Commission clashes with Dutch central bank over ABN Amro
EU Commission criticises Nederlandsche Bank
EU Commission Charly McCreevy criticised Nout Wellink, the governor of the Dutch central bank, over comments that he would closer monitor the attempt by the UK-based hedge fund Children's Investment Trust to break up ABN Amro, according to an article by FT Deutschland. The Commission said everybody had the right of access in Europe's capital markets. There was no evidence of a breach of European rules. The paper said that Wellink's criticism were reminiscent of action taken by former Italian central bank chief Antonio Fazio, who was caught up in a scandal when he tried to protect an Italian bank from a foreign takeover. In a separate article, the paper quotes comments from Mr Wellink in an interview to NRC Handelsblad, in which he said: “TCI letter to ABN effectively says: You think about what you would like to sell. But we get the proceeds. This goes a step too far for us.”
Italy – what next
The debate about electoral reform
In Italy, a debate has broken out about electoral reform, which now seems inevitable following the fall of the Prodi government after last week's Senate vote. Lavoce.info has two articles on the subject discussing the complicated issues involving electoral reform. The Financial Times has a readers' letter from Chris Hanretty of the European University Institute in Florence, and David Hine and Alan Renwick at Oxford University, who argued that a return from proportional representation to a first-past-the-post electoral system would not solve the problem, since this has been tried before with no success, as the small parties continued to do well in that system. The letter concludes that the system the small parties fear the most is the French system of a second run-off ballot. “Nothing else has done the trick, and there are few options left.”
In lavoce.info, Massimo Bordignon argues that a French voting system would be a desirable proposition, but that would require a host of other constitutional changes, in particular a strengthening of the role of the executive, and to strengthen the protection of the constitution itself. There would be no time for such a widespread overhaul. What he proposes instead is a constitutional referendum that would shift the majority of the winning coalition to the largest party within the winning coalition, which should go some way to overcome the political fragmentation.
What about Prodi's 12 points?
In his column in Corriere della Sera (print edition only), Francesco Giavazzi criticises Prodi's 12 point plan as too imprecise. Italy faces a serious problem of unsustainability in its pension system, to the effect that if unchanged young people would need to transfer almost half of their income to finance a pension deficit that would allow the older generation to retire at the age of 57, while they themselves can be looking forward to a far less generous environment. This is an unsustainable position in need of fixing. This is his downbeat conclusion: Prodi has two possibilities. Either pursue a discourse similar to that of the new Democratic Party (a proposed alliance of the two largest left-wing parties), extolling grand principles without concrete measures, or whether to have the courage to be specific. In the first case, his government may survive a few more months. The second course of action is to do the right thing right now.
French election wrap
Royal wants to woo the naysayer of the European constitution
Segolene Royal wants to conquer those parts of the electorate that voted against the European Constitution, reports Le Monde. In her view, Sarkozy only represents the “yes” voters. Royal considers herself better placed to put Europe back on track. She will meet the European leaders of Spain, Italy and Germany the next two weeks. In her speech at Rouen, she insisted on the necessity of a “Europe qui protege”. Invited by the electoral camp of Laurent Fabius, she took up the arguments of the No Voters and called for an economic and social government in the euro area, a social protocol to reinforce workers rights and a minimum tax on companies to stop delocalisation.
Bayrou and the “third way”
In the TF1 programme “Je une question a vous poser” Francois Bayrou proved that he is taken seriously as a third candidate, outpacing Jean Marie Le Pen and presenting himself as a defender of a „third way“, reports Le Figaro. He had 20 minutes more than Le Pen to discuss his ideas with the audience and to mark his differences with the two frontrunners Segolene Royal and Nicolas Sarkozy (see Le Monde). He wooed teachers when he said that trade unions within the national education system should be considered as a chance and that educational posts are to be guaranteed instead of being chased after. He pronounced his opposition against positive discrimination measures proposed by Sarkozy. He defended his strategy “ni gauche, ni droite” as a result of an ever lasting battles between the left and the right that impoverishes his country, On his favorite subject, public debt, he said that elections are no longer won by costly promises but also warned that debt reduction will require the effort of all French. According to Le Monde, he successively broadens his appeal to economists, doctors and civil servants. His “ni gauche ni droite” is also subject of rising critcism by the Socialists and the UMP. Royal sent Bayrou to right while Sarkozy said that this only leads to a political vacuum reports Le Figaro (print edition).
