April 16, 2014

Spain’s economic police is said to be investigating a €2bn fraud case involving subsidies for the training of the unemployed, implicating unions, firms, employers’ associations and those in charge of oversight at the Andalusian regional government;

    April 16, 2014

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    Massive fraud uncovered in Andalusian unemployed training schemes

    Spain’s police unit in charge of economic and fiscal crimes (UDEF) is investigating fraud in training courses for the unemployed worth €2bn, writes El Confidencial. Quoting “sources close to the investigation”, the paper says the Andalusian regional government channelled €3.7bn in subsidies for training schemes of which more than half may have been fraudulently used. The regional government advanced 75% of the cost of the courses to the unions, firms or employers’ associations organizing the courses and the remaining 25% was subject to an audit. The allegation is that either the audits were not carried out or, if irregularities were found the regional government didn’t usually demand the return of the subsidy, and thus the UDEF suspects that high ranking government officials must have been involved in the fraud. To avoid statute of limitations, the UDEF is investigating the period 2009-2011 although the fraud presumably extends further back. Also, to keep the size of the case manageable the investigation is focusing on only one of the 8 Andalusian provinces, Málaga. The case appears to have been initiated on a complaint by the Social Security.

    The scale of the fraud, if confirmed, is staggering and dwarves any other case of misuse of public funds. For instance, in past months we reported on a high-profile case involving training courses in Madrid in which a “mere” €15m were defrauded. The new case is over 100 times larger. El Confidencial at one point speaks of “a blow to the Andalusian unemployment industry”, a turn of phrase that should give everyone pause about “active employment policies”.
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    April 16, 2014

    a German program intended to subsidize unemployed youth coming to Germany’s sectors in need of workers has been mothballed after being overwhelmed by demand;

      April 16, 2014

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      Germany suspends international youth employment program

      Germany has suspended a youth employment programme initiated amid much fanfare less than a year ago and geared towards bringing foreign trainees into German sectors lacking manpower, writes The Local (Germany). Although the program was recently extended to run until 2018, it has run out of money and suspended new applications. The original budget was €48m for this year, but the programme has already used up the entire €400m earmarked for the duration of the program, though money to pay the subsidies already pledged will be forthcoming. A German labour ministry spokesperson said they could not cope with the demand, which had exceeded expectations as nearly 9,000 people had from across the EU had applied, particularly from Hungary and Spain with the latter leading with over 5,500 applicants.

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      April 16, 2014

      Silvio Berlusconi receives a surprisingly mild sentence of social services, but the chances of an eventual return to Italian frontline politics, and the outlook for his party, remain bleak;

        April 16, 2014

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        The future of Silvio Berlusconi and Italian politics

        The Italian papers are naturally full of the reports of Silvio Berlusconi’s sentence of four hours of community work per week in a nearby old peoples’ home for ten month. The interesting political question is how do the various scenarios affect Italian politics? La Repubblica has an article looking at various scenarios for Berlusconi. In the best case scenario, he would be a free man March 1, 2015, when he will be 78 years old. This would allow him, health permitting, a full political comeback ahead of the next elections, which would have to be held before February 2018. His political ban would have expired by then. The article then discusses how the various other legal cases could impinge on that scenario, most importantly the case involving sex with an underage prostitute, for which he was already found guilty and received a seven-year sentence in a first ruling. That, in turn, could also impinge on the current sentence itself. The maximum sentence he could expect is four-years of house arrest (which would take him beyond the election and out of politics altogether). Even a lower period of house arrest would freeze him politically, as he would no longer be able to have external contacts. 

