July 22, 2014

There were reports that EU ambassadors met in an emergency session yesterday to discuss the scope for the next round of sanctions – EU foreign ministers meet today;
  • the German economics minister, Sigmar Gabriel, also supports sanctions, and says that Germany’s economic interests were not the most important issue;
  • various leading CDU figures expressed concern that the EU has been too slow in reacting to Vladimir Putin, and expressed outrage at a recent French sale of Mistral helicopters to Russia;
  • Frankfurter Allgemeine notes that Russians fear sanctions more than we think that they are likely to happen;
  • Wolfgang Munchau says Gerhard Schroder should resign from his plum job, and says Germany should reorient its strategic thrust in industrial policy away from Russia;
  • Clifford G. Gaddy and Barry W. Ickes say sanction will hurt the Russians economically, but will not alter Putin’s policies;

July 22, 2014

0

Towards sanctions

There have been several reports yesterday that the EU was preparing the next round of sanctions against Russia. Peter Spiegel (@SpiegelPeter) tweeted that EU ambassadors had been summoned to an emergency meeting on Ukraine yesterday afternoon. EU foreign ministers are due to meet in Brussels this morning.

Frankfurter Allgemeine reports that German support for economic sanctions against Russia was increasing quoting German economics minister Sigmar Gabriel as saying that the economic concern – important as they may be – should not be decisive. He said another round of sanctions against Russia would now be likely. But the paper says the EU would still not agree to target entire sectors. But it is possible that Gazprom might be targeted in the next round. The paper quotes the chairman of the Bundestag’s foreign affairs committee, Norbert Rottgen, CDU, as saying that the EU was late in its response and had allowed a vacuum to arise. The purpose of sanctions is to be forward looking, not to be punitive. Handelsblatt reports that another senior CDU MP expressed outrage at a recent defence deal by France to sell Mistral helicopters to Russia.

In another article Frankfurter Allgemeine notes a disconnect between the Russian fear of sanctions, which is high, and the Western expectation that sanctions will actually happen. The Russian equity market has not collapsed but has been trending steadily downwards, having lost 6% over the last week. The article quotes a former Putin adviser as saying that if the EU passed financial sanctions against Russia, the economy would collapse within six weeks.

There has naturally been a lot of commentary on this story. Wolfgang Munchau writes in his Spiegel column that the first thing the German should do is to ask Gerhard Schroder to resign from the Nord Stream pipeline project in response to the atrocities that have resulted from Vladimir Putin’s policies. He writes that eastward orientation of the German economy has gone too far, and that it was now in the country’s strategic interest to correct that imbalance quickly. He says Germany should support further sanctions against Russia, notably in the area of energy and finance.

Clifford G. Gaddy and Barry W. Ickes from the Brookings Institute doubt that sanctions will be effective in influencing the action of Putin and the Russian elites in general.

“It is a fallacy to assume that Russia will respond to sanctions the same way that we would. We cannot simply project our own preferences onto Russians. (After all, if Russians had our preference structure, they would not have annexed Crimea in the first place.) Whether it is the idea that Vladimir Putin cares more about his personal wealth than Russia’s national security, or that ordinary Russians who see their living standards decline as a result of sanctions will mechanistically direct their anger against Putin rather than the West — many of the assumptions underlying the West’s sanctions policy are flawed, to say the least.”

The authors say that sanctions will damage the Russian economy. But our assumption is that the economic costs would lead to a change in political preference by Russian voters is mistaken.

“…if the motivation is defense of vital national interests and survival, Russia — like any state — will resort to import substitution and even more radical sorts of interventions to defend itself, no matter what the cost.”

