On to the next diversion: The EU now plans a Marshall Fund
Eurointeligence Comment and Analysis
The European Debt Crisis Redux
by Satyajit Das
The half-life of solutions to Europe’s debt problem is getting ever shorter.
In anticipation of a victory by Francois Hollande, eurozone leaders have now engaged on a verbal growth blitz – proposing a series of quack remedies to mask the effects of austerity. El Pais had the story in its Sunday edition that the European Commission is planning what the paper called a €200bn Marshall Plan to speed up investments in infrastructure and green technology, by refocusing the resources of the European Investment Bank, and using higher leverage. The goal is to do this without a single cost to the taxpayer – an effort the articles described the squaring of the circle.
(Please note that this policy does not reverse the austerity programmes, or constitute a fiscal stimulus of any kind. It is the typical case of the European Commission seeking a microeconomic answer to a macroeconomic problem. What this exercise does is to tell us that the EU is treaty the current economic crisis as a PR challenge first and foremost.)
In this spirit, Angela Merkel announced that she was preparing a European growth agenda for the June European Council, according to Leipziger Volkszeitung on Saturday, confirming that this might include a stronger and re-focused European Investment Bank. But Merkel also stressed the fiscal pact war non-renegotiable and that a classical fiscal stimulus package was out of question. The chancellor pointed to policies that enhanced the euro countries’s competetiveness like structural reforms or labour market reforms as Germany had undertaken them 10 years ago. At a large electoral meeting on Saturday, Hollande told his supporters according to Le Monde: „For months the people of Europe have been watching France. I feel that the positions of conservative heads of government evolving as a result of the polls“.
Weekend polls confirm Francois Hollande’s solid lead
The most recent poll for Le Journal de Dimanche confirmed Francois Hollande’s position as the most likely next French president giving him a 55% to 45% lead over the incumbant Nicolas Sarkozy. There were a number of bad and embarassing reports for Sarkozy over the weekend. According to the news website Mediapart.fr Gaddhafi had offered to $50m in 2007 in order to support Sarkozy’s election campaign. The president’s advisors rebuked the story, accusing Mediapart of campaigning on behalf of the left. Also over the weekend the French billionaire Francois Pinault, a former supporter of Sarkozy, „crucified“ the president over his attempt to lure voters of the extreme right in his desperate belief that he can still win, as Le Monde put it. „He is losing his mind“, the paper quotes Pinault. „People close to him think he can still win. He is cooked! It’s like in the bunker in 1945.“
Holger Steltzner warns Hollande’s plans will lead France nowhere
Frankfurter Allgemeine Zeitung’s ultra-orthodox economic editor Holger Steltzner has a very bleak assessment of Francois Hollande’s electoral proposals. „The Socialist suggests to the voters that under his leadership France can be sheltered from the storms of globalization“, Steltzner writes. „Debt, youth unemployment, disappearing competitiveness of the French industry, the lack of SME’s, the weaknesses for job training in companies, the highest government spending level within the eurozone, the high taxes and social contributions and the bloated state sector were hardly a topic in the campaign. There was much more insistence on Hollande’s plans to raise income taxes on high revenues to 75% and to return to the retirement age of 60 years.“
Stefan Kornelius warns that Hollande will break the euro rescue consensus
This is a comment that tells us how frightened Germany’s establishment is over Francois Hollande. Süddeutsche Zeitung’s foreign policy editor Stefan Kornelius warns that Francois Hollande will break the euro rescue consensus that Angela Merkel has built over the past two years. „What Nicolas Sarkozy has helped to build and what even technical governments in Greece and Italy have supported would then be put into question“, Kornelius writes in an editorial. „After months of detailed work on the rescue package for the euro, Hollande questions its foundation: consolidation and reform against spending and maintaining. The euro rescue is becoming once again the topic of quasi-religious beliefs.“
Wolfgang Munchau makes the case for Francois Hollande
In his FT column, Wolfgang Münchau says the French are likely to get rid of Nicolas Sarkozy on the simple grounds that they despise him. Munchau estimates that Francois Hollande’s impact on the French economy is likely to be neutral, while it is highly positive on the eurozone, because he will mount the most powerful challenge to the centre-right consensus that reigns in Brussels, and that is in the way of an effective eurozone crisis resolution. He said Hollande is right to challenge Angela Merkel on the fiscal pact, and to change the narrative towards economic growth. Munchau also noted that the forthcoming elections in the Netherlands are effectively a referendum on austerity. Munchau sees the beginnings of a popular insurrection against the current policy that it likely to cost each incumbent leader their job.