France falls back in competitiveness ranking
The “European indicator for growth and employment” produced by Allianz chief economist Michael Heise on behalf of the Lisbon Council showed that competitiveness in the EU15 improved at the end of 2006, so that 90% of the objectives of the Lisbon strategy were fulfilled compared to 73% in 2005. Within the EU15 the biggest loser of competitiveness is France who fall from rank 6 to rank 9, Germany the biggest winner and Italy continues to occupy the last rank, reports Le Monde.
How to combat rising inequalities in France
Patrick Artus, research director at IXIS, argues in an oped in Le Monde that the main effect of globalisation is delocalisation of employment of people with average salaries, leading to a polarisation of the domestic labour market into the extremes of low and highly qualified employment. Inequalities are rising and with it the call for political intervention. The passive approach to tackle these inequalities consists of taxing the rich or augmenting the minimum wage. But Artus warns that both are impracticable since they underestimate mobility of labour and since a general minimum wage would only reduce labour demand. The “active” approach to combat inequalities is to specialise in sectors with intermediate skills. He identified 40 sectors, where further international specialisation is likely. Of those only 4 sectors are currently specialised in France, compared to 16 in Germany or 10 in Sweden. Artus concludes that France has chosen neither of the two strategies and suffers as a result from rising inequality and loss of market shares.
EU takeover rules have failed
The EU attempt to reform takeover law has ended in failure, according to the European Commission, as reported by the Financial Times. The Commission said that the 2004 takeover law, which was agreed after lengthy negotiations, contained so many loopholes that takeover defences can be used as effectively as before. “The number of member states implementing the directive in a seemingly protectionist way is unexpectedly large,” the report says. The FT says that the report’s downbeat conclusions suggest that most EU governments are unconvinced by the Commission’s assertion that takeovers offer “benefits for companies, investors and ultimately the European economy as a whole”. The directive allowed member states to opt out of a provision to coerce companies to seek shareholder approval for poison pill defences. Another clause – known as the breakthrough rule – was to ensure that existing defences become ineffective during the takeover period was also made optional.
Why Berlin is getting exasperated with Warsaw
FT Deutschland (print edition) reports that the Kaczynski twins have become increasingly effective in organising resistance to the EU constitution in other central and east European member states. Poland has not only stepped up its criticism and threats of rejection of the “double majority” principle, which would effectively reduce Poland's current voting weight in the Council of Ministers. The paper noted that Poland has also invested heavily in its relationship with the Baltic Republics to pursue policies that anger the Germans, for example the continued boycott over the partnership agreement with Russia, and on energy. The FT quoted Poland's EU constitution negotiator as joking that if attempts to agree on the constitution failed, Poland would stand ready to complete the job during its EU presidency – in 2011.
The real problem with private equity
In his regular FT Column, Tony Jackson argues that most of the criticism of private equity groups misses the point. He said the problem was neither profiteering nor lack of transparency, but the fact private equity companies “load a company with excess debt, then strip the cash out as a dividend. If this is done on a big enough scale, the fund can profit handsomely even if the company goes bust.” He said that the pre-private equity world had obvious safeguards against this: The banks would stop lending. But with the advent of credit derivatives all that has changed. “Today, a bank can grant a leveraged loan with impunity, since it can offload the credit risk. And market demand for that risk is insatiable. The form of credit derivative known as the collateralised loan obligation, or CLO, feeds on just such loans.”
Germany and France are favourite destinations of private equity firms
Despite the locust controversy, Germany is the favourite destination for private equity funds, according to a study published on Monday by PwC, writes the FT. A survey of 98 – mainly European – fund managers based outside Germany, showed 39 per cent were planning to invest in France and Germany between 2007 and 2012, slightly ahead of the UK. The paper quotes one PwC executive as saying that there was a switch taking place from the UK to Germany, but “I don’t see Germany taking over from the UK as Europe’s biggest market for the foreseeable future, but it certainly has potential, being the bigger economy.” Between 1998 and 2005, the UK attracted €103bn in investments, against €26bn for Germany.
Why the German debate about minimum wages is missing the point
In an commentary in Handelsblatt, Gustav Horn argues in favour of the introduction of minimum wages in sectors where the relative power of companies significantly exceeds the power of workers, whose position has been seriously weakened by the recent labour market reforms. He said wages, especially in east Germany, had fallen below marginal product, and this was suboptimal for the economy as a whole. He also made the point that the problem of excessively low wages does not arise in the successful export industries – where the wage level is significantly higher – but mainly in domestic services sectors, for examples among hairdressers and bakers. He said that German wages in private services have fallen below the EU average, and an increase in wages and prices in those sector would logically not affect Germany's international competitiveness. A minimum wage thus raises no competitiveness issues, as it would affect everybody at the same rate.