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July 18, 2014

Miquel Roig of Expansión goes through the scenarios through which Spain’s Luis de Guindos might achieve his goal of chairing the Eurogroup, but Jeroen Dijsselbloem stands in the way;

    July 18, 2014

    0

    De Guindos’ Dijsselbloem problem

    In his Expansión column, Miquel Roig writes that the only obstacle to de Guindos’ ambitions to chair the Eurogroup is the current holder Jeroen Dijsselbloem, whose term expires in June next year. The difficulty at Wednesday’s European Council was that, with the deadlock in the appointments of the Council President and the High Representative, there was no chance to “find an informal solution” for the Dutch economy minister. The Dutch government is not going to “accept a switcheroo” and demands a position of responsibility for Dijsselbloem. With the top jobs undecided, that is off the table. One option is the post of Economic affairs Commissioner, which Juncker has conceded should go to a Socialist, but the problem here is that Dijsselbloem called Juncker an “inveterate drinker” on prime TV during the recent European Parliament campaign. Will Juncker hold a grudge? Will the Netherlands nominate Dijsselbloem to the Commission? Will Juncker’s female Commissioner quota get in the way?

    A second option, writes Roig, is to appoint Dijsselbloem to head the Single Resolution Mechanism, and Guindos might land that job as a plan B. But if the Netherlands wants a weighty Commissioner in addition, that would mean overrepresentation in the top jobs. The third and final option is for Dijsselbloem to serve his term, but the Eurogroup chairman has to be a finance minister and Spain is holding general elections at the latest in November next year. If Guindos did not keep his minister portfolio after the election, he would only serve at the Eurogroup for a few months. This would not be a problem if the Eurogroup chair were made a full-time position, but Wolfgang Schäuble has recently indicated Germany doesn’t want that.

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    July 17, 2014

    European leaders have postponed the decision on the other top EU jobs until late August – as Matteo Renzi says he has only one candidate to offer;
    • Luis de Guindos remains favourite for the eurogroup, but the final decision might be the residual of a more complicated calculation of how to apportion the two top jobs – president of the European Councils and High Representative;
    • ten states opposed Federica Mogherini as High Rep, but she is still considered the favourite, also since Angela Merkel has conceded that a Socialist should be given that job;

    July 17, 2014

    0

    A southern European Socialist? Or a central European conservative?

    The European Council is gridlocked on the nomination of Herman van Rompuy’s and Cathy Ashton’s successors – and the result may well have implications for the job of the eurogroup chief – for which Luiz de Guindos remains the front-runner. But nothing was decided at last night’s special EU summit, and won’t be until late August.

    Corriere della Sera and the other Italian papers are doing a good job this morning focusing on Matteo Renzi’s diplomacy, who now invokes the argument that as a founding member Italy deserves respect. Given that he is the big election winner among the centrist parties, it would be hard to see how Italy cannot get one of the top three jobs – though probably not the eurogroup chief given Mario Draghi’s role at the ECB. About ten countries seem to have reservations on Federica Mogherini as High Rep, either on grounds that she is too inexperienced or that she is too soft on Putin. Angela Merkel yesterday conceded that the High Rep should go to a Socialist (which would favour Mogherini who is supported by all the Socialist leaders), but Merkel insists that the presidency of the Council should be reserved for the EPP. The Italians also report that there is some pressure to solve the impasse by proposing Enrico Letta as president of the European Council, which would throw the field wide open for the High Rep.

    Virtually all the rest – and some of the above probably as well – is speculation. 

    A potentially further complicating factor arises from repeated reports in Der Spiegel, according to which Merkel plans to be the first German leader ever to give up the job voluntarily before being forced out by an election, a scandal, or an internal coup. It is our own understanding that these reports are credible. She is reported to eye two international jobs – security general of the UN and the European Council presidency – the latter not for now but in two and half years. This would suggests that she could resign in late 2016, which would give her successor another year until the next elections. Our point is this: if Merkel were to concede the job to a Socialist as a matter of principle – that concession would still stand in 2016, given the five-year term of the European Parliament. That might block her own ambitions. One solution would be an agreement that a Socialist takes over now, to be followed by an EPP candidate in 2016.
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    July 16, 2014

    there are rumours that Spanish PM Mariano Rajoy might be considering moving the general election forward by one year to November;
    • early elections, particularly in November, would upset the political planning of the Catalan independence movement, the new PSOE secretary general, and rising protest party Podemos;

    July 16, 2014

    0

    Will there be an early Spanish election in the autumn?

