July 30, 2014

the Italian opposition unites in an effort to bring down Matteo Renzi’s flagship reform to turn the Senate into a revising chamber;
  • Francesco Giavazzi, meanwhile, writes that the spending review by Carlo Cottarelli is not going too well either.

July 30, 2014

0

Italy’s reforms not going so well

The Italian papers are full of the latest twist, turns, intrigues and walk-out threats in the battled to abolish the Senate in its current role, and to reduce it to a revising chamber. We will keep an eye on this evolving situation, which still has the potential to derail Matteo Renzi’s agenda. The opposition parties of the Left and the Right yesterday stepped up their protests against the government’s attempt to bulldoze the first reading of the legislation through by August 8 – bypassing virtually all of nearly 8000 amendment proposals.

Meanwhile, we noted an excellent editorial in Corriere della Sera by Francesco Giavazzi this morning, in which he favourably compares the the new anti-corruption tsar Raffaele Cantone to the spending reform tsar Carlo Cottarelli. While Cantone has already initiated a number of high profile cases, Cottarelli operates quietly in the background, watching as his proposals are being watered down in the political process. One of the examples Giavazzi gives is a mobility clause in the public sector, for which the trade union negotiators managed to get exemptions for families with young children, which is not the case in the private sector. There is also not much happening in spending areas under the full control of the government. Giavazzi says Cottarelli should be more confrontational in his approach. 

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July 28, 2014

Herman van Rompuy sends a letter to EU ambassadors, urging them to agree a list of sanctions by tomorrow, on the basis of a number of principles:
  • They are a balance across sectors, and member states; no retro-activity; sensitive technologies only to affect oil sector; and dual use limited only to end users;
  • said he asked the Commission to produce a constant assessment of economic impact;
  • EU newspaper editors join forces to sign an open letter to EU leaders with the plea to stop Vladimir Putin;

July 28, 2014

0

Tomorrow’s sanctions against Russia

The FT has the letter Herman van Rompuy has sent to EU ambassadors, urging them to agree the next stage of sanctions by tomorrow. The sanctions will include restrictions on capital market access, on dual use goods and sensitive technologies. What we thought particularly interesting are the principles according to which the decision should be made. It is clear from those principles that the first of the Mistral orders will be delivered as the rules do not apply retroactively. Here is van Rompuy’s list:

The overall balance will be maintained across sectors and across Member States;

The principle of non-retroactivity will apply across all targeted sectors, notably in the field of arms trade and restrictions on access to capital markets;

The measures in the field of sensitive technologies will only affect the oil sector in view of the need to preserve EU energy security;

The prohibition of dual-use technology exports will be limited at this stage to military end-users.

As far as the other concerns expressed by Member States, notably on the impact on our economies, I have asked the Commission to keep these under constant review and to keep Member States closely involved.”

In the meantime, pressure on the EU to act increased further with the publication of a joint letter calling on EU leaders to stop Putin. The letter is written by European newspaper editors and published across various newspapers in Europe, including Die Welt, Le Monde, El Pais, La Stampa and de Volkskrant. It was initiated by Adam Michnik, the editor of Gazeta Wyborcza. Here is an excerpt:

“Experience has taught us that it's useless to talk to him, unless the dialogue is supported by unity and firmness. Putin doesn't care about weak and spineless opponents. He seems to view EU in that light: they talk and talk while Kreml continues to cross more and more "red lines". Putin sends all the time weapons and lego-soldiers to East-Ukraine. He groups his troops from outside the border.” 

