Europe's workers want compensation for loss of purchasing power

 

Inflation Watch: German public sector is asking for 8%

 

There is more and more evidence of second-round wage effects for the euro area. Frankfurter Allgemeine reports that Germany's public sector union Verdi is asking for an 8% pay rise for Germany 2.1m public sector workers. The union says the mood among its members is very tense, as they have been losing purchasing power. Verdi also says that the improved tax revenues would make such a pay settlement possible. The union is also asking a for a minimum of €200 per employee, which would be a double-digit pay rise for those on low incomes. A separate editorial makes the point that 4% is the minimum Verdi is likely to achieve in this round.

 

 

 

French statistics office predicts further falls in purchasing power 2008

Insee, the French statistics office, said the annual increase in household purchasing power will fall to 0.6% in the first half of 2008, after a rise of 3.3% in 2007. Les Echos reports that the French finance ministers also sees a moderately declining trend, but not nearly as dramatic. Insee states as the main reason for this fall in purchasing power the rise in French inflation.

 

 

 

 

 

Fall in German business climate

Frankfurter Allgemeine has a useful survey of reactions to the surprisingly strong fall in the German business climate. The main index fell 1.2 point to 103, the lowest reading since January 2006. The consensus among analysts is now that a slowdown is under way, but that the absolute values is still relatively high. One analysts noted that the demand from emerging economies for German products remained continuously high, and this is an important pillar of economic growth.

 

 

The crisis of the monolines deepens

The credit crisis has now hit monoline insurers with full force, as S&P downgraded ACA Financial Guaranty from A to CCC after a $650m capital injection proved insufficient to offset the $2.2bn in expected losses, according to the FT. S&P said there was further risks of a mortgage market deterioration, and that could bring further huge liabilities for bond insurers. S&P's downgrade followed previous warnings on several other bond insurers.

 

 

 

The rescue of a German SIV-light

The FT has the details on the rescue by LBBW of Sachsen Funding I, an SIV-light, shortly after LBBW's takeover of SachenLB. An SIV-light is an investment vehicle that invests heavily into credit market products, and is financed mainly by short-term debt. LBBW has agreed to pay of $2bn senior short-term debt and plans to sell Sachen Funding's assets into a new off-balance sheet vehicle rather than conducting a fire sale in the open market.

 

 

Roubini not alone

Nouriel Roubini writes in his latest blog that the consensus towards a hard landing for the US economy is increasing. Apart from himself, who has been predicting a hard landing since 2006, the list of those who warned about a hard landing now include Richard Berner of Morgan Stanley, Bill Cross of Pimco, Larry Summers, Alan Greenspan, Martin Feldstein, as well as Goldman Sachs and Merrill Lynch. He agrees with summers that the depth of the recession will depend very much on the policy response. He says policy makers are making a big mistake in thinking that next year will merely mark a return to potential.

 

 

The future of Belgium

Frankfurter Allgemeine has a thoughtful comment on the future of Belgium, following the agreement on an interim government under the leadership of the outgoing prime minister Guy Verhofstadt. The editorial marks that the support for separation is in fact only 10% in Flanders, and that the problem was large due to very short-sighted politicians who have reckless abused the impasse for their own gain. The article says any federal state would include some form of transfer from wealthy to less wealthy regions, which is true even of the EU itself. The comment concludes that the chances of continued Belgian unity, which far from certain, have risen somewhat as a result of that agreement.

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