    El Economista writes of increasing chatter about the possibility of Spanish PM calling a general election this coming November, a year early. The paper writes political appointees are beginning to move out of ministries. Other rumours include Rajoy’s intention to leave politics and the possibility that Galician regional PP leader Alberto Núñez Feijóo might move to national politics. Holding the general election a year early would bring them before the local and regional elections scheduled for next May, upsetting the political calculus of many regional leaders such as for instance the Andalusian PSOE leader Susana Díez. Most importantly, Catalan premier Artur Mas has set November 9 as the date of an independence consultation or, failing that, early regional elections which would be considered a “plebiscite” on independence. Mariano Rajoy could steal the media limelight from the Catalan elections by holding a national election simultaneously.

    Another political event that could be upset by early elections is the planned PSOE primary. The party had an internal understanding that an open primary would be held in November but the replacement of Alfredo Pérez Rubalcaba after the European election debacle was an unexpected development. Now Europa Press reports Sánchez is defending the ability of the new party executive to set the date of the primaries, with Público writing the preferred date might be after the regional and municipal elections in May next year. Not only might the PSOE not be ready for an election this Autumn but Sánchez as candidate might be hurt by frustration on the part of party members and sympathisers denied the promised open primary for PM candidate.

    Finally, the rise of Podemos in the polls continues. El Confidencial writes that the post-election survey by Spain’s sociological research institute CIS conducted in the first half of June shows Podemos solidly in third place with nearly 15% of the vote. In the “Agenda Pública” blog of El Diario, Pau Marí-Klose looks at the profile of Podemos voters: represented in all social classes, young, educated, urban, precariously employed, politically informed, internet savvy, and unhappier than average. El País for its part highlights that over 30% of those polled valued Podemos’ campaign favourably, and the proportion of people who recall having voted for Podemos is twice its actual vote share in the European elections. However, Podemos is counting on a year’s worth of organizing for the local elections to build a base to contest the general at the end of next year and probably needs all the time it can have for this process. If the general election were move forward to this Autumn the growth prospects of Podemos would be truncated as well.

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    July 15, 2014

    John Springford, meanwhile, argues that the interests of the eurozone and Britain are more aligned that the public debate suggests.

      July 15, 2014

      0

      Will the eurozone gang up on Britain?

      John Springford offers a very thorough analysis on the policy issues on which the eurozone might, and might not gang up on Britain. One of the arguments in the UK (including by us) is that the interests of the eurozone and the UK (as a permanent EZ non-member) are fundamentally misaligned that this would lead to eventual friction. Springford makes the point that this is true in some areas, but argues that the economic interests of the two are more aligned more than they are opposed. He then goes on list the policy areas where Britain has negotiated a protection of its interests, in the EBA notable, and where the fault line in the EU is not between Britain and the EZ but inside the EZ, trade agreements, even the financial transactions tax.

      His main point is that for as long as these interests are managed with care, there is no reason why Britain should leave the EU. He says the most important areas of EZ integration are a common market for capital and labour, and risk sharing – fiscal union, a backstop for the banks. If that were to happen, it would also benefit Britain as it would make the EZ more stable. He also specifically addresses the ECJ hearings on the ECB’s request that clearing houses relocate to the EZ. He expresses some sympathies with the ECB’s position, but adds that it would not impede the wider role of the City of London as the eurozone’s main financial centre. 

