Is Germany boycotting a European response?

 

The Franco-German summit went badly, but what do you expect? Angela Merkel seems to relish her role as what the French call Madame Non, a reference to Mrs Thatcher in the 1980s. Merkel blocked any attempts by Sarkozy to press Germany into accepting a bigger stimulus, by insisting that she first wants to wait and see that effect of the national stimulus programmes before deciding on a joint European response. (This is tragedy turning into farce, considering that the economic effect of the national programme is likely to be close to zero). Frankfurter Allgemeine reports that she wants another summit in January – after the French EU presidency! – to decide whether more is necessary.

 

Even the conservative German commentators are nervous, as evidenced by a commentary of Günther Nonnenbacher in Frankfurter Allgemeine Zeitung, who said that Merkel is undiplomatic and should make a greater effort. Her sobriety may be a good way with problems during normal times. But in times of crisis this is not the way to go.

 

Arnaud Leparmentier in Le Monde says that the European relaunch package is effectively dead. France and Germany failed to come up with a convincing investment project, only agreeing on not to follow Gordon Brown with his VAT tax cut. The European Commission might still have a go but after this summit it becomes clear that Europe's response will remain disperse. It all boils down to the traditional conflict on how effective demand policy could be.

 

Obama plans $700bn stimulus

Frankfurter Allgemeine reports that Barack Obama plans a $700bn stimulus, a figure close to what Paul Krugman has recently demanded. It is about 6% of US GDP, a huge stimulus programme that should mitigate even a deep economic slump. So this is the return of the big-stimulus teams to Washington. After Geithner and Summers, Obama yesterday announced that Christina Romer of Berkeley will take on the job at the Council of Economic Advisers, a kind of a White House think tank. She will have the pleasures to work with Larry Summers at the helm of the National Economic Council, whose job it will be to co-ordinate the administration economic policies.

 

Austria is also stimulating

The new Grand Coalition in Austria is also stimulating the economy, to the tune of about 1% of GDP, mostly in the form of tax cuts to help small and medium sized companies, Frankfurter Allgemeine reports. The deficit-to-GDP is forecast to rise to 2.9% of GDP as a result of these measures.

 

Exodus may shrink Irish economy by 4%

 

Brendan Keenan in the Irish Independent warns that if reports that 100,000 people have left Ireland since the downturn were to be confirmed, