Eurozone Blog

This is an absolutely bizarre story which we had refrained from reporting because it was not clear what the facts were. However, since Spain's Finance minister had to answer questions about it in Wednesday's government control session in the Spanish Parliament, this seems as good a moment as any other to take stock.

El País has a useful timeline. In the "Nóos case", involving the King's son-in-law in alleged embezzlement of public funds, the investigating judge had asked Spain's tax authorities to report on Princess Cristina's economic activities in the 10 years to 2012.

Just last Saturday it became known that the report attributed to the Princess 13 real-estate sales from 2005-6, of urban and rural properties in 4 different provinces, worth €1.4m altogether. The Princess immediately denied the veracity of the information.

On Sunday, some of the people who supposedly bought the properties from the Princess denied that the properties had been bought recently or from the Princess, backing their denials with property titles.

On Monday, the Tax Agency refuses to make an official statement, but some tax inspectors "informally" communicate to the judge that an error might have been made in the document. The judge reacts by instructing the property registries of the 4 provinces involved to investigate. The Anti-Corruption Prosecutor's office also opens an investigation into the Tax Agency report.

On Tuesday, the Tax Agency issued a self-exculpatory statement [PDF], alleging that the Agency processes "more than a billion data items", that the data received by the Agency (from notaries and property registrars) had the wrong ID number, and that the Agency was not supposed to double-check the information in its files before sending it to the judge, and reassuring taxpayers that the data the Agency uses to compile their automatically generated draft tax returns is correct. Also on Tuesday, the Princess' legal counsel said they would not file a lawsuit against the Tax Agency.

Finally, on Wednesday the Finance Minister Cristóbal Montoro appeared in Parliament during the weekly government control session and answered questions from opposition MPs by, first, apologizing to the Royal Family, saying that the "clerical error" does not have a negative impact on the court proceedings, and finally that he was "not in a position to given an explanation" and asked MPs to "wait for the results" of an investigation into "the origin of the error".

Corriere della Sera reports that Italy's Constitutional Court has upheld, against Berlusconi's appeal, a procedural decision on "legitimate impediment" taken in early 2010 by the Milan courts. The case, in which Berlusconi had been found guilty in the lower court and on appeal, will now proceed to the Court of Cassation for final sentencing. The sentence currently under stay includes a 5-year inhabilitation for public office, which given Berlusconi's age would end his political career if it came into effect. This could have political implications as it has been suggested that Berlusconi might attempt to bargain for an indult in exchange for continued support for Letta's government. However, amid wailing and gnashing of teeth from his followers, and the usual protestations of judicial persecution, Berlusconi was quick to reassure that the Popolo della Libertà's support for Letta's government would continue.

The leaders of the Greek coalition partners are to meet again today at 8.30pm for the third attempt in less than a week to resolve a dispute over state broadcaster ERT after a three-and-a-half-hour meeting Wednesday failed to yield a compromise, Kathimerini reports. Both junior partners repeated their demands for ERT to reopen immediately and for its signal to be restored so that broadcasting can resume. They also called for a reassessment of the basis of the tripartite administration’s policy programme agreement. There was little comment from ND’s camp after the talks Wednesday. On Thursday the Supreme Administrative Court  which ruled on Monday that the government had the right to shut down ERT but not to cut the broadcaster’s signal, is to convene in the wake of varying interpretations of its decision by politicians as well as legal experts. A court decision is not expected before Friday.

As Greece’s coalition leaders struggled to solve a dispute over the closure of state broadcaster ERT on Wednesday, troika envoys said they were leaving Athens for a “pause” but are expected to resume by the end of the month, according to their statements (IMF, European Commission)

There had been much fuss about a bill regulating the payment of holiday allowances to civil servants and pensioners in Portugal over the last few weeks. But now, after just one day of consideration, the Portuguese President signed off the law. The bill allows the Executive to pay holiday allowances in June to only one part of civil servants, postponing payments to the others to November. The leader of the opposition António José Seguro said the president will need to explain how he could sign off such a controversial decision in just one day. 

Paolo Manasse said the severity of the Italian downturn is without a doubt a cyclical phenomenon, but the persistance of economic weakness – essentially no growth since entry into the eurozone – was the “legacy of more than a decade of a lack of reforms in credit, product and labour markets, which suffocated innovation and productivity growth, and resulted in wage dynamics that were completely decoupled from labour productivity and demand conditions. Italy’s reform inertia contrasts with the situation elsewhere and opened up a competitive gap this crisis brought to the fore, with dramatic and long-lasting consequences. 

Here is the latest Forza poll for Stern-RTL Wahltrend. The SPD is imploding:

This is not an obituary – but an actual birthday celebration. Frankfurter Allgemeine celebrates the 65^th birthday of the D-Mark, born in 1948, and still going strong in active semi-retirement. The article presents a short history of the D-Mark in the form of a personal biography.  

This must be one of the best modern examples of Karl Marx’ famous observation in his Brumaire essay that historic events occur twice – as a tragedy and as a farce. After the bad local election results, Beppe Grillo is now conducting an old-fashioned purge of his Movimento 5 Stelle, triggered by criticism of his leadership style by an M5S senator – as we had reported. Grillo has now taken his battle against Adele Gambero to the next level, by forcing an online plebiscite with the motion to expel her from the party. The move is supported by a narrow majority of the M5S MPs – which as the FT suggests could indicate that the party might split over this. La Repubblica talked about mobbing in a front page editorial, recalling the prediction of a commentator who had observed a few months ago that the real test of any new party is how it will deal with dissent. That question has now been comprehensive answered.