        Forza Italia does not have an obvious successor. With Berlusconi out of politics, the party might implode. The share of the vote of Beppe Grillo, meanwhile, has been holding up steadily at 25% - despite various party scandals and serial blunders – the latest being a tasteless parody in his blog of Primo Levi’s poem This is a Man, based on his experiences in the holocaust. If Berlusconi ends up in house arrest and thus kept out of politics for a few more years, Grillo would be the main beneficiary – and a serious challenger to Renzi in the next election. It looks to us that Renzi – and the Establishment that now supports him - need Berlusconi to hang on in there (which is why we would expect to see continued legal lenience).
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        April 15, 2014

        Eurozone Blog: Sweden is now in full-fledged deflation. Good comment by Lars Svensson.
        • Lars Svensson says Sweden was now in full-fledged deflation due to policy errors by the Riksbank;

        April 15, 2014

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        Sweden is now in full-fledged deflation

        Definitely off our reservation, but highly relevant nevertheless, is the Swedish experience, which may be a pointer to where the eurozone is headed. Lars Svensson, the economists who was also a former deputy governor at the Riksbank, writes that Swedish inflation was hovering around zero since November 2012 and turned negative in January 2014. He blames the failed policy of the Riksbank, which started to raise rates in the summer of 2010, then at 0.25%, to 2% in 2011. The real rate went up by 3.5pp, which constitutes a huge shock. He says Sweden is in serious danger of getting trapped in a deflationary spiral, and urges the Riksbank to take rates back to low or even negative levels, and if necessary adopt QE.

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        April 15, 2014

        On Macropolis Nick Malkoutzis writes that the momentum of Syriza seems gone, missed opportunities and only slight lead in the polls suggest they no longer are a credible alternative to Samaras;

          April 15, 2014

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          Nick Malkoutzis concludes Syriza's momentum over

          Nick Malkoutzis on Macropolis concludes that the Syriza moment has gone. The problem is that Alexis Tsipras tried to do both, open up to a wider audience by refining its message or it could remain faithful to its radical roots. Almost 24 months on since the last election, SYRIZA’s grand idea is still unclear about its position to the bailout programme and has yet to find allies in the EU in favour of a larger haircut. Their political handling remains immature and they missed out two golden opportunities they could have put the government under pressure with - after cabinet secretary Takis Baltakos was forced to resign over his secret contacts with Golden Dawn, and the new bond issue. A recent Public Issue poll put SYRIZA 3 percentage points ahead of New Democracy for the May 25 European Parliament elections but most other surveys indicate the gap is much smaller. It does not look like they will win by a landslide, and with only a small lead they will loose their momentum as a credible alternative to Samaras and it will lack the political legitimacy to push for national elections. 

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          April 15, 2014

          Klaus Kastner says that Greece faces a real choice between staying the course and default, while he himself has lost confidence in the success of the current policy;
          • Keep Talking Greece says there is not enough political support for default, let alone euro exit, in Greece right now;
          • Vanis Varoufakis says default not the best option – Greece has better means available to force a debt conference, for example by holding the EU ransom over banking union;

          April 15, 2014

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          Should Greece default?

          Wolfgang Munchau’s FT commentary on Greece has provoked some reactions. The argument of the column was not that Greece should default. It said the conditions for a default strategy to work well would be onerous, and would require much more in terms of real economic reform. But a primary surplus and a current account surplus both make a strategy of default a feasible option, leaving Greece with a genuine choice (when there was no choice before). A decision should be based primarily on which option yields the greatest likelihood of an increase in real investment and a return to full employment.

          Klaus Kastner, who runs the Observing Greece blog, strongly agrees with the final conclusion of the comment, which is that there is now a choice available to Greece. He says the EU, and not a financial journalist, should be the one that tells the Greeks that they have a choice.

          “When I started this blog 3 years ago and for the first couple of years, I was an adamant supporter that Greece could and should make it with the Euro. Nearly 28% unemployment and nearly 60% youth unemployment after 4 years of adjustment prove me wrong. Yes, Greece is now financially stable with both domestic and external accounts in balance (or rather: in surplus). But how long will Greece remain politically and socially stable with these kinds of unemployment ratios?

          I cannot judge how quickly Greece's employment situation would improve if the country switched to a default/exit course but I am certain about the following: with the Euro, the Greek employment situation will not return to more or less satisfactory levels for a very long time.”

          The Greek blog Keep Talking Greece suspects that there is a big plot behind this column, another German attempt to influence Greek voters. It said the option was politically unrealistic, as even Syriza would not advocate such a strategy.

