 High noon, postponed
Eurointeligence Comment and Analysis The lack of ressources aggravates the marginalisation of the youth, creating the preconditions for a social earthquake.
In Greece, final talks to finalize the terms of a new bailout were postponed until today, as government officials spent Monday scrambling to find some extra savings and the party leaders finalise their positions. Sources told Kathimerini that there appears to be an agreement on how the roughly €2.5bn will be saved. Here are some details:
· The largest chunk, about €1.1bn, will be from cuts in spending on health and medicines. · The public investment program will be limited by €300m and defence spending will be cut by the same amount. · The remaining €850m in cuts are due to be agreed on Tuesday. The list will then be put before the party leaders for their approval. · Minimum wage: A cut of 20%-22% to the €751 per month (gross) that about 300,000 Greeks receive has been proposed. The three leaders seemed to accept this on Sunday in return for the idea of scrapping the 13th and 14th monthly salaries being dropped. Cuts to the minimum wage will have a knock-on effect because they will lead to a €1.3bn drop in tax revenues and a €2.4bn reduction in social security contributions. The government will have to make up for these losses. · Coalition party leaders were also asked to agree to scrap the law that allows terms of collective contracts to apply even after they have expired. This means that employers would be free to negotiate individual deals with their employees. Given that the minimum wage will be the basis for these new deals, hefty salary cuts are expected. This will also have a negative impact on revenues and social security contributions. Meanwhile, Administrative Reform Minister Dimitris Reppas said that 15,000 jobs will be cut from the civil service by the end of this year — the first step toward the elimination of 150,000 public sector jobs the government has pledged to the troika. Sources said the sackings are likely in the next two months.
Germany and France have found another way to take away Greek sovereignty
France and Germany have come up with another torture instruments for the Greeks
This is fundamentally a story about mistrust. Angela Merkel and Nicolas Sarkozy are worried that a new Greek government might squander the funds of a second rescue programme. For that reason, they are now proposing to create a special escrow fund, earmarked to pay off Greek debt holders. This would enable them to withhold funds from Greece, without triggering an automatic default, the FT reports. It is hard to see why Greece should accept this. The article said the plan had the backing of the European Commission. Germany came up with this idea after the angry rejection of its proposal of a fiscal Kommissar. The article quotes a senior French official as saying: “This is a better idea than the proposal of a debt commissar…It is more acceptable.”
Paul Krugman on the infeasibility of the Greek austerity strategy
Writing in his blog, Paul Krugman has a simple but powerful analysis of the impact of the austerity programme on government spening. On his project Greek public spending will have to fall to a level of 65%. He says the problem is that Greece has to bring on more and more austerity to pay the interest rates on the bonds, but without the prospect of ever getting out of this vicious spiral. This is not going to work.
Merkel and Sarkozy insist on the neccessity to respect European treaties
In their joint TV interview after yesterday’s Franco-German summit in Paris Nicolas Sarkozy and Angela Merkel last night put pressure on Francois Hollande not to put into question the fiscal pact by insisting on the respect for European treaties, Lemonde.fr reports. „When I was elected chancellor I did not wish to start accession negotiations with Turkey but my predecessor (Gerhard Schröder) had made that promise so naturally I had to repect that“, the chancellor said. „Europe is all about confidence.“ The president went along the same line. „Mr. Chirac aussumed the promises made by Mr. Mitterrand, I assumed the promises made by Mr. Chirac. You can also call that the behavior of a statesman“, Sarkozy said.
