Sarkozy unveils third reform package
Nicolas Sarkozy unveiled his latest reform package yesterday . It has three components (see Le Monde ). First, to incite companies to share their profits with employees, tax credits of 20% will be granted. The objective is to double the amount transferred to employees in four years. Second, companies shall be forced to open negotiations over salaries, in particular at SMEs, in which profit sharing is not obligatory. If a company does not sign an accord it will lose 10% of the benefits on social charges, and salaries are automatically linked to profits according to a formula yet to be determined. Third, employees could now spend money from their profit share funds immediately, subject to income tax, which will fall away after 5 years. First reactions were cautiously optimistic. Dominique Seux in Les Echos argues that while the whole package goes in the right direction the last measure gives the wrong incentives for long time savings. Le Monde reports that the two trade unions CGT and CFDT are skeptical, as the measures benefits only a small fraction of employees.
France to open labour market to east Europeans ahead of schedule
President Nicholas Sarkozy is expected this week to announce that France will open up the French labour market to central and east European EU citizens three years ahead of the final deadline. He will make the announcement on the occasion of his forthcoming trip to Warsaw. The change will take effect in the second half of this year, during the French EU presidency. Coulisse de Bruxelles – under a headline saying that the Polish plumber is finally welcome in France - has an analysis of this policy shift, saying it is economically relatively riskfree, given the experience of other countries, such as the UK, which opened the labour market right from the start. (This decision leaves Germany as one of the few countries to impose restrictions right until the end of the 2011 deadline).
A challenge to Mariano Rajoy?
El Pais this morning leads with the story that the two times Spanish general election loser Mariano Rajoy may face a challenge as leader of the Popular Party at the forthcoming Congress. The potential challenger is Juan Costa, a politician from Valencia, who was science and technology minister in Jose Maria Aznar’s last government, and has been the party election co-ordinator. There is apparently much behind-the-scenes activity. Critically, it appears that Costa has the support of Esperanza Aguirre, president of the Madrid community. Both Costa and Aguirre represent different wings of the party.
Will inflation remain above 3% for the entire year?
The Irish Independent has done the maths and looked at various scenarios depending on the oil price. The ECB’s own calculations assume an average oil price of €80pb in 2008, which is now unrealistically low. If oil prices were to stay at current levels until the end of the year, euro area inflation will remain above 3% - and there will be no rate cut. The article quotes a UniCredit estimate according to which each $10 rise in the oil price raises inflation by 0.15%.
Merkel vows to continue with coalition
Angela Merkel has criticised her Grand Coalition partners for putting up their own candidate for the presidency, but said the decision would not mean the end of the Grand Coalition, according to Frankfurter Allgemeine. This had been threatened by some Christian Democrat, but after some thought they realised nobody had currently any interest in new elections, especially given the CDU’s (and SPD’s) low approval ratings. (We assume now that this coalition will last to the bitter end, another year, until the next scheduled elections).
SPD proposes higher taxes
The times when “Tax Reform” always meant tax cuts are nearing the end in Europe. After the British abolished the lower 10p tax band, the German SPD wants a new top tax rates for higher incomes of 45%, Frankfurter Allgemeine reports. At present there is a top tax of 42%, which is applied from income of over E52K. The SPD wants to impose a new band of 45% on income higher (we have heard 125K). Together with the obligatory social security payments, that would push Germany’s effective rate of deductions for higher earners to well over 50%.
The return of nuclear energy
After the decision by the Berlusconi government to restart the country’s nuclear energy programme – which was abandoned in 1990 – Il sole 24 ore takes a look at the global nuclear industry to find that there is now a big trend back towards nuclear energy. In Europe, the UK and Italy (and the Netherlands and Finland) have made a policy U-turn, the US is expanding its nuclear force, as are Turkey and several Arab nations. Here are some basic statistics: 439 commercial reactors are active in the world. Europa relies to 30% of its energy needs on nuclear (80% in France), 20% in the US. The US has 104 reactors, France 58, and Japan 55, which is half the world total. Currently 36 new reactors are under construction, half in Asia.
Citigroup to sell German branch
Citigroup plans to sell its German Citibank retail banking network, and expects to receive the first offers next week, according to a report by Financial Times Deutschland. The hugely profitable German branch network is expected to bring revenues of between €3-5bn, money Citigroup badly needs to restore its finances. As the German government is privatising Postbank – and trying to find a domestic bank (against EU law of course) – there is a reasonable chance that the bidder for Citibank is a foreign bank. The sale of Postbank and Citibank, Germany, are both big steps towards the consolidation of the German, and European banking sectors.
The return of money
Jurgen Stark has a comment in the FT, in which he defends the virtues of monetary analysis in monetary central banking. He made the point that monetary analysis first helped the ECB raise rates in early 2005 – even though the other pillar, economic analysis, did not suggest at the time that a rate rise was warranted. During the financial crisis, monetary analysis helped the ECB identify very early that there is no general liquidity crunch in the euro area. He said the most important future task is to improve the quality of data and models for monetary analysis. He also paid tribute to Paul Volckers’ recent call for a return to conservative central banking practices.
The Bank of England’s fight against inflation
The FT has an editorial in which it says predicts that the Bank of England’s monetary policy committee will not bow in its fight against inflation, and in particular resist political pressure to cut interest rates. The paper said central bank independence was one of Gordon Brown’s major achievements, and its value will be seen in tough times such as these. For Brown himself, this may be a Shakespearean tragedy, as the UK economy is hurting in the final years of his term. The editorial predicts that there will be tough times ahead.
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