          Yanis Varoufakis agrees with the analysis, but not with the conclusion. He says default and exit were nuclear options that may not be needed. Instead Greece should adopt a strategy consisting of three prongs: first, refuse to ratify the SRM agreement; second, refuse to issue new bills or bonds until there debt relief is agreed; refuse a change of further elongation of official debt (with the goal to make debt relief the only option).

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          April 15, 2014

          a report by Catalan government advisors argues that EU and international law is silent on the scenario of a region seceding from a member state while intending to remain in the EU, but it also considers scenarios where Catalonia stays outside the EU but joins for instance the EEA;
          • leading opposition party PSOE is planning to propose a constitutional reform after the may European elections, which is being negotiated behind the scenes;

          April 15, 2014

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          Catalan government says it may remain in the EU after independence

          On Monday the Catalan regional government released an advisory report arguing that international and European law does not explicitly regulate the case of “regions which until the actual moment of applying for entry form part of a member state” and that German reunification and Greenlandic exit are not precedents though they are evidence of the EU’s flexibility and pragmatism. Therefore the report expects Catalonia to be allowed to remain in the EU after independence. The report includes 4 scenarios (permanence, ad hoc accession, ordinary accession and exclusion from the EU) as well as the possibilities of concluding bilateral agreements with the EU, accession to EFTA, the EEA and Schengen, as well as the possibility of concluding free trade agreements with individual states.

          Meanwhile, in an interview with Catalunya Radio, opposition leader Alfredo Pérez Rubalcaba explained his party’s proposal for a federalist constitutional reform to be introduced after the European elections. At the centre of the debate is the 2006 reform of the Catalan autonomy statute which was partly struck down by the Constitutional court in 2010. According to Expansión Rubalcaba believes the leader of the Catalan group in the Spanish parliament Josep Antoni Duran Lleida agrees with the substance of the proposal. Duran Lleida is the leader of Unió, the sister party of Convergència, the party of Catalan premier Artur Mas.

          Vozpópuli writes that the federalist constitutional reform is being negotiated behind the scene at the highest levels, including the King, former socialist PM Felipe González, and Miquel Roca, a Catalan participant in the drafting of the current Constitution. Nevertheless, PM Mariano Rajoy is said to be wary of opening a constitutional reform because of the absence of a clear consensus, especially among the regional leaders of his own PP party.

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          April 14, 2014

          The UMP is to decide on its position on Europe this week, amid rising euroscepticism inside the party;

            April 14, 2014

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            The resurgence of euroscepticism inside the UMP

            The Journal du Dimanche and Cecile Cornudet in Les Echos find a rise of eurosceptic voices in the UMP ahead of its meeting this week to adopts its position on Europe and it is not yet clear how it will play out. Two former ministers under Nicolas Sarkozy now came out in clear language against the current EU setup. Both are self-declared pro-Europeans, who now want Europe to change. Laurent Wauquiez in his new book evokes a core Europe with six countries and harmonised tax policy. Xavier Bertrand speaks clearly against the Franco-German couple in his interview with the JDD saying it prevents another ECB policy, one that is clearly favourable towards growth and employment. He considers Europe at the source of France’s problem. Francois Fillon and Allain Juppe and AlainLamassoure come out in favour for the Franco-German special relationship. Fillon is expected to give a speech in the following days favouring social and economic ‘rupture’ at home rather than blaming the EU. UMP leader Jean-François Copé remains silent for now, caving the image of a ‘rassembleur.’

            The Front National continues to lead in the polls  (24% against 22,5% for the UMP) for the European elections.

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            April 14, 2014

            Former European Commissioner Frits Bolkestein spoke at an anti-euro conference in Italy, saying that monetary union was a failed project;

              April 14, 2014

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              Bolkestein says euro has failed

              There was, apparently, a conference going on in Italy over the weekend “Un’Europa senza euro”.  Frits Bolkestein attended it, and is quoted by the blog l’Antidiplomatico as saying that the monetary union had failed. He said eurobonds would not work. They would dilute responsibility, and would create a permanent dysfunctional transfer mechanism similar to that of Italy. His prediction was that the deficit countries will not be able to sort out their problems on their own. 