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July 25, 2014

EU ambassadors met yesterday to decide a new round of sanctions against Russian citizens and institutions, and are preparing a list of financial sanctions that would go further than those imposed by the US;
  • the Commission’s proposals focus on Russian state-owned banks and companies, and seeks to restrict access to financial instruments of a maturity of more than 90 days;
  • Norway’s Government Pension Fund Global said it will reconsider its investments in Russia;
  • Reuters has an interview with a pro-Russian military commander in the Ukraine, who said the rebels may well have used the BUK, but that the Ukrainian government provoked this attack through an air strike at exactly the same time when the machine flew overhead;

July 25, 2014

0

Towards financial sanctions

EU ambassadors met yesterday, and inched towards an eventual agreement on financial sanctions against Russia. The actual decisions taken yesterday were minor. The list of people and institutionss was increased by another 15 and 18 respectively, but the really important development – as Frankfurter Allgemeine reports – is that the list of sanctions to be agreed next week will be similar to those imposed by the US by focusing on financial transactions. This will affect in particular state-owned Russian companies and banks. As the paper writes, one of the reasons for the delay is the need for unanimity. It is not clear whether the ambassadors could simply take the decision themselves, or whether there is a need for a foreign affairs council, or a European Council.

In a separate article the paper writes that the discussions are to be continued next Tuesday. The Commission’s proposal focuses mostly on banks in which the Russian state as a share of more than 50%. The sanctions could make it illegal for EU citizens to buy shares or bonds in such banks. As in the case of the US sanctions, the EU sanctions, too, would kick in for maturities of 90 days or over. There are no plans to extend the ban to Russian sovereign debt. The article points out that Russia could withstand financial sanctions for a while, given is $470bn in foreign reserves. Another important development is the announcement by Norway’s Government Pension Fund Global, one of the world’s largest sovereign wealth funds, that it will reconsider its investments in Russia. Spiegel Online remarks that if there was an agreement next week, it would be more far reaching than what the US has done so far. 

The other interesting piece of news was a remarkable interview by Reuters of Alexander Khodakovsky, commander of the Vostok Battalion, who acknowledged that the rebels did possess a BUK missile system. Khodakovsky said Kiev had launched air strikes in the area fully aware that the missiles were in place. He said that the only situation in which he would use a BUK was as a direct response to an air strike. 

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July 24, 2014

with requests for almost 1000 secret votes on 8000 amendment, Matteo Renzi’s Senate reforms are in real trouble – the deadline is likely to be postponed from mid-August until late-September;
  • Senators are also wary of Renzi’s threats to call new elections if the reforms fail – one Senator calls it a threat with a water pistol;

July 24, 2014

0

Renzi’s reforms face delays

We have seen the glitzy campaigns and the tax cuts, but the hard work has yet to happen. Matteo Renzi’s political reforms are in trouble. There are now nearly 8000 amendments on the table – three amendments each two hours – and almost 1000 requests for secret votes. By comparison, the Senate only voted on three amendments yesterday. The amendments and secret votes are obviously a filibuster operation, designed to scupper the legislation. La Repubblica writes that government sources were no longer treating a postponement of the reforms as a taboo as they did until recently. The problem for Renzi is not only the opposition Five Star Movement, but also Senators from his own party who oppose the reforms, and are seeking to slow them down. It is also possible for the Senate leadership to guillotine the process, but this is more likely to happen after the summer break, with a first reading to be completed by end-September (instead of mid-August, as under the current plan).

In another article, La Republicca quotes a senator as saying that Renzi’s threat to call new elections was hollow. Even a child recognises a water pistol. 

The reason the treat is hollow is because in the absence of electoral reforms, any elections would have to be held under a system of pure proportional representation in line with a recent Constitutional Court ruling. There is no way that Renzi could repeat his performance of over 40% share of the vote in such an election, given that an election would only arise if the unity of his own party crumbled. For that reason, we are certain Renzi will accept a slowdown of the reforms, and compromises. And that will also be the case for any subsequent economic reforms.
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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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              Italy’s reforms not going so well

              • the Italian opposition unites in an effort to bring down Matteo Renzi’s flagship reform to turn the Senate into a revising chamber;
              • Francesco Giavazzi, meanwhile, writes that the spending review by Carlo Cottarelli is not going too well either.

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