Britain 2013: Banana republic or first world country? (Larry Elliott in The Guardian) It was just a normal week. A bank that is 80% state owned was fined a packet for rigging the financial markets. Supermarket shelves were stripped because the beef in lasagne was horsemeat. A report detailed appalling care and neglect at an NHS trust that resulted in the needless deaths of hundreds of patients.

While all this was going on, Mark Carney, governor of the Bank of England designate, arrived in town to be given the once over by the Treasury select committee. He could have been forgiven for asking whether this was a banana republic rather than a supposed first world country. At least Carney is in the reassuring position of suspecting that the only way is up. After two years of zero growth and half way through a lost decade of falling living standards, expectations are at rock bottom. Not since the late 1970s and early 1980s – a period of high inflation, industrial unrest and rising unemployment – has the national economic mood been so gloomy.

In the short term at least, the pessimism is overdone. There is no hard data as yet, but all the survey evidence suggests Britain will avoid a triple dip recession. Growth will return in the first three months of 2013 and continue for the rest of the year. Underlying activity was just about positive from April to December 2012 once all the special factors are accounted for, and the latest surveys for mortgage demand, manufacturing and services all point to a further modest improvement in early 2013.

3 America’s demographic cliff (Jonathan V Last in The Wall Street Journal) For more than three decades, Chinese women have been subjected to their country's brutal one-child policy. As a result, Chinese women have a fertility rate of 1.54. Here in America, white, college-educated women—a good proxy for the middle class—have a fertility rate of 1.6. America has its very own one-child policy. And we have chosen it for ourselves.

Forget the debt ceiling. Forget the fiscal cliff, the sequestration cliff and the entitlement cliff. Those are all just symptoms. What America really faces is a demographic cliff: The root cause of most of our problems is our declining fertility rate. The fertility rate is the number of children an average woman bears over the course of her life. The replacement rate is 2.1. If the average woman has more children than that, population grows. Fewer, and it contracts. Today, America's total fertility rate is 1.93, according to the latest figures from the Centers for Disease Control and Prevention; it hasn't been above the replacement rate in a sustained way since the early 1970s.

Low-fertility societies don't innovate because their incentives for consumption tilt overwhelmingly toward health care. They don't invest aggressively because, with the average age skewing higher, capital shifts to preserving and extending life and then begins drawing down. They cannot sustain social-security programs because they don't have enough workers to pay for the retirees. They cannot project power because they lack the money to pay for defense and the military-age manpower to serve in their armed forces.