Sarkozy and Merkel rule out enlargement without Lisbon
The idea that the EU could happily continue on the basis of the Nice Treaty received yesterday a death blow by both Angela Merkel and Nicholas Sarkozy. Frankfurter Allgemeine has a long interview with Merkel in which she flatly said the Nice Treaty allowed no further enlargement. (The paper did not pick up on this. This was hidden deep in the interview. The statement is only true in a technical sense. Enlargement would require some Treaty amendments, but not of the kind that would require a lengthy ratification process, or Irish referendum). Jean Quatremer reports directly from Sarkozy’s press conference, who repeated that without Lisbon, even Croatia will not be allowed the EU, and furthermore, that he and Merkel were in agreement over this. The idea is obviously to maximum pressure on the Treaty nay-sayers, the Czechs in particular, who are generally in favour of enlargement. So effectively they are saying that Ireland is not merely blocking a Treaty. The Irish voters are blocking EU enlargement.
The Irish vote ends Rasmussen’s dream of Denmark’s euro adoption
The FT reports that the Irish referendum has made it virtually impossible for Anders Fogh Rasmussen, the Danish premier, to pursue his strategy to push through a series of referenda to undo the Maastricht Treaty’s opt-out clauses, on foreign policy and euro adoption. Denmark has secured a formal opt-out from the euro, and the Danish premier has frequently stated his ambition to join the euro, though the Danish still appears sceptical, and possibly more so now after the Irish No Vote.
FT Deutschland reports that the Irish do not want to present a solution in October. They will only be ready to produce an interim assessment (another way of saying No). Together with the expected delayed ratification in the Czech Republic, it would be very difficult for the Treaty to come into force mid-year 2009 in time for the European elections. Since the Treaty changes the whole ballgame, this would have been highly desirable, and this puts additional pressure on the system.
Bini-Smaghi on why services liberalisation is necessary
Lorenzo Bini-Smaghi makes an important point in an comment in the FT, in which he argues that services liberalisation is not only desirable, but also necessary for the ECB to achieve its inflation objectives. If commodities prices rise, and if manufacturing prices rise at current rates, the only way to achieve the inflation objective is for services prices to grow at much lower rates that the present 2% plus. (Hence a conclusion would be that lack of services liberalisation is inconsistent with the ECB’s inflation objective unless once accepts that policy is set at a level that permanently depresses growth).
French economy to stagnate
The statistical office INSEE published yesterday surprisingly pessimistic forecasts for France according to which the French economy is to stagnate in the second half of 2008 and to grow only by 1.6% over the entire year, reports Les Echos. Consumption is expected to grow only by 1.3%(after 2.3% in 2007) as households cut their spending on food and housing. Previously, INSEE predicted a strong resiliance of the French economy against the financial crisis and the oil and food price shock, but obviously this is no longer the case. The growth forecast would be well below the government's forecast of 1.7%-2%.
No D-Mark nostalgia please
Thomas Fricke warns in his FT Deutschland against D-Mark nostalgia, which is en vogue these days, partly to coincide with the 60th anniversary of Germany’s Social Market Economy, that great misnomer with Ludwig Erhard tried to cajole a sceptical public into accepting the market economy. Fricke writes that Germany’s professors were largely wrong in their predictions that the euro would either not survive, or suffer from excessively high interest rates, or would cause inflation. Moreover, Fricke points out, it would be worse had the D-Mark survived. The Bundesbank found it increasingly difficult to be the lead central bank in a pre-monetary union. Without the euro, Germany would have devalued in the 1990s, causing immense strains on the system. (And without the euro, several other currencies would have devalued against the D-Mark during the current turmoil.)
One way out of the Irish dilemma
Jean Quatremer notes in his blog that guaranteeing the Irish their own European Commissioner might solve the problem. It would require no new re-ratification by the others (certain treaty changes can be imposed by dictat from the European Council), and would give the Irish something to brag about ahead of a second referendum. Unfortunately though, the streamlining of the European Commission is one of the most important reform projects in the Lisbon Treaty that would have to be dumped. The big question is whether Sarkozy, who has supported this change in particular, is ready to pay this high a price to secure an Irish Yes vote.
Ireland is in even more trouble
Brendan Keenan in the Irish Independent writes that Ireland just voted for more trouble then the country already has. The loss of political standing coincides with the loss of economic standing. The impact of the construction crash will send headline growth from the top of the EU-15 league to the bottom over the next couple of years. He says that the immanent ECB interest rate rise is an unpleasant surprise and concludes: ”For the first ten years of the euro, interest rates were too low for Ireland. We decided to lie back and enjoy it. They were too high for Germany, which decided to sweat out the consequences the hard way with half a decade of below-trend growth. Now the shoe is on the other foot, we will have to do much the same -- no matter how we vote in referendums.”
Mervyn King’s victory
Mervyn King yesterday managed to secure the appointment of Charlie Bean, the Bank’s current chief economist, as deputy governor, after the departure of Rachel Lomax. New chief economist will be Spencer Dale, a career economist at the Bank The FT writes that these appointment increase the Mr King’s grip on the board and has been taken by financial markets as a sign that future monetary policy will be tighter. The FT also has an inside article on the wheeling and dealing that has been going on in recent days. Sir John Gieve was recently forced to resign from the monetary policy committee (so much for independence), and his resignation will pave the way for the appointment of Paul Tucker to the MPC. Previously to Sir John’s resignation, there was only one vacancy on the MPC, and a row over who should fill it. Governor King also emerged victorious over a new committee on financial stability, requested by the Treaty, but which now only has subcommittee status.
Asia out of kilter
Barry Eichengreen argues in Vox that with the world on the brink of a recession and the US exporting inflation, Asian macro policies are seriously misaligned. He argues that Asia needs tight money, appreciated exchange rates, and fiscal stimulus.
Jim Grant on the dollar and the euro
The Big Picture blog picks up on a comment in the subscription-only Grant Interest Rate Observer, which made the point that America used to be considered a market-based financial market, and Europe a bank-based financial market, and that the crisis has made the US move away from market and the Europeans away from banks, and both towards central bank enforced regulation. Grant also makes the point that both the dollar and the euro are no longer sound currencies as they followed Walter Bagehot’s mistaken, he says, advice of central bank’s as lenders of last resort.
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