Germany's balanced budget
Germany’s finance minister Peer Steinbruck has managed to get his budgetary austerity plan approved by the cabinet. There will be €10.5bn in new debts in 2009, which is less than 0.5% of GDP. This number is projected to fall progressively until 2011. From 2012, the federal budget will be balanced even on a structural measure, according to Frankfurter Allgemeine.
Financial Times Deutschland has details that the new budget plan includes higher provisions than previous budgets for an economic slowdown, as Germany appears determined to hit the target even in adverse circumstances.
Mr Steinbruck also said he was unhappy about the ECB’s decision to raise interest rates at its next meeting.
A scary statistic about global inflation
Morgan Stanley has found out that over 50 countries, representing two thirds of the earth’s population, are now subject to an inflation rate of more than 10%, according to Frankfurter Allgemeine. A weighted measures of global inflation (weighted according to GDP!), is projected by the Insitute for International Economics in Kiel to rise from 4.1% last year to about 5% this year. Negative real interest rates, usually found in countries with dollar-pegs, are fuelling inflationary developments.
A closer look at the Italian budget plan
Writing in Lavoce, Tito Boeri and Pietro Garibaldi take a closer look at the Berlusconi government’s three year budget plan, whose boldness had surprised many observers. But Boeri and Garibaldi do not like the political economics behind this plan. There will be rising fiscal pressures throughout this legislature, and a fall in capital spending, precisely the opposite of what a country needs if it wants to escape from stagnation. Boeri and Garbibaldi also pointed out that the Berlusconi government is a tax-raising government, as most of the Robin-Hood-energy taxes will ultimately be paid for by families, in contrast to the protestations during the election campaign.
A contrarian view on Sarkozy
Most observers believe that the French EU presidency, starting tomorrow, could not have come at a worse time. See for example this FT editorial which expresses nervousness at the prospect of the French EU presidency, citing Nicholas Sarkozy’s most recent fights with the European Commission and Peter Mandelson in particular.
The Paris correspondent of Frankfurter Allgemeine acknowledges the risks, but concludes that Sarkozy may be well placed to sort out the current mess, since he himself has already managed to overcome opposition to a treaty, and since he did take the French No voters more seriously than most treaty supporters, when he took the line that the EU needed to reinvented itself as an organisation to protect its members.
Munchau asks what if the Irish do not ratify?
Wolfgang Munchau devotes his column to the question, whether a dissenting country can, political will permitted, be isolated in the EU, or be forced to quit. Assuming that Ireland refuses to ratify, Munchau says there are three categories of options: a voluntary leave-and-return agreement, which he considers unlikely. An agreement by the ratifiers to enforce parts of the Lisbon Treaty outside the EU – for example a joint foreign policy, immigration, economic governance, and maybe more. And finally, the nuclear option: the ratifiers quit the EU, and regroup under a different umbrella. There are intermittent options, but it seems there is no shortage of ideas of one can legally isolate a non-ratifier.
Dullien on the ECB
Writing in his blog, Sebastian Dullien argues that the ECB’s almost certain interest rate increase is the riskiest decision it has yet taken. He obviously disagrees with the decision. He says core inflation is contained, the euro area, or large parts, are slipping into recession, there are no indications that labour unions are pressing for high wages, so this inflation increase is limited purely to the spike in the prices of oil and commodities. He argues that the ECB by trying to fight non-existing inflationary pressures will ultimately endanger its much cherished independence.
Larry Summers on the crisis
Larry Summers gives policy advice to the US government, essentially advocating the same policies as solutions that got us into the crisis in the first place. Writing in the FT, he calls for: 1. bail out the home owners; 2. bail out the economy through another fiscal stimulus; 3. address the non-monetary causes of inflation, such as ethanole subsidies (he is silent on the monetary causes), 4. bail out as many financial institutions as necessary.
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