      We agree with almost all of that. But as he writes himself, the interests of the EZ and the UK would only be compatible if are properly managed. We do not believe the current mismanagement can be blamed on David Cameron alone. It is, in part, structural. EZ membership has forced governments, but also the media and the academics, to think much more broadly in EZ-wide terms. That process produces a convergence in attitudes and ultimately in policies, a convergence process of which the British elites are not a part of. A good example has been the Juncker nomination. This was not just a disagreement between Cameron and Angela Merkel, but between virtually everybody in Britain and everybody elsewhere. Our point is not that it is impossible for Britain and EZ to align their interests in theory, but that they might find it hard to do so in practice.
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      July 14, 2014

      in Slovenia, political newcomer and outspoken privatisation critic Miro Cerar won elections with his six-week-old SMC party;

        July 14, 2014

        0

        Political novice wins Slovenia elections

        A political newcomer won Slovenia’s election on Sunday, Miro Cerar and his six-week-old SMC party won 34.8 % of the vote, which translates to 36 seats in the 90-seat parliament, Reuters reports. That would give the 50-year-old law professor the strong mandate his recent predecessors have lacked, potentially going some way to restoring political stability after years of turbulence and weak government, writes Reuters. The center-right SDS party was in second place with 20.6% and a string of smaller center-left parties also won seats and were lining up to join Cerar in government.

        Outgoing Prime Minister Alenka Bratusek called Sunday's snap election after losing public confidence. Cerar's government will now oversee a raft of crisis measures agreed with the EU to reduce Slovenia's budget deficit and remake an economy heavily controlled by the state. Cerar opposes the sale of telecoms provider Telekom Slovenia and the international airport, Aerodrom Ljubljana. The outgoing government suspended the privatization process this month pending the formation of a new government, which is not expected before mid-September.

        Cerar’s success is the most impressive shooting career into politics we have seen in Europe so far. An impressive voter shift, punishing mainstream parties for their corruption scandals. He owes much of his celebrity to his gymnast father, twice Olympic pommel horse champion when Slovenia was part of Yugoslavia. In total there are now eight parties in parliament:

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        July 10, 2014

        Bruno Maçães proposal for contracts , Portugal’s secretary of state for European affairs, argues against proposal to centralise fiscal policy, and says the eurozone governance should rest on the idea of mutual contracts (We think this proposal is downright potty)

          July 10, 2014

          0

          Bruno Maçães reinvents the wheel

          What always irks in discussions about the future of the eurozone is when people propose as new ideas policies that have been tried again and again and that have demonstrably failed. One of these comments was from Bruno Maçães, Portugal’s European affairs state secretary in Vox, who made a plea against a United States of Europe – the ultimate strawman in any European debate. He argues against proposals to centralise power over fiscal policy or structural reforms, and wants more subtle form of co-ordination, based on contracts and partnerships. Member states would reforms and received the necessary support in turn. 

          This is unbelievably naïve. We mention this comment only to demonstrate the extent to which our debate on the future of the euro is moving in circles. The whole experience with the stability pact has taught us that voluntary agreements that are not policed are for the birds. Germany and France were able to break the pact because they could. They are sovereign nations. When sovereign nations can breach a pact that has been an integral part of EU law, why should a contract work? If the member states value absolute sovereignty of fiscal policies that much, they will regain monetary sovereignty in the long-run.
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          July 09, 2014

          Frankfurter Allgemeine reports about the outrage expressed by the CDU vice president of the EP’s ECON committee at committee’s refusal to elect AfD chief Bernd Lucke as one of its vice-chairmen;

            July 09, 2014

            0

            The CDU/CSU feels sorry for the AfD

            Germany’s Frankfurter Allgemeine is the mouthpiece of the country’s sururban conservatism, and we always noted an undisguised sympathy for the AfD, the anti-euro party. That sympathy radiates also to deep inside the CDU and in particular the CSU. We reported yesterday that the European Parliament’s ECON committee did not elect AfD chief Bernd Lucke to one of mostly ceremonial jobs of the vice-chairmanship of the committee – the jobs are usually distributed across the party groups under some formula. Werner Mussler und Hendrik Kafsack of FAZ describe how the CDU members of the committee express outrage about the vote. They are even outraged at the argument put forward by Sven Giegold (which seems totally plausible to us) – that you do not want to hand confidential ECB documents to somebody who wants to break-up the eurozone. The article quotes Markus Ferber, the conservative Bavarian MEPs, as rallying to the support of Lucke, defending his honesty. 

