September 17, 2014
What we often find at Eurointelligence that certain stories in one country take on a much broader significance when you read together with a similar story in another country. Yesterday we noted that two defiant prime ministers of two of the eurozone’s largest countries made a desperate plea for reform against increasingly hostile parliaments. Matteo Renzi and Manuel Valls have enough of a majority behind them to stay in office, but not enough to govern effectively. That’s the bottom line.
In France, Manuel Valls won the confidence vote in parliament, with 269 in favour, 244 against and 54 abstentions, but this vote did not resolve anything. As expected, 32 in his Socialist Party abstained in protest at his reform plans, Reuters reports. The opposition said Valls had failed to achieve an absolute majority of 289 votes in the 577-seat assembly, warning that he would struggle to win parliamentary backing for the planned reforms. Valls had demanded the parliamentary vote in an attempt to end weeks of speculation about the stability of his reshuffled government, after he and Francois Hollande had expelled two dissident ministers and lost a third. Before the vote Valls defended his reform agenda and the €50bn savings plan, but also said what reform does not mean: public wage cuts, lower minimum wages or changes to the 35-hour week. He promised tax cuts for 6m households and new benefits to poor pensioners on less than €1200 a month. With respect to critics from Brussels and Berlin Valls said “France alone decided what to do,” a nod towards the ousted Arnaud Montebourg, and made a pointed call to Berlin to do more for growth: "Germany must fully assume its responsibilities.”
But it is Valls, who will have to ask Angela Merkel for more time to reduce the French deficit, as Frankfurter Allgemeine points out. The article also noted that Valls blames Germany for the weak economy.
In Italy, Matteo Renzi delivered another of his 1000 day speeches in parliament where he announced the plan to abolish Art. 18 of the Italian labour code – which is the one that protects workers in all but the smallest companies from dismissal. In addition, Renzi said he wants to do this by a decree-law, – effectively an act to stop the parliament from tabling amendments. The parliament still votes on the whole package, but can’t disassemble or delay it.
La Repubblica called the announcement the Italian Bad Godesberg, a reference to a famous SPD party conference in 1959, in which the German Social Democrats turned themselves into a modern party of the centre-left. We reported a few weeks ago that interior minister Angelino Alfano demanded the abolition of Art 18, but this was at the time rejected by his cabinet colleagues. We particularly recall the statement by the economic reform minister that such a measure was too crude, and did not address the specific problems of the Italian labour market.
That change was brought about by a return of economic pessimism, which has given Renzi a window of opportunity to address the well-known obstacles in the Italian labour market – one that even German reformers never dared to touch (though the protection of workers is not nearly as extreme. The courts do not usually reinstate dismissed workers. Disputes tend to be about compensation.)
We noted a hilarious quote by the actor and satirist Roberto Benigni who noted in his TV show that the PD is now the only party in opposition to Renzi. On another television show, Porta-a-Porta, Pier Carlo Padoan said Italy will face a couple of difficult years, though the fall in the spread is helping to keep the deficit below 3% this year and next. But Padoan also said there were risks to this trajectory.
Confindustria yesterday slashed Italy’s GDP forecast to -0.4% - in line with the OECD’s forecast – with debt-to-GDP up from 132.6% to 137.5% - a clear sign how a vicious debt-deflation dynamics at work. We reported yesterday about an estimate of 145% for 2015 – which is a realistic ballpark number should Italian nominal GDP continue to stagnate.
Today, we also have a special report on the difficulties of forming a coalition in Belgium, plus further stories on whether or not Spain would suspend a Catalonian self-government, on some further bad economic indicators, on Stubb’s plan for more austerity, on a revolt by bankers, on a revolt by savers, and on Arias Cañete and Moscovici.