Greece’s new promises provokes anger at home

 

Prime Minister George Papandreou promised to increase fuel taxes and raise the retirement age, while retreating on a promise to raise wages faster than inflation, a pledge that helped him win elections in October.

The European Commission approved the plan but also announced that it will put Greece under closer surveillance writes the FT. The Commission also decided to launch legal proceedings against Greece for the lack of reliable financial statistics.

 

While markets and EU policy makers welcomed the new plan, there is growing anger at home. Greece’s biggest union is set to approve the second mass strike this month in protest against spending cuts, showing that Papandreou’s parliamentary majority may not be enough to guarantee implementation of his plan ( Bloomsberg Europe). Kathimerini also reports that the plan provoked a sharp reaction of the New Republic opposition party leader Antonis Samaras, who declared that he had not been informed and threatens to boykott the pension reform.

 

 

Contagion spreads to Iberian peninsula

FT Alphaville has a report on the spread of the crisis to the Iberian peninsula as markets there came under severe selling pressure due to several (probably unfounded) rumours. The effect was due mostly to financials, which suffered heavy losses on the Madrid and Lisbon markets. The Portuguese yield premium is now up 144bp, the highest for 10 months. What markets are saying that if there is a bail-out for Greece, there will have to be a bail-out for Portugal too.  

 

A defiant Socrates

Jean Quatremer has an interview with a defiant Jose Socrates, PM of Portugal, who says he has brought down his country’s budget deficit before, between 2005 and 2007, and he can do it again. He was particularly critical of the rating agencies, who now criticise governments for spending too much money, which, lest one forget, they did to save the global financial system, and thus the rating agencies own income sources.

 

Spanish government forced to correct its Stability Programme

El Pais has the story that the Spanish government was forced to send a correction shortly after submitting its Stability Programme to the European Commission. In the original version, the government proposed to extend the period on which pensions are based from 15 to 25 years, which would have led to a significant reduction of the average pensions. The proposal triggered an avalanche of criticism and forced the government to back off and eliminate their proposal. El Pais editorial notes that the political blunder has compromised the government’s negotiating power with the unions. Spain needs political rigor and detailed explanations of where and how it is to reduce spending.   

 

Record volumes for European sovereign CDS

European sovereign credit default swaps reached record volumes last week, according to the FT. iTraxx figures for 15 European nations showed a 17% jump last week, to $71 in gross notional outstanding trades, its highest level since the index was launched.  Some analyst said that the CDS markets are now more liquid than some European bond markets.

 

Eurozone membership is not why periphery EU countries are in trouble

John Authers  says that peripheral European countries, which have spend beyond their means, are in danger, no matter whether they are in the eurozone or not.  Just look at the UK, which has the exchange rate to devalue and still struggles to get back on its feed.

 

Bulgaria to join euro

This is a brave attempt, met with scepsis everywhere, but Bulgaria seems determined to adopt the euro by 2013, as it fulfils all the membership criteria, FT Deutschland writes. The paper says one problems was the country’s excessive current account deficits, which, although not part of the list of official criteria, could make the assessment by the European Commission and the ECB more sceptical, but quotes the country’s finance minister as predicting that the deficit will come down quickly, as it was due mostly to inward investment, which is now slowing as the country’s economy becomes more mature. Bulgaria has held preliminary talks with the Commission, and the Germans.

 

McWilliams on Irish crisis management

David McWilliams in the Irish Independent bemoans the crisis management of the Irish government. Nothing has been really done since the government announced its bank guarantee 18 months ago. Not a single loan has been transferred to NAMA, credit still contracts and house prices continue to decline. McWilliams says either the Irish government does not understand that speed in decision making is crucial or that they are playing an insider/outsider game at the detriment of the Irish people. “The country needs to be fixed, not patched up”

 

 

Munchau on tax evasion

In his FT Deutschland column on Wednesday, Wolfgang Munchau argues that Germany’s merciless crackdown on tax evasion is justified, politically, legally, and morally, but it constitutes a de facto tax increase on businesses and the wealthier middle classes. He says the high taxes rates have encouraged many people in the past to hoard their savings in Luxembourg, Liechtenstein and Switzerland, but the government’s planned purchase of a stolen data CD containing the names of suspected tax evaders – the second such incidence in the last two years – means that there is now an official and systematic attempt to root out the problem. The effective middle class taxes used to be about a third (including the effects of legal tax breaks, and illegal tax evasion). They are now converging towards 50%. The government should recognise that there has been a de facto tax increase over the last couple of decades, and should bring marginal tax rates down again.

 

 

 

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