            The truth is the Lucke says what some of these CDU/CSU guys are thinking but are not allowed to say. Over the years, we would expect the CDU, post-Merkel, to open up to co-operation with the AfD, just as the SPD opens up to co-operation with the Left Party. The Left Party’s uncritical support of Vladimir Putin was a setback for SPD/Left cooperation. But the parties are now talking to each other. Expect the German political dialogue to become more confrontational once the Grand Coalition love-in ends.
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            July 09, 2014

            Josep Ramoneda writes in El País that the sense of impunity displayed by the likes of Sarkozy and Berlusconi polarizes society along an elite/masses divide which feeds populisms and is very worrysome given Europe’s history;

              July 09, 2014

              0

              The Berlusconization of Europe’s elites

              In his El País column, Josep Ramoneda writes that the “Berlusconization” of Sarkozy is indicative of a growing sense of impunity among the political class. Though, he says, his political credit is spent in Paris, he is still treated with reverential fear in “the Paris bubble”, illustrated by the grovelling journalists who interviewed him after he was released from police custody the last week.

              The combination of ostentatious power displays with cynical “outsider” populism to get out of political trouble has, according to Ramoneda, the ultimate effect of replacing the left/right political axis with an elite/people opposition. Ramoneda links this to the success of populist discourse which he represents by the catchphrase “the caste” to refer to the elites, popularised by Podemos. He ends with a warning that Europe has historical experience of what happens when politics becomes a confrontation between “impudent elites and indignant masses”, as “money and the military always take ultimately the same side”. 

              For a couple of years, high-brow commentators have borrowed Acemoglu and Johnson’s concept of “extractive elites” in Spanish political commentary, but the success of Podemos is replacing this with the cruder “the caste” which is now being used even by people who are critical of the concept.
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              July 08, 2014

              CGT and FO union boycott French labour talks today, marking the end of Francois Hollande's success with the unions;
              • Hollande tries to put a lid on, though comments warn it could set a precedent for further trouble;

              July 08, 2014

              0

              Two trade unions in open revolt against Hollande's government

              The social dialogue between the unions, employers and the government - hailed as one of Hollande's rare successes - is about to derail as the large CGT union and the FO announced an unprecedented boycott of the labour summit today, over what they call unfair government's preference towards employers, due to reap €40bn in tax credits over the next three years standing accused of giving nothing in return. Last week it was the employers' association Medef that threatened to boycott the meeting unless the government delayed the implementation of an early retirement scheme for workers in strenuous jobs. It got the concession - a one-year delay until 2016 - but at the price of irking the unions. The boycott was the result.

              Médiapart accuses Francois Hollande of destroying the social basis behind his electoral success in 2012 by completely breaking away from his electoral campaign. Le Monde says while it looks like the honeymoon between trade unions and the French government is over, Manuel Valls promised to consult with trade unions about all those 'hot' subjects. Elsa Freyssenet in Les Echos warns that the "rupture" will set a precedent for future turbulences and it will be interesting to see today whether the number of rebels inside the Socialist party is rising as a result.

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              July 07, 2014

              Corriere della Sera reports on Italian concerns about Jyrki Katainen as economics commissioner and of Luiz de Guindos as eurogroup chief –whilst betting on Pierre Moscovici as a stalking candidate;
              • Tito Boeri explains that Italy stand a good chance to benefit from the 2005 flexibility clause in the stability pact, but says Italy would at least need to propose one significant reform, plus implementing measures;

              July 07, 2014

              0

              Italy wants to prevent Katainen and/or de Guindos

              Corriere della Sera reports that the Italian government is alarmed at the prospect that Jyrki Katainen is set to become the next economic commission, and that Luiz de Guindos is headed for the permanent job as eurogroup chief. The article said that Pierre Moscovici could emerge as a candidate who could stop either Katainen at the Commission or de Guindos at the eurogroup. Given that Mario Draghi is at the head of the ECB, Pier Carlo Padoan cannot be a candidate for the eurogroup, and that this would also preclude Matteo Renzi’s other idea – of Federica Mogherini as the successor to Catherine Ashton as the EU’s High Rep.

