EU’s future rests on Ireland's unmotivated electorate

 

Le Monde says the low turnout in the Irish referendum due to bad weather has people in Brussels worried about a No victory. The articles quotes French PM Francois Fillon as saying that if the No Vote wins, there will be no Lisbon Treaty, and it would be time to start a dialogue with the people of Ireland. Maybe this is an indication of how the French wants to play this: softly, softly, not taking any risks.

Jean Quatremer makes a point we are going to hear almost certainly in case the Irish vote No. The future of the Lisbon Treaty rests on a country with four million inhabitants, and where less than 50% of the people bother to vote. Quatremer quotes estimates that the participation of the referendum has been about 42% - the government hopes this might rise a little to 45% – which is the minimum thought to be necessary for a Yes vote to carry the day. When the Irish voted No on the Nice Treaty, the turnout was only 34%.

The UK meanwhile said that it will complete the Lisbon ratification process irrespective of the outcome of the Irish referendum.

 

 

Sylvie Goulard on how to reform the EU appointment process

Writing in Le Monde, Sylvie Goulard says the French EU presidency should make changes to the way people are appointed to top positions in the EU, a system that is deeply flawed. She makes 7 proposals. First, respect the democratic calendar. Let the people vote in the European elections, and then decide on the top jobs. Second, make the selection process transparent, and stop behind-the-back deals; third: define the jobs before naming names; fourth: define delineations between the jobs; fifth: ensure that the person has the right qualities. Being a former prime minister is not sufficient; sixth: impose some conditions of principle: none of the EU leader must come from a country that has not signed to the charter of fundamental rights (UK), or which is outside Schengen (UK again, among others); and give one of the top posts to a woman.

 

 

Inflation fears grips Ireland

The Irish Independent this morning leads not with the referendum, but with the rise in prices. May inflation was 4.7%, after 4.3% in April. Home heating oil was up 23%, home loans up 17%. At this time of the year, air fares normally, but they did not this time. Instead they were up 16%. The article also quotes analysts as saying that the impact of this on consumption is likely to be severe.

 

Merkel wants Hintze to succeed Verheugen at Commission

Angela Merkel wants Peter Hintze, currently state secretary in the economics ministry, to succeed Gunter Verheugen as European Commissioner. Hintze is best known for his role in the 1994 as chief campaign-coordinator for Helmut Kohl, when he successfully engineered a highly effective, and defamatory campaign against the Left Party. He is a protestant theologian.

 

 

A new central bank governor for Greece

Kathimerini has the news on the appointment of the successor to Nikos Garganas as head of the Greek central bank. It is Giorgos Provopoulos, 58, formerly chief executive at Greece’s fourth-largest lender Piraeus Bank, and an economist by training. Mr Provopoulos also has central bank experience, as he served as deputy governor 1990-93.

 

 

 

Plosser warns of rate rise

One of the Fed’s hawks, Charles Plosser of Philadelphia, has warned bluntly that the Fed will have to raise interest rates to contain inflationary expectations. “We need to take steps to insure that inflation does not get out of control,” he is quoted as saying, “inflation has been gradually been creeping up and more than just in oil and food…The base of inflation is broadening.”

 

 

Oil: Is it is speculation

Another brilliant post by Steve Waldman, one of the most thoughtful economic bloggers around. Waldman believes that the rise in oil price is not fundamentally speculative, but caused by a money glut that his driven up global commodities prices. He says he may be wrong. But if it is speculative, there is a way to find out. Governments or agencies with physical access to oil, such as US Strategic Petroleum Reserve, could sell in forward markets and insist on physical delivery. This would drive the speculators off the cliff. He makes the point this is better than trying to ban speculation since the speculators are performing a useful public function as arbitrageur of last resort.

 

 

 

Is Germany’s finance minister a provincial yokel?

Thomas Fricke, writing in FTD, believes that he is. Two years ago, Steinbruck rejected the chairmanship of the IMF’s International Monetary and Financial Committee on the grounds he is too busy at home. During the German G7/8 presidency Steinbruck hit the headline when he chose to go on Safari rather than attend a crucial meeting in Washington. And this weekend, he decided to needs to hold budget talks with another minister, instead of attending the G8. This is the man who compares himself with Helmut Schmidt. Fricke makes the point that instead of dealing with the global crisis, his only concern is his narrow deficit target.

 

 

The impact of stagflation on house prices, and bond markets

The Calculated Risk blog has a good entry on the rise in US 30-year mortgage rates by almost 30bp to 6.32%. In other words, mortgage rates are now rising at a time when the fall in house prices is in mid-stream, which suggests that the US housing market is going to get a lot worse. The blog makes the point that 30-year and 10-year bond rates are related, so that this yield increase at the long end will eventually impact the market for 10-year Treasuries. As interest rates are heading up, the bond market will be clobbered.

 

 

 

 

Stephen Roach on stagflation

Stephen Roach from Morgan Stanley – no longer chief economist, but head of the bank’s Asian business – argues in the FT that Asia is the driver of global inflation – and this is the unique difference to the situation in the 1970s. He says the western policy response is totally inadequate. The core inflationists believe in their old models that headline inflation will adjust to core, which the market fundamentalists wrongly think that exchange rate adjustments will do the trick. Roach is particularly concerned about China, where inflation has now got stuck at high single digits, and where an ultra-tough monetary policy response looks increasingly likely.

 

 

Regulation and the dollar

Kristin Forbes writes in Vox that to pay for its current account deficit and capital exports, the US needs $2 trillion of additional foreign investment in 2008. Recent research shows that the quality and depth of US capital markets are key to attracting such investment, but the subprime crisis has raised doubts. A judicious regulatory reaction to the subprime crisis will thus be critical to the value of the dollar. If the US imposes a massive increase in poorly thought-out regulation, the dollar could quickly return to its downward spiral.

 

 

 

 

 

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