              Not much more detail, but we thought it was noteworthy that a former European Commissioner from a eurozone member country is now criticising the euro has a failed project. Also noteworthy that anti-euro conferences are hosted in Italy these days.
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              April 11, 2014

              Sapin said he was misunderstood and that France will stick to reduce deficit below the end of 2015;

                April 11, 2014

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                France will stick to deficit target by 2015 after all…

                France will stick to the EU deadline to reduce its budget deficit below 3% by the end of 2015, Michael Sapin told a news briefing on Thursday according to Reuters. This a departure from earlier comments, in which he suggested to reopen the debate about the “timing” with the EU. Sapin said he has been misunderstood by the media. "What is written about me in the press is not necessarily what I said. We I have talked about is a rhythm, about a pace, and people immediately think that means slower. Well, not at all," he said.

                That is quite a lame excuse. Does he suggest he wanted to talk about a faster pace to reduce the French deficit? The message to take away from this is that after his visit to Germany Sapin now turns out to be the conservative guarantor the EU wants to see as finance minister in France.
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                April 11, 2014

                Former PP treasurer Luis Bárcenas tells judge Pablo Ruz the party kept shadow cash accounts at every level for the funding of elections with the knowledge of party presidents and secretary generals, one of which personally handed him the “cash box” in 1990;

                  April 11, 2014

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                  Bárcenas tells judge PP funded elections illegally since at least 1990

                  Appearing in court for the 12th time since 2009, former PP treasurer Luis Bárcenas told investigative judge Pablo Ruz that the PP had a system of parallel accounts not only at the national level, but in every province and region of the country, and that the “cash boxes” were under control of the respective treasurers for use in funding election campaigns, writes El País (English edition). Bárcenas, who had last month written to the judge offering to make a statement and provide additional information, said that the secretaries general had control of the shadow finances, and that all party presidents were aware of them. To buttress his case, he said that in 1990 as then party treasurer Rosendo Naseiro was arrested over corruption charges, then secretary general Francisco Álvarez Cascos handed Bárcenas “the key to the cash box” of the national party. Sources close to Álvarez Cascos consulted by El País denied the veracity of the story and referred back to Cascos’ witness statement before the same judge last August when he denied any knowledge of the allegations coming from Bárcenas.

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                  April 11, 2014

                  Le Monde, meanwhile, lists the depressingly long ist of 12 the French European affair ministers over the last 12 years;

                    April 11, 2014

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                    12 French European ministers in 12 years

                    Le Monde looks through France’s history of European affairs ministers, finding that there had been twelve in the last twelve years. Since Pierre Moscovici who was a European minister for five years until 2002, none of his successors were in place longer than 2 years. For many, this was their first ministerial post. With Bernard Cazeneuve the Ayrault government even nominated a representative from a camp that supported the No in the 2005 referendum on the EU constitution, for purely internal considerations. Now, with Harlem Desir, the French government nominated someone who failed at chairman of the Socialist party and who he has a poor attendance record in the European parliament, to say the least.  What signal does this send to France and the EU two months ahead of the European elections, asked Nathalie Kosciusko-Morizet. 

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                    April 10, 2014

                    Francois Hollande nominates Jean-Pierre Jouyet as his chief of staff and reshuffles the office coordinating European affairs among ministries;
                    • Harlem Desir is to the new European affairs minister, replacing Thierry Repentin;
                    • New Socialist party leader is Jean-Christophe Cambadelis, an ally of Martine Aubry;

                    April 10, 2014

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                    Hollande reshuffles his office to tighten reign on European policy

                    Francois Hollande did surprise once again with 14 new nominations in the government, his own office and to the party leadership. He appointed a close friend and former European affairs minister Jean-Pierre Jouyet as his chief of staff on Wednesday and reshuffled his private office to tighten relations with Brussels. Jouyet, 60, director-general of the state-owned bank Caisse des Depots (CDC), is a well-connected political operator with deep European experience. "Jean-Pierre Jouyet has a lot of tricks up his sleeve, including on financial matters, which are also important now," Reuters cites a source. The nomination was also to ensure better coordination with the government of new Prime Minister, Hollande told the daily Le Monde.

