Noyer challenges Sarkozy over spending

 

Christian Noyer has indirectly criticised President Nicholas Sarkozy’s approach to fiscal policy, when he said that France must take rigorous steps to curb spending once the economy starts growing again. Sarkozy had explicitly ruled that out a day earlier. The Financial Times reports Mr Noyer as saying it is very important to think about reducing the deficit right now, even though this is not the time yet to actually implement such a plan. Noyer said we need to spend more today, but less tomorrow.

 

Sarkozy reshuffles French European minister

At last things were looking up a little bit in the stretched Franco-German relations, thanks in part to German-speaking French European minister Bruno Le Maire, who only got the job six months ago when he replaced Jean-Pierre Jouyet. Unfornately, Sarkozy has now reshuffled him into agriculture, and replaced with UMP traditionalist Pierre Lallouche. Jean Quatremer points out that Lellouche has some international experience, but is clearly not an expert on Europe (and speaks no German). The change of European minister was part of a wider cabinet reshuffle in France.

 

Eurozone recovery is losing momentum

The FT has the story that the latest June purchasing managers index for the euro area only improved marginally, amid fears that the recovery momentum is being lost. The specific problem was weakness in the services sector. The story says the data showed that the economy was no longer in free fall, as during Q1, but dampened hopes that the euro area could return to positive growth rates this year. 

 

German consumption is rising

Now this is an interesting depression-defying statistics. Unlike in France, where consumption fell yet again, German private sector consumption increased during the first quarter this year – while the rest of the economy plummeted. Here is the chart from FT Deutschland, which shows that 2002 recession hit consumption in a big way, while the consumer is totally immune to the current recession.

Why should this be so? First, the article says, unemployment was still low and will be rising more strongly later this year and in 2010. But also there have been a number of tax cuts, a large increase in pension payments, a large increase in public sector wages to support private sector incomes.

 

The FT Deutschland also reports on a comment from Hans Werner Sinn, president of the Ifo Institute, who said he had no idea where the recent improvement in optimism was coming from. He said as long as the banking sector remains unresolved, the prospects for a sound global recovery are not very good.

 

Japan is still melting down

No greenshoots in Japan during May, according to the latest trade data, which show that exports were down 40.9% year on year in May. A Bloomberg article quotes Bank of Japan governor Masaaki Shirakawa as saying that while the recession would probably bottom out this current quarter, there are no signs of recovery. The trade data have received numerous comments. Naked Capitalism says Japan is en route for two lost decades, while Brad Setser points out that persistent weakness of Japan’s exports to China means that China’s stimulus is not stimulating Japanese demand.

 

And so is Russia

It is not much reported on, but we would like to note quickly that the selloff in Russia’s equity markets continued yesterday. So far the rouble-based Micex index fell 24% this month, as FT Alphaville reports, while the FTSE All World Emerging index is down 9.7%. (So whatever movement we are seeing in the industrial world, it is greatly amplified in the emerging markets. Not many green shoots there.)

 

European Commission report on public finances

The European Commission has released its report on public finances. Here are some excerpts from European newspapers.

 

On Italy

In its assessment of Italy’s public finances, the European Commission said Italy was vulnerable to the financial crisis, in particular to the increase in financial risk aversion. It said Italy’s high levels of debt constituted a risk for the country’s stability, and weigh heavily on the country’s potential growth. But the report also praised Italy’s cautious anti-crisis response, and the relative health of the Italian banking sector, La Repubblica reports.

 

On Spain

El Pais writes about the European Commission’s report on Spain’s public finances, which stated that Spain was the country that undertook the greatest fiscal effort in the EU to confront the economic crisis. Spain has devoted resources of 2.3% of GDP for the years 2009 and 2010, which is more than double the European average of 1.1%. The Commission noted that the success of these measures depended critically on a good exit strategy from the crisis.

 

 

 

 

The covered bonds market is back

The ECB’s €60bn intervention pledge in the covered bond market has already led to a dramatic improvement as investors have restored their confidence in the market. So far, banks have issued €36.5bn in covered bonds, about €6bn a week, the FT reports, three times more than the weekly average. The paper calculates that the new issuance volumes in recent weeks allow for some 1m new mortgages.

 

 

Munchau on innovation

In his FT Deutschland column, Wolfgang Munchau writes that Germany has a problem today that it never use to have in the past: an innovation problem. Of course, there are still loads of engineers around, but the sectors  in which innovation takes place, such as the car industry, are becoming increasingly mature. There is today much less difference in the quality of a German-built or Korean-built car. Yet Germany is much less exposed to new technologies, including biotech. Munchau concludes that Germany is close to the bottom of the league table in new company registration, which he considers to be a good but imperfect metric for innovative capability.

 

 

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