              Tito Boeri has a good discussion on Lavoce about what flexibility means in practice. He looked at article 5.1 of the reformed stability pact from 2005 – in which countries can get a maximum of three years to slow down the path towards structural balance (which in Italy’s case is the medium-term objective). But this is only applies to countries with deficit of below 3%, and can only be invoked by countries that implement the reform. A pure announcement is not enough. To benefit, Italy would least need to do one big structural reform, accompanied by all the measures of implementation. He writes that the government should not keep on proposing more and more reforms, but focus on one of them and see it through. It is always hard to estimate the impact of a reform on growth – which is why any assessment by the Commission will be qualitative. For as long as Italy reforms, it should be able to get a prolongation on the deficit reduction path.

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              July 04, 2014

              Jorge Galindo of Politikon contests the likely decision by Spain’s PSOE to not vote for Juncker’s appointment as Commission President, arguing for the long-term objective that the “Community method” prevails over the intergovernmental approach that has served Europe so badly in the crisis;

                July 04, 2014

                0

                Why the left should support Juncker

                Blogging at Politikon, Jorge Galindo argues against Eduardo Madina’s statement that “his” PSOE MEPs would not support the appointment of Jean-Claude Juncker as EU Commission President, presumably deviating from the favourable vote of the rest of the PES European Parliament group. While personalised in Madina, this is a position shared by all of the PSOE leadership candidates. Galindo states that the Euro crisis is more political than economic, and that the intergovernmental method has been damaging to the EU as a political process. Hence the pre-election commitment by various national and European parties to the Spitzenkandidat process, to give the Commission a supranational political mandate. Even Alexis Tsipras, points out Galindo, said that “Juncker should be the first to attempt to form a majority” while corresponding with a number of concessions to the centre-left. As a left-wing majority (even with the support of the Liberals) appears impossible, the only alternative to Juncker is what Britain’s Cameron intended, imposing a candidate external to the Spizenkandidat process. Galindo ends by reminding the PSOE leadership that part of the job of politicians is to explain to the voters the short-term concessions necessary to achieve long-term goals, in this case for the Parliament to win its long-running tug-of-war against the Council and for Europe to prevail over the member states. 

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                July 04, 2014

                we take a closer look at the extent to which the leadership candidates for Spain’s PSOE diverge from the Brussels economic policy consensus, and find the gap is quite substantial;

                  July 04, 2014

                  0

                  The PSOE’s economic programme through its leadership hopefuls

                  With a thorough questionnaire on their blog last week, Economistas Frente a la Crisis probed the opinions of the candidates for secretary general of Spain’s PSOE, on which it is difficult to find substantive disagreements between them. Therefore, the exercise is more useful as evidence that the PSOE consensus diverges from the Brussels consensus. The interviews are lengthy, so we only report the parts clearly at variance with the European conventional wisdom. The respondents are Pedro Sánchez, Eduardo Madina and José Antonio Pérez Tapias, plus Alberto Sotillos who failed to obtain the necessary endorsements by party members to be declared a candidate this week.