Arnaud Leparmentier explains the hidden agendas of Sarkozy and Merkel In a front page analysis Le Monde’s presidential correspondent Arnaud Leparmentier explains the motivations of Nicolas Sarkozy and Angela Merkel to campaign jointly for the former’s reelection. „Once again France is on the defensive“, Leparmentier writes. „That has become evident since the rating agency Standard & Poor’s has taken away her triple A. The European leaders all go to Berlin while Mr. Sarkozy is busy with his reelection. Paradoxically Mr. Sarkozy and Mrs. Merkel are both interested to show that the couple functions as it did before. Thus the president wants to make people believe that he is leading Europe while the chancellor wants to pretend the opposite.“
Bild explains „why Sarkozy admires the German chancellor so much“
In its inimitable way, Bild explains to its 10m daily readers „why (Nicolas) Sarkozy admires the German chancellor so much“. During the TV interview the president last night said: „I admire this woman that has lead 80m Germans so well through the crisis“. The reasons Bild gives are that according to polls the French trust Merkel more than Sarkozy. Also the president wants to imitate the Germany in economic terms. In a recent TV interview he referred 15 times to the „German model“. The president wants to copy the personal success of Merkel who is the only politician who has gained popularity during the crisis. Also Sarkozy wants to get some of the limelight the chancellor is getting in America and Asia where she is now considered to be the „boss of Europe“.
SPD wants to campaign in favour of Hollande In an interview with the Düsseldorf regional daily Rheinische Post Hannelore Kraft, prime minister of Northrhine-Westfalia and deputy chairwoman of the social democrats, announced that the SPD will campaign for Nicolas Sarkozy’s Socialist challenger Francois Hollande.
(We think the link-up of political parties is a positive development, and a necessary ingredient for the development of the eurozone into a fledgling political union.)
France’s external deficit reaches record level in 2011 France‘s external deficit reaches the record level of €69.7bn (3.6%) in 2011, Le Figaro reports. The figure highlights the extent to which the country has lost out in terms of competetiveness in recent years. In an interview with the paper, external trade state secretary Pierre Lellouche tries to see the positive side of this negative development. „With a the commercial deficit of €69.7bn in 2011, after €51.4bn in 2010 the figure is not as bad as anticipated“, he says but he concedes: „Despite a tendency towards the better in the past three quarters we cannot but regret a situation when we compare ourselves to Germany where the external surplus should reach €157bn in 2011.“
SPD targets banking sector as the adversary in the 2013 elections According to Handelsblatt, SPD chairman Sigmar Gabriel is preparing the Bundestag elections in September 2013 with the banking sector as the main opponent. The SPD has realized that attacking Angela Merkel is hopeless because the chancellor has even increased its popularity during the crisis with 9 out of 10 Germans saying that she does a good job in representing Germany’s interests in the world. The idea is to build on the SPD’s „locust“ campaign of 2005 where the party erected hedge funds as the main adversary and Gerhard Schröder had a spectacular comeback and only lost to Merkel by a very narrow margin. The SPD has already launched a website where it attacks the financial sector, hired an advertisement company and set into place an expert group in order to elaborate the details of the campaign.
Jean Pisani-Ferry on the fiscal pact Writing in the FT, Jean Pisani-Ferry says the fiscal pact rests on the hope that austerity brings about a broader economic transformation in the eurozone periphery, but this strategy requires three necessary ingredients. The first is ECB support beyond the liquidity measures already announced. In particular, he says policy needs to ensure that inflation in the next few years is going to be 2% on average, which means more than 2% in the core. Second, fiscal targets must be defined by effort, not outcome. Government should not heap one austerity programme over another just to meet previously agreed numerical targets; third, the Commission should focus on the quality of the adjustment.
(We suspect that condition 1 will be met, but current policy is not consistent with 2 and 3. We are also somewhat less optimistic about the impact of structural reform – while necessary for other reasons – on crisis resolution.)
Joseph Stiglitz delivers a stinging attack against the ECB Writing in El Pais, Joseph Stiglitz argues that the ECB’s insistence on a voluntary restruturing was misguided and deeply undemocratic. It is misguided because in this day and age it is impossible to deliver the necessary debt restructuring through banging a few heads together. And it is undemocratic because it will not help the people of Greece. He goes through the argument why the ECB has taken its position – fear of contagion, concern about bank exposures – but these are all the consequences of a European policy of failing to provide transparency and to regulate the banking sector properly. His conclusion: „The behavior of the ECB should not surprise us: as we have seen before, institutions are not accountable in a democratic way tend to be captured by special interests. This was true before 2008. Unfortunately for Europe and the world economy, the problem has not been adequately addressed since.“
10-Y Spreads, Forex, ZC Swaps and Euribor-Ois Spreads up again.
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