                    The president also reorganised the government office in charge of coordinating European policy among ministries, making the General Secretariat for European Affairs (SGAE) report directly to himself instead of to the prime minister.

                    At its head, he appointed his European adviser, Philippe Leglise-Costa, in a move to mirror a similar structure in German Chancellor Angela Merkel's office.

                    Leglise-Costa is to travel to Brussels on Thursday to brief European Commision President Jose Manuel Barroso's staff on France's deficit cutting plans and the implementation of the "responsibility pact", a presidential source said.

                    Socialist Party Secretary Harlem Desir was ‘demoted’ to run the European Affairs ministry. It was the first government post for Desir, who has struggled during his 18 months at the helm of the Socialist Party to hold back dissent. He has been a member of European Parliament since 1999. He replaces Thierry Repentin, who acknowledged he had little knowledge of EU affairs. Naming Desir to a ministerial post avoids having to hold a party congress to choose a new party head. Jean-Christophe Cambadelis, an ally of Martine Aubry, is be named the new secretary.

                    Les Echos writes that Hollande showed his decisiveness with this reshuffle and also his intention to strengthen his role vis-a-vis Manuel Valls.

                    Francoise Fressoz in her blog on Le Monde writes that it took a municipal elections for Hollande to start through. He now fights for his survival choosing a strategy of opposites: the serious and well respected Jean-Pierre Jouyet and Michel Sapin to represent France vis-a-vis the European partners, the loud Arnaud Montebourg, Claude Bartolone and Jean Christophe Cambadelis to lead the campaign in the European elections, promising a rude confrontation between liberals and social democrats.

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                    April 10, 2014

                    José Carlos Díez finds Spain’s labour market reforms are hurting productivity and public finances through increased temporary, part-time and unqualified employment, and blames Eurozone policymakers for providing the impetus for the reforms;

                      April 10, 2014

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                      The negative effects of “reform” on Spain’s labour market

                      Blogging in Cinco Días, economist José Carlos Díez analyses the evolution of Spain’s labour market over the crisis years and concludes that long-term employment is being replaced with temporary employment, experienced workers are being replaced by trainees, and full-time employment is being replaced by part-time employment. As a result, productivity is down and so are wages and social contributions. This means not only is Spain not transitioning to a higher value-added economy after the construction binge of the past decade, but also that the sustainability of the social security is threatened. Díez holds European policymakers (“Merkel-Juncker” and the ECB with its letter to Zapatero) responsible for pressuring Spanish governments to adopt legal reforms encouraging this evolution of the labour market, and says it is all liable to get worse if the “neocon” win the European elections again.

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                      April 10, 2014

                      Wolfgang Munchau says an environment of persistently low real rates could raise sustainable sovereign debt thresholds, but would lead to even great debt divergence in the eurozone;

                        April 10, 2014

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                        On the consequence of low real rates

                        In his Spiegel Online column, Wolfgang Munchau discusses a chapter in the IMF World Economic Outlook on why real interest rates have fallen, and why real rates are likely to remain low for some time. In addition to the arguments made in the article (see also Gavyn Davies’ excellent discussion) Munchau makes two additional points. The first is that if interest rates were to remain low, sustainable debt ratios may be higher than generally thought. And the return to easy financing of sovereign debt will reduce the incentive by eurozone member states (except Germany of course) to consolidate their fiscal position in line with the fiscal rules and the fiscal compact, which might lead to political and economic tensions in the eurozone.

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                        Massive fraud uncovered in Andalusian unemployed training schemes

                        • Spain’s economic police is said to be investigating a €2bn fraud case involving subsidies for the training of the unemployed, implicating unions, firms, employers’ associations and those in charge of oversight at the Andalusian regional government;

                        Further News

                        • a German program intended to subsidize unemployed youth coming to Germany’s sectors in need of workers has been mothballed after being overwhelmed by demand;
                        • Silvio Berlusconi receives a surprisingly mild sentence of social services, but the chances of an eventual return to Italian frontline politics, and the outlook for his party, remain bleak;