On Kathimerini Alexis Papachelas writes politicians took some tough decisions to slash pensions and salaries but they are foot-dragging with the public sector overhaul. The coalition has failed in the simple task of agreeing on the closure of even one single state entity, the ERT broadcaster. Even if the shutdown was carried out badly, the problem remains that the government needs to break taboos. A close look also suggests that even if they flag out progress it often turns out to be a masquerade – like the announcement of a merger between two hospitals when in fact all they did is to abolish one of the two boards. He concludes: ”The country needs to learn to live with such changes, and on a practical level this means that its politicians need to finally take the decisions that so many thousands of Greeks have already had to take at great cost over the past few years.”

Car sales are often a reliable bellwether of the economy, so the news of a 20 year low in EU-wide car registrations is not reassuring. Reuters reports on figures from the  Association of European Carmakers, which show that car registrations during May were 5.9% lower than in May 2012. The seemingly good figures for April are now considered to have been distorted by calendar effects. Over the first months of the year, total EU sales were down 6.8%, relative to the same period in 2012. Germany underperformed the EU, with sales down 8.8%, while in France and Italy they were down over 11%. The UK, by contrast, posted an 11% annual increase for May.

The eurozone plays virtually no role in the German elections – which is somewhat strange since the next parliament will probably spend a large portion of its time dealing with its various aspects. Yesterday, Peer Steinbruck outlined some of his thinking on the eurozone, which is different from Merkel's. He criticised her fiscal consolidations policies for the eurozone as leading to political and social crises – something she has not on her agenda, he said. His big idea was a European Marshall plan funded by the EU budget. He also does not exclude explicitly further contribution from Germany, Frankfurter Allgemeine reports.

Reuters, meanwhile, has an interesting comment from hedge fund manager Galia Velimukhametova. A fund manager at GLG, which is part of Man Group, she said that Germany would end up spending more than 10% of its GDP to support a transfer union. Germany may get some concessions, like haircuts on debt, but it will cost a fortune to sort out the haemorrhaging of the banking sector.

Martin Wolf argues that the Greek crisis triggered a number of tragic misunderstandings. Here is his summary:

“In brief, the Greek crisis proved a triple calamity: a calamity for the Greeks themselves; a calamity for the popular view of the crisis inside the eurozone; and a calamity for fiscal policy everywhere. The result has been stagnation, or worse, particularly in Europe. Today, we have to recognise that the huge falls in output relative to pre-crisis trends may well never be recouped. Yet the reaction of policy makers has not been to admit the mistakes, but to redefine acceptable performance at a new, lower level. It is a sad story.”

Corriere della Sera and La Republica have detailed articles on Silvio Berlusconi’s criticisms of the Letta government, which yesterday reiterated its absolute commitment to the 3% deficit target – for which it is prepared to raise VAT by one percentage point. Berlusconi yesterday said Italy was a net contributor to the EU, and such should challenge the consensus, and simply insists on its position. Repubblica quotes him as saying that the Italian government should make the point “without slamming heels but with courage and authority to tell these gentlemen that under these conditions we are go after you with your damn austerity.” He also criticised the Letta government for setting the wrong priorities. He said cutting expenses by 1%, instead of raising taxes, is not that hard. Every company know how to cut budgets by this amount. The article gives the response by PD general secretary Guglielmo Epifani who said that Berlusconi unnecessary provocations were weakening the country. 

The Supreme Administrative court in Greece ordered the state broadcaster ERT back on air while it is restructured, Reuters reports. All parties claimed victory from the ruling, which failed to specify whether ERT must restart with programming as before or only partially resume operations until its re-launch. During talks with his coalition partners, Antonis Samaras offered to reopen a pared-down version of ERT under temporary management, reshuffle the cabinet and update the coalition's agreement to improve cooperation among parties according to sources. PASOK's Venizelos said Samaras had appeared to accept the option of a cabinet reshuffle and better coordination, and that the three political leaders would meet again on Wednesday to agree on how to implement the court ruling. The threat of early elections appeared to recede as talk shifted to the reshuffle.

El Confidencial has a report on personal bankruptcy in Spain. Spanish law allows natural persons access to the same bankruptcy procedure as legal persons only since 2003, but the number of people who took advantage of the possibility was exceedingly small prior to 2008-9. Now, 15% to 20% of all cases taken on by bankruptcy lawyers involve legal persons. However, because any remaining debt after liquidation of assets remains according to Spanish law, bankruptcy is not as beneficial to individuals as it is for firms. In the first quarter of 2013, just under 200 people declared personal bankruptcy, which is less than 7% of all bankruptcies. Bankruptcy can be favourable to families with substantial unsecured debt (typically consumer debt), which can usually be written down, and would be able to pay their mortgage if the rest of the debt went away. Another favourable case is when the bankruptcy has been precipitated by the failure of a firm that the person had provided a loan guarantee to. It is also relatively common to fold personal debt into a refinanced mortgage with a longer maturity and notional than the original mortgage, as this typically lowers the interest payments.