So what if the Irish did vote No?
It’s an open game in Ireland. The latest Irish opinion polls in the Sunday Business Post (hat tip Coulisse de Bruxelles) suggests that the yes vote may be narrowly ahead again – but this is only means that this vote cannot be called ahead of time. The latest data are 42%, and 39% No. Among those certain to vote, the Yes are at 46% and the No Vote at 37%. Sounds a little more reassuring than last week’s poll, which had the No’s ahead for the first time.
Over the weekend Ireland government and opposition joined in a call for a Yes vote vote ahead of Thurday’s referendum (Irish Times). Business groups also united to promote the benefits from the Treaty (Irish Independent) and many citizens came out at the weekend to canvass on the Lisbon Treaty. According to Irish commentators the undecided (28%) could be inclined to abstain or to vote No (see our briefing last Friday). A lack of understanding was given as a main reason for voting A No.
What if the Irish voted No?
An article on the front page of Le Monde speculates about what would happen if the Irish voted No. The most obvious but also the most unattractive options are to continue under the Nice Treaty or to renegotiate the Lisbon Treaty. Ireland could also decide to hold a second referendum like they did with the Nice Treaty after it had been rejected in a first referendum. This would be a serious setback for the French presidency, which will have to put parts of their agenda on hold just to avoid further irritation in Ireland. An Irish No could have repercussions for the Czechs. The eurosceptic president Vaclav Klaus already warned to impose a referendum instead of a parliamentary vote, envisaged by the constitution.
In an interview with Le Monde, MEP Daniel Cohn-Bendit said that an Irish No vote will put the question about the functioning of Europe back on the table of the French presidency and with it the question of veto rights. He argued a No vote should have consequences: If a country votes No, it should leave the European Union. For future ratification processes he said that his party, the Greens, already suggested a European referendum with double majority to end this suicidal process. Democracy is to overcome the veto rights in societies that follow an egoistic logic.
Are tax cuts going to be Merkel’s big idea for the 2009 elections?
We should watch this. The proposal of wideranging tax cuts started came originally from Angela Merkel’s sister party, the Bavarian CSU. Frankfurter Allgemeine writes there are now an increasingly number of advocates for tax cuts in the CDU as well. Merkel herself previously ruled it out, given the need to reach the 2011 target of a balanced budget. But the economy on the verge of turning down, the tax cut option becomes increasingly more attractive to the largest party in government – and this will have some big implication on the German-led attempt to achieve budgetary balance in the euro area by 2012.
Tax reform plans in Belgium
The Belgium finance minister Didier Reynders presented his fiscal reform package last week, provoking irritation among coalition partners, reports Le Soir. Reynders suggests to raise the limit for taxable income gradually from currently 6150€ to 7400€ by 2013 and to reduce the he five tax rates (25%, 30%, 40%, 45% and 50%) to three rates (25%, 40%, 50%). First reactions suggest long negotiations ahead. Prime minister Yves Leterme also tempered expectations when he commented on Reynders fiscal reform package as a proposal to be discussed in combination with the socio-economic perspectives and the multiannual budget. Critics say that the last fiscal reform under Reynders benefited only the higher income earners and that this time the beneficials shall be low and medium income earners.
Sarkozy and Merkel
Ahead of the Franco German meeting today, Le Monde looked back on the relationship between Nicolas Sarkozy and Angela Merkel, their differences in ambitions, style and methods. The story between the two and the main turning points are well illustrated. The conclusion is that they are a classical Franco-German couple, a partnership of convenience, not genuine friendship, like many others before with the notable exception of Giscard and Schmidt.
Berlusconi’s popularity is rising
The new Italian government had a good start. The opinion polls have registered a strong increase in popularity both of the government itself, as well as Berlusconi himself and his economy minister Giulio Tremonti, writes La Repubblica. So far the Italian government has started the process of cleaning up Naples, and to introduce some targeted economic reforms, including the abolition of an unpopular property tax on first homes. Il sole 24 ore reports that Berlusconi has promised tax cuts for families and companies to help consumption.
Geithner’s five point plan to solve the crisis
Timothy Geithner, president of the NY Fed, presented his own five-point plan for the future of regulation. The most important part is his support for a special regulator of the too-large-to-fail global financial institutions, he writes in the Financial Times. He proposes global standards for capital and liquidity, as well as a stronger framework of oversight over the critical parts of the payments system. In the US, the Fed should take the lead, and it should work together with supervisors internationally. His other proposals are relatively standard: tougher capital adequacy rules and enforcement and better risk management procedures; improve the capacity of the system to absorb risk by taking strengthening the clearing systems and pushing for standardisation and central clearing in derivatives markets; no attempt to impose capital requirement on the non-supervised sectors, such as hedge funds, but to strength counterparty risk management in the supervised sectors; and finally, standardising and developing some of the facilities that the central banks have used for crisis prevention, such as the swap lines between central banks, or the Fed’s Term Auction Facility.
(We find it interesting, but are not surprised, that Geithner does not even mention monetary policy. It reflects a consensus that monetary policy had nothing to do with this crisis. Hence, no changes are needed.)
Munchau on Trichet
Writing in the Financial Times, Wolfgang Munchau argues that the ECB was right to preannounce a rate rise, and that the most important part of this message is that the Europeans are now both willing, and able, to decouple from the Fed in monetary policy. This was not possible to the same extent before the introduction of the euro. In fact, in doing so the Europeans have limited the Fed’s own leeway (witness Bernanke’s speech on the weak dollar last week). The diverging policy responses by the Fed and the ECB are also likely to strengthen the euro’s global role at the expense of the dollar.
Buiter on Trichet
Willem Buiter has a long rant this morning about the ECB’s communication policy, especially the habit to preannounce interest rate changes. He writes the latest code word is “state of highten alertness”, which probably means that the central banks present at the meeting were not asleep. He says the ECB’s press conference shed no light on the matter, and are merely de Gaulle-style grand standing occasions for the president.
Brad Setser on the Fed
Brad Setser makes a similar argument in respect of China, whose inflation is acting as constraint on the US. He is quoting a paper in which the point is made that the Fed has essentially imposed a policy that essentially ignored the rest of the world. In doing so, the policy became excessively expansionary. In countries with dollar pegs, foreign exchange reserve are rising at unsustainable levels. Central banks are no longer capable of sterilising rapid reserve growth, causing rapid money growth, and inflation throughout the dollar zone, which in turn raises inflation in the US, and constrains the Fed.
Charles Grant on the EU and China
Also writing in the FT, Charles Grant proposes a much closer political alliance between the EU and China, as part of a strategy of the EU multilateralism, which he regards as the natural successor to American unilateralism. The priorities for this co-operation should be climate change, nuclear non-proliferation, Africa and global trade.
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