France favours Juncker and Barroso for the top jobs in the EU

 

The usually reliably informed Jean Quatremer of Liberation writes in his blog that his sources tell him that President Sarkozy favours Jean-Claude Juncker and Jose Manuel Barroso for the two top jobs of president of the EU Council and president of the EU Commission. The only they have not decided who should get what, as there is apparently some support for a swap, with Barroso moving over to the Council, and Juncker to the Commissison.

Le Figaro reports that France favours Juncker for the Council job, which would leave Barroso in place (the most uninspired, and hence most likely option in our view as well). The article also says that Sarkozy and Merkel want to lean heavily on Brown not to object to Juncker in that role.

 

 

 

Picking apart the Attali’s report

The UMP parliamentarians are doing precisely what Attali did not want them to do. Out of the 300 plus reform proposals they have selected 30, less than a tenth, including various measures to help small and medium sized companies, according to Les Echos. The debate in the French Assemble Nationale on these measures is to start at the end of the month. (We recall Attali not only said his proposals must either be accepted or rejected in full, he even prescribed the parliamentary process in full detail.)

 

 

Conditions on money market improving – and oil reaches new record

A good sign that the situation in the money market is slowly beginning to normalise has been the steady fall in the TED spread, which measures the difference between 3-month Libor and 3-month Treasury bills. This Bloomberg graphic shows the TED spread at 1.17%, still high but down from recent hights.

Further developments in markets yesterday were the rise in the oil price to over $120pb, and a small rise in the euro, after days of decline.

 

Covered bond markets changed beyond recognition

Before the crisis, the market for covered bonds, or Pfandbriefe in Germany and Austria, was considered to be similar to the market for government bonds. FT Deutschland report that the financial crisis has brought a fundamental change to the way the market perceive these products (which are similar to mortgage-backed security with the exception that the risk remains on the balance sheet of the issuing bank, considered to be a much safer bet for the investor). Investors are looking at covered bonds increasingly as a credit products, and are beginning to apply risk ratings. For example, Spanish covered bonds are now considered less safe than German covered bonds, and carry a much higher risk premium.

 

 

 

Some more on Italy’s tax scandal

Italian newspapers are full of article about the decision by the Prodi government to release the entire country’s 2005 tax returns on the internet. It is a big debate between advocates of privacy and advocates of transparency. Il Sole 24 ore has blanket coverage of this event, including regional analysis of tax revenues city per city, and endless coverage about the controversy itself.

 

 

 

More and more companies are leaving the UK

Frankfurter Allgemeine has a listing of companies that are leaving the UK – apparently in protest against the UK government’s tax policies, prompting by the recent relocation decisions by pharma group Shire and publisher United Business Media. The list of includes Colgate-Palmolive, Proctor & Gamble and Kraft Foods, plus Google and Yahoo. Observers blame the latest tax policies which have substantial changes to capital gains tax and the taxation of foreigners in the UK for this exodus.

 

 

In defence of the CPI

The debate about whether US CPUI inflation is a correct measure rumbles on. In defence of the concept comes the Angry Bear blog, who says the large component of goods whose prices do not shift – such as the rental component – actually reflects what people are spending – and the fact is that people are spending a large part of their income on such items, not oil, not food. He is also dismissive of the argument that large components are imputed, not real, such as the housing component. For a nice graphical representation of the relative weights of the US CPI look at this chart from the New York Times. His conclusion is that the CPI is about the right measure of US inflation.

 

 

Waldman on liquidity

Stephen Waldman has a very thoughtful entry in his blog on liquidity, in which he discussions the economic functions of liquidity. First he debunks the notion that the marginal benefit of liquidity is always positive. He makes that illiquidity is an important function of a financial system at times, and for certain categories of investment. He also makes the point that the widening in spreads is in fact not the crisis, but the “oceans of liquidity” situation two years ago when spreads were artificially low. Well worth reading.

 

 

Laidi on Sarkozy

Zaki Laidi has posted a article in Telos in which he asks whether Sarkozy is a liberal, in the European sense of the word. Laidi distinguishes between economic liberalism and cultural liberalism, and notes that while Giscard was a culturally conservative, he was an economic liberal, while it is the other way round with Sarkozy. But it gets more complicated than that. Sarkozy supports some aspects of economic liberalism, but not others. More than his predecessors he is an advocate of private initiative. Nor does he believe in an omnipotent state. But at the same time he is also toleratant of anti-liberal and anti-European strands in his own party.

 

 

 

 

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