 Greek government calls German proposal „a product of a sick imagination“ – Anti-German protest also in Italy
Eurointeligence Comment and AnalysisThe new Treaty provides little enhancement with respect to the Stability and Growth pact and includes measures that are either too vague or likely to be ineffective. It also fails to address the current crisis.
One metric of the eurozone crisis is the degree of obvious unrealism of proposals made at government level. The latest potty idea by Germany (and supported by the Netherlands) amounts to a de facto transfer of fiscal sovereignty as a precondition to a broader deal on Greece, Financial Times Deutschland reports. Germany proposed that an external supervisor – with fiscal veto power – should control the implementation of the reforms the troika asked to undertake in exchange fort he rescue credits.
The Greek reaction was one of outrage. Finance minister Evangelos Venizelos was quoted by Kathimerini: “Whoever puts before a people the dilemma of choosing between financial assistance and national dignity disregards basic historical lessons.” Education Minister Anna Diamantopoulou slammed the plan as “the product of a sick imagination.”
It is unlikely that there will already be an informal accord on a second rescue package for Greece at today’s summit meeting in Brussels, FTD predicts. Greece is currently unable to achieve debt sustainability and needs another €12bn to €15bn on top of the already agreed €130bn, the paper writes.
The Greek press also reacted with outrage, insults and World War II references to the German demand of an external controler over the implementation of reforms, according to Bild. The mass circulation daily quotes „To Vima“ which writes: „This a document of shame. Merkel asks for the unconditional surrender of the Greek finances.“ Greek TV commentators were talking about the German „Gauleiter“, the paper writes. But Bild points out that some commentators agreed with the demands from Berlin. A radio commentator explained that the Greek politicians have so far failed to explain why the country has been unable to achieve much progress in cutting down the size of the public sector.
Marshall Auerback on Anschluss Economics
Writing in Naked Capitalism, Marshall Auerback calls the German proposal a case of “Anschluss economics”. He goes on to explain: “Is this too harsh an assessment? Well, when their national interests are at stake, the Germans are perfectly prepared to shed the “good European” persona and play hardball. Think back to how the Bundesbank engineered the departure of Britain from the ERM back in the early 1990s, and you’ve got the template for today. By publicly suggesting that sterling was overvalued and refusing to offer support to the British pound (in contrast to its subsequent defence of the French franc), then BUBA President Helmut Schlesinger virtually assured the UK’s ejection from the Exchange Rate Mechanism. Let’s face it: history shows that Germany doesn’t do “subtle” very well. This looks like a blitzkrieg, plain and simple. Spain, Ireland, Portugal and Italy – you have been warned.”
Anger in Italy over Germany is on the rise
Frankfurter Allgemeine Zeitung’s Rome correspondend reports that prior to the summit anger in Italy over the German crisis management is rising. According to the paper the majority of Italian deputies wants Mario Monti to achieve at today’s summit that the volume of the rescue fundes – currently €500bn – must be doubled. At the same time they asked him to work for an „integration of national debt and the issue of European debt titles“ (eurobonds). At the same time the Italian parliamentarians want Monti to avoid at all costs that the ECJ can rule that noncompliance with debt rules constituted a treaty infringement and will be followed up by sanctions. Also they are strictly opposed to binding rules on debt reduction. The paper quotes an editorial by Romano Prodi that ran under the title: „The German egotism makes the crisis longer“. According to FAZ, Allesandro Salusti, editor of the pro Berlusconi Il Giornale newspaper, reminded his readers of the historic German guilt on Auschwitz and wrote: „Those Germans are still arrogant and dangerous. There is no longer any thunder of their canons, but the weapon of the currency is just as dangerous.“
Papademos claims consensus behind reforms but resistance remains
Lucas Papademos said Sunday that he obtained backing for reforms from the leaders of the three parties in his coalition government ahead of Monday’s European Union summit, but Kathimerini reports that all three urged the premier to reject the proposal for cuts to the minimum wage and private sector salaries. Samaras reportedly produced a chart showing that such a move would deepen Greece’s recession by 3.5% of GDP. A comment by Dimitris Kontogiannis further argues that if the government was to adopt policy measures that cut the budget deficit but also reduced private savings, the net result on the Greek current account deficit may be small.