                   

                  • On “competitiveness”, all candidates agree that for Spain improving productivity is preferable to reducing labour costs.
                  • On tax reform, all agree fiscal balance should be achieved by raising tax revenues as both government revenue and expenditure are below the EU average; also, because of their greater potential for progressivity they support raising direct taxes rather than indirect (consumption) taxes.
                  • To fight unemployment, all except Sotillos mention “aggregate demand”, to be increased at the European level; all reject “internal devaluation” as a job creation strategy and would roll back the PP’s labout market reforms as well as the idea that “normative rigidities” are responsible for high unemployment, preferring “active employment policies”.
                  • On the welfare state, all are against cuts to education and health care which they consider cornerstones of the welfare state; Sotillos makes a special mention of support for families with dependents, which Sánchez puts forward as a as a way to support the welfare state while creating jobs; all defend the current pension system, with Madina and Sotillos arguing that sustainability would be assured just by solving the problem of high unemployment.
                  • On European fiscal policy they all agree on the need to reform European fiscal rules, with different emphasis; Sánchez points out the zero deficit goal has no support in economic theory, Madina criticises the procyclical bias of current policies, Tapias advocates eliminating R&D spending from deficit calculations, and Sánchez aims at “democratizing” the ECB and rolling back key elements of the Maastricht treaty; only Madina defends on the introduction of a constitutional debt brake by Zapatero’s government in the Summer of 2011.
                  • On Inequality, Sánchez proposes redistributive fiscal policy and reinforcing the welfare state, Madina focuses on improving education and increasing investment in it, and Tapias and Sotillos go for “basic income” solutions.
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                  July 04, 2014

                  Nicolas Sarkozy presents himself as a victim of unjust judges very much like Silvio Berlusconi;

                    July 04, 2014

                    0

                    Sarkozy lashes out against judges, like Berlusconi

                    Nicolas Sarkozy is on the frontpages of all newspapers with his televised counter offensive, in tone and attitude very much like Silvio Berlusconi, observes Mediapart and JDD. Like Berlusconi, Nicolas Sarkozy poses as a victim of illegitimate, terrorizing, cruel and unjust judges who are obsessed with political power. The UMP, meanwhile, is condemned to wait and see what the judges have to say. The leaders inside the party all came out in support of Sarkozy. Alain Juppe also made sure to take his distance after Sarkozy's TV intervention, saying that vilifying the judicial system seems not a good method. According to the latest CSA poll for Les Echos, Sarkozy's popularity is now trailing behind Alain Juppe for the first time. 

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                    July 03, 2014

                    Thomas Ochsner writes the minimum wage legislation in Germany has some design flaws – the biggest being the lack of voting rights by independent experts in the committee that revises the minimum wage in future years;

                      July 03, 2014

                      0

                      On the German minimum wage

                      Arguably the single most important legislation of the German grand coalition is the law to introduce a statutory minimum wage. The legislation will provide a floor of €8.50 per hour for all workers in all industries, with only a few exceptions, including for jobs earmarked for the long-term unemployed and for young people on training programmes. The German commentariat has enormous problems with the Mindestlohn because it believe that state interference in wages goes against free market principles. An enlightened sceptic is Thomas Ochsner of Suddeutsche Zeitung, who brought some constructive criticism about the way the law is implemented. He writes in an editorial that it was wrong for the government to set the initial wage, rather than leaves this decision to the committee that will have the job to revise the number in future years. He said this committee was too heavily influenced by the protagonists themselves – employers and trade unions – with no voting rights for independent experts – a situation that is different in the UK, where the independent advisers contributed greatly to the accepted of the minimum wage by many of the critics.

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                      Towards sanctions

                      • There were reports that EU ambassadors met in an emergency session yesterday to discuss the scope for the next round of sanctions – EU foreign ministers meet today;
                      • the German economics minister, Sigmar Gabriel, also supports sanctions, and says that Germany’s economic interests were not the most important issue;
                      • various leading CDU figures expressed concern that the EU has been too slow in reacting to Vladimir Putin, and expressed outrage at a recent French sale of Mistral helicopters to Russia;
                      • Frankfurter Allgemeine notes that Russians fear sanctions more than we think that they are likely to happen;
                      • Wolfgang Munchau says Gerhard Schroder should resign from his plum job, and says Germany should reorient its strategic thrust in industrial policy away from Russia;
                      • Clifford G. Gaddy and Barry W. Ickes say sanction will hurt the Russians economically, but will not alter Putin’s policies;

                      Further News