A Robin Hood tax for Italy – Tremonti’s 3-year budget plan
Italy has a budget plan – negotiated after nine minutes of discussion in the cabinet. See, among others, this story in Corriere della Sera. It is for three years, and aims to eliminate the budget deficit by 2011. The main headline number is €34.8bn for this three-year period, which the Italians call manovra, an accounting concept that knows no equivalent elsewhere. It is the discretionary part of fiscal policy – the money the government can use for a combination of tax cuts and spending. (This is in the same ballpark as last year’s Italian budget, which was around €10bn for one year). As part of this package, the cabinet also approved what is known as the Robin Hood a tax, a windfall tax on energy companies. Il Sole 24 ore has a complete list of all the economic measures decided by the Berlusconi administration – essentially a list of the new government’s economic reform strategy. (It is in our view more far-reaching than the previous government’s, as it at least tries to address some of the country’s problems – public sector labour market rigidities, weak linkages between pay and productivity, energy production).
Zapatero promises no labour legislation against the will of the social partners
El Pais has an interesting story about a meeting yesterday between Jose Luis Zapatero, trade unions and employer leaders, which shows that the Spanish PM will most definitely not pursue any inconvenient labour market reforms. He pledged that all initiatives will have to be taken in consensus with the social partners (another way of saying that not much will happen). The article mentions, however, that the social partners may not like the country’s forthcoming fiscal plans, which may exert some pressure on public-sector pay.
Help! We are so confused!
The sheer confusion the Irish referendum has brought to the EU was plainly evident in an article in Frankfurter Allgemeine, which showed that pretty much any clever idea mentioned by some unnamed officials has no legs. In Brussels, apparently, there is some speculation about whether one could give the Irish a permanent Commissioner, until somebody pointed out to them that this would necessitate a renegotiation of the Treaty. German officials said it be wrong to exert too much pressure on the Irish, yet how this “strategy” would achieve its goal, was not clear either (probably because it does not). The paper also quoted a German official as saying that it was inconceivable that Ireland was no longer part of the internal market. (This is an interesting expression: Does this mean that this German official can imagine some sort of association status for Ireland? You can slice this problem in any way you like. We have yet to hear a workable alternative to the following three options: Another referendum, early next year, after some yet to be specified non-treaty concessions; if a No vote is repeated, or no such referendum is held, negotiation of a special association status; or if more countries fail to ratify, continuation with the Nice Treaty).
Another very confusing comment came from Jean-Claude Juncker, the prime minister of Luxembourg, in an interview in Liberation (via Coulisses de Bruxelles). In this interview he complains about attempts to put Ireland in the dock, and put pressure on the country. He says that the Irish No has exactly the same significance as the French No. But then he goes to say that if there is no agreement, a Europe of Two Speeds will be inevitable (but is this not the same as putting pressure on Ireland, since Ireland does not want to be in the slow lane of European integration? Our interpretation is that Juncker and the Germans have decided that the best course of action is to talk softly, and to act tough).
And, by the way, the British yesterday ratified the Treaty of Lisbon, making it 19 out of 27.
Charles Wyplosz on Europe
Writing in the FT, Charles Wyplosz gives a pessimistic outlook on the future of European integration. He says that his generation had a dream of further integration. The next generation no longer shares this dream. He explains the various No votes in terms of lack of democracy. If people could choose their own leaders, they would be less inclined to vote No. He faulted the constitutional convention for not thinking outside the box, and to establish a genuine democracy.
Second-round inflation watch
There will be some delays at Lufthansa in Hamburg today because the German trade union Verdi stages a warning strike in defence of a 9.8% wage claim for 2008. Lufthansa only offered 3.4% over 18 months, ARD German television reports.
Finland is concerned about inflation
The Finnish finance minister Jyrki Katainen warned that inflation is a serious threat, reports Newsroom Finland. According to Mr Katainen most of the price rises are due to circumstances outside of Finland that are beyond the country's control. Finance ministry calculations suggest that without price rises in oil and food, inflation in Finland would be only at 2.5%, instead of the current 4%. Among the measures proposed by the finance minister to sustain purchasing power were continued wage raises, income tax cuts and cuts in value added tax for food.
Hedge fund manager warns of worse to come
The FT has an article quoting a well-known hedge fund manager, John Paulson, who made billions from the subprime meltdown, as saying that the total expected write-offs will be $1.3 trillion, compared to writedowns so far of $380bn. He says the reasons is larger-than-expected decline in the US housing market, and the spillovers into non-residential construction and consumption.
Greece to sell dollar-denominated benchmark bond
Greece plans to sell a 5-year dollar-denominated benchmark bond this week, writes Kathemerini. A bank source close to the deal said that the bond would raise a minimum of $1 bn. Guidance has been set at mid-swaps plus 10 basis points, the official said. Deutsche Bank, HSBC, Lehman Brothers, Morgan Stanley and National Bank of Greece are managing the sale. Greece is rated A1 by Moody’s Investors Service and A by both Standard & Poor’s and Fitch Ratings.
Eurostat revision puts Greek budget deficit at over 3%
A Eurostat revision of Greece’s fiscal data is likely to push the 2007 budget deficit figure above the EU-imposed 3% threshold, reports Kathemerini. Eurostat will change the accounting treatment of some budget revenues in a move that will result in the deficit of 3.1% instead of the 2.8% recorded. The reason for the discrepancy is the treatment of European Union funds which were posted in 2007 but which Eurostat believes should appear in the 2006 accounts.
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