Fitch cuts credit rating of five countries
Fitch on Friday downgraded five eurozone countries – Italy (to A-), Spain (A), Belgium (AA), Slovenia (A), and Cyprus (BBB-). Fitch said the downgrades took account of the deterioration in the economic outlook, but also the most recent policy measures. Fitch said the eurozone crisis will only be resolved in a broad economic recovery. It would also require further substantial reforms of governance, including greater fiscal integration. The agency said the „gradualist approach adopted by politicians to systemic reform will continue to be punctuated by episodes of severe financial volatility, entailing a significant economic and financial cost that erodes sovereign creditworthiness.“
IMF says eurozone must boost firewall as a precondition to IMF aid
Christine Lagarde said the eurozone needs to bolster its firewall, saying “if it is big enough it will not get used“, according to Reuters. She linked further IMF assistence to a decision by the eurozone to act first. “It is critical that the euro zone members develop a clear, simple firewall that can operate both to limit the contagion and to provide this sort of act of trust in the euro zone, so that the financing needs of that zone can actually be met,” she said. (It is interesting that she used the words „clear, simple“, which would rule out the facetious scheme to let EFSF and ESM run side-by-side – which looks like an increase in the firepower, but is not.)
Troika asks Greek tax collectors to rotate in order to fight corruption
In a ten-page strategy paper seen by Süddeutsche Zeitung, the Troika asks the Greek government to implement reforms in order to fight the extend of corruption among the country’s tax collectors. All heads of administration that do not reach the consolidation aims should be systematically replaced. The heads of the tax collection system should rotate every one or two years in order to avoid entrenchment of corrupt behavior. Whistle blowers must enjoy better protection especially if they reveal corruption within the administration. The troika also sets March next year as the ultimatum by which the Greek authorities must have treated all outstanding tax proceedings against individuals who so far refuse to pay their taxes.
Merkel under pressure in her coalition over watered down fiscal pact
Angela Merkel is under huge pressure from deputies of her own coalition of what they perceive as a massively watered down fiscal pact, Frankfurter Allgemeine Zeitung writes. In an interview Norbert Lammert, the Bundestag’s president, complained over the weekend that in the recent version of the pact the Commission did not have the right to take other member states to court if they did not implement the debt break into national law. Michael Meister, the deputy leader of Merkel’s CDU parliamentary group said, many parliamentarians agreed with Lammert. The implicit message of those remarks are that there may be difficulties in ratifying the pact in Bundestag if coalition parliamentarians do not perceive it as sufficiently tough.
Sarkozy wants to increase VAT by 1.6%
In a 71-minute interview broadcast live by all major French TV channels, Nicolas Sarkozy last night announced that he will increase VAT by 1.6% to 21.2%, Les Echos reports. Under the plan, the government would use revenue raised to finance a cut in payroll charges paid by employers to boost competitiveness, the president explained. By doing so Sarkozy is following the example of Gerhard Schröder who had successfully boosted German competitiveness in 2004 by raising VAT from 16% to 19% while at the same time lowering payroll charges.
Sarkozy also announced that France’s plan to unilaterally impose a 0.1 percent tax on financial transactions starting in August.
The French president further said that he would „soon“ announce whether he intends to run for a second term in April and May (nobody doubts he will). All polls over the past months have shown consistently that Sarkozy trails his Socialist challenger Francois Hollande by a considerable margin.
Sarkozy erects Germany as his model and gets electoral campaign support from Angela Merkel
In a first reaction to Sarkozy’s TV appearance, Le Monde’s editorialist Francois Fressot remarked in an online chat the president had heavily referred t the successful example of Germany and that he intends to follow the footsteps of Angela Merkel. Meanwhile, CDU general secretary Hermann Gröhe announced that Angela Merkel will be actively engaged in the presidential election campaign and support Sarkozy, Spiegel Online reports. Gröhe also attacked Francois Hollande by saying that he would „hinder further European integration“.
French government will cut growth estimates 2012 below 1%
The French government is set to revise down its estimate for 2012 economic growth in an upcoming revision to its budget bill, a government source said on Sunday according to Reuters. The source told reporters following a televised interview with President Nicolas Sarkozy that the government envisages cuts to spending, rather than further tax rises, to make up for the likely shortfall. Sarkozy’s conservative government has been banking on gross domestic products growth of 1.0% this year. Slower growth could threaten the French commitment to cut ist deficit to 3.0% by 2013.
Munchau on the absurdity of the fiscal pact
In his FT column, Wolfgang Munchau writes about the circular logical behind the fiscal pact, which he says is technically unnecessary, and economically procyclical. He cites the example of Spain, which is now encouraged to conduct policies that will land the country in a prolong slump, as it tries to hit increasingly unrealistic deficit targets in a slump. Munchau concludes that the pact that sets out to reduce debt will end leading to a debt explosion, as country after country will fall into a debt trap.
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