Dominique Moisi on Hollande vs Sarkozy
Writing in cnn.com, Dominique Moisi writes that Francois Hollande is the very likely winner of next Sunday’s final round of the French election. He lacks charisma, but the overriding concern of the French is to get rid of Sarkozy, who would have done better if he had focused on his economic crisis management than to the right with an anti-immigrant campaign. Moisi also makes the point that in 2007, modernity meant structural reforms. Now it means policies to address inequality. But Moisi is sceptical about Hollande’s impact on European policies. He calls him a Social Democrat – “an accelerating factor in the slow evolution of the EU away from a strict austerity policy, which the Germans themselves have started to question.”
Economists plead for direct ESM capital injections into banks
In the monthly rate survey of Financial Times Deutschland prior to the ECB’s meeting on Thursday in Barcelona a majority of leading bank economists pleaded for the EFSF/ESM to be able to inject capital directly into banks instead of first lending the money to governments. Direct capital injections are supported by the ECB, the IMF and money euro governments because think it would be the only way to break the bad feedback loop between banks and the sovereign in Spain and potentially in other countries in the future. But this is vehemently opposed by Germany which considers it would be a way to circumvent conditionality. The rate survey also finds that of the 38 economists no one expects a change of interest rates on Thursday and that 37 think that the ECB will either hold its current policy rate of 1.0% over the next 12 months or lower rates to 0.75% or even 0.5%. Most economists are deeply worried about the situation in Spain with some thinking that the country will be forced to ask for some sort of a bail-out and a EU/IMF program.
Le Monde calls on the ECB to tolerate higher inflation
In its front page editorial Le Monde warns of the situation in Spain and that the country’s financial and social situation is becoming a threat to the entire eurozone. But the paper says other policies are possible to overcome the crisis more easily. „They are monetary: The European Central Bank (ECB) could allow the crisis countries to finance themselves at lower costs and thus offer a support that they have earned. Some experts argue for the injection of a small dose of inflation in order to relieve the most indebted countries.“
Venizelos urges voters to vote for pro-euro parties
The leader of Greece’s socialist party has urged voters to back pro-euro parties to boost the country’s chances of remaining in the eurozone. “Over 75% of our people say they are for Europe and the euro – this must be expressed [at the election],” said Evangelos Venizelos in interviews published on Sunday. The latest polls suggest that PASOK gets 20% of the votes and New Democracy 25%. Even if they capture less than 50% of the vote, New Democracy and PASOK could still together control an overall parliamentary majority, thanks to an extra 50 seats awarded to the front-running party under a revised electoral law. But with Antonio Samaras likely to become the new prime minister the grand coalition would also be more fragile. “The strain of co-operating again with the socialists without the calming presence of Lucas Papademos [the outgoing technocratic premier] could tip the coalition over the brink and force another electoral contest,” the FT quotes a PASOK analyst.
ECB has no plans to relax terms of promissory notes
The ECB reiterated yesterday that it has no plans for now to relax the payment terms on more than €30bn of promissory notes to the former Anglo Irish Bank, the Irish Independent reports. “As to whether the ECB plans to do anything about the existing terms of the contract, the answer is no — the existing terms of the contract are the existing terms of the contract,” ECB president Mario Draghi told MEPs in the European Parliament in Brussels yesterday. “We will continue to reflect on this issue with a forthcoming attitude but at the present time we have these terms of the contract,” he said.
Larry Summers on the eurozone
Larry Summers gives a damning indictment of the eurozone’s crisis policy, accusing European policy makers of misdiagnosing the nature of the crisis, and thus embarking on the wrong strategy. The LTRO has turned out to be a short-lived reprieve, and may even have made things worse.
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