Germany is boycotting the EU rescue programme

 

Angela Merkel got the backing of her party over the weekend to delay any tax cuts until after the elections of September 2009, which means that the earliest conceivable time would be January 1, 2010. In the meantime, her government is taking a wait and see attitude to the crisis – wait and see how the present midget of a stimulus is working – and to add small new measures should this become necessary. Peer Steinbruck, the finance minister, meanwhile, told Der Spiegel that he did not think it proper to countenance this crisis with public money. Explaing his rejection of last week’s EU plan, he said Germany did not have to accept every proposal that comes from the EU. 

 

 

Munchau on Merkel and Steinbruck

In his FT column, Wolfgang Munchau says that Angela Merkel is approaching this crisis in the spirit of Heinrich Bruning, who also tried to balance the budget and was mainly concerned with Germany’s export share during the Great Depression. Germany is once again pursuing a beggar-thy-neighbour policies with measures targeted largely at improving Germany’s cost competitiveness, such as cuts in unemployment insurance.  The crisis poses a huge intellectual challenge to political leaders who thought they undertook all the right “structural” policies – balance the budget, cut labour costs, cut the welfare state. This crisis shows the fundamental weakness of Germany’s export led approach.

 

 

Frankfurter Allgemeine on Barroso

German newspapers are largely on the government side. Frankfurter Allgemeine has a hugely critical article of Barroso’s stimulus programme as it endangers the stability pact, state aid policies, etc. (The author has, in our view, clearly no sense of this crisis)

 

 

Tusk sides with Merkel

An interesting story in the FT says that Donald Tusk, PM of Poland, see the world just as Angela Merkel does. “When I talk to European politicians who boldly tell me how much money they are going to pump into the economy, I pose the question, ‘Where do you have the money for that?’…I don’t think that borrowing money on a huge scale is a good method of resolving the crisis.”

 

 

French government and Commission at odds over rescue plan

The French government disputes the European Commission over its conditions for approval of the French banking recapitalisation plan, writes Les Echos. To grant the €40bn plan the Commission asked for a commitment of the banks not to issue any dividends and not to extend their balance sheet. Les Echos cites an insider saying that this is a Pavlovian reflex of the competition authority, inappropriate to the current situation. The Commission’s conditions would crowd out the private sector engagement in the banks. Brussels instead fears that the plan would induce rapid growth of credit institutes and lower tariffs at the disadvantage of other European banks. But the French say that their condition to maintain credit growth at 3-4% in 2009 is just to cushion the downturn.

 

 

The French and the Czechs

Le Monde has the story about a ‘transcript’ of a private meeting between Nicolas Sarkozy and the Czech prime minister Mirek Topolanek, published by Czech weekly magazine Reflex, that caused a small diplomatic row. In this meeting Sarkozy tried to convince his successor to let France co-preside the Mediterranean union beyond his EU presidency, apparently with the following words: “Do you know what it means to be alone against all these Arabs? To be on the phone with them? They are terrible, I assure you…." Both offices denied the authenticity of the transcript and the Czech chief diplomat presented his excuses to France for this unacceptable incident. The Czech president Vaclav Klaus instead used this occasion to mock the European camaraderie of his prime minister.

 

 

Does Greece need a bailout?

Could Greece be the next Iceland? Simon Johnson, former chief economist of the IMF says he is deeply concern about the ability by Greece to pull through this crisis. This is from an article in RGE Europe Economonitor.

Credit default swap spreads indicate increasing differentiation between Germany on the one hand and, say, Greece (or Ireland or Italy or Spain) on the other hand.  I don’t want to single out Greece, but the recent IMF Article IV Report has some very interesting debt path simulations (the report’s Figure 3) - if you update these in the light of current global circumstances, you can see why Greece may well need a bailout before too long (remember: their government debt is in euros and cannot be inflated away, unlike in the US or UK, for example.)  The market view is that some European governments could not really afford the generous bank bailouts they provided in October.

 

 

The age of Globalisation

This Bloomberg graph of the Baltic Dry Index, found in the German blog Herdentrieb, is interesting for several reason. For one, it graphically shows what a 94% drop looks like, but also it shows that we are now back to the 1990s, before the globalisation boom.

 

 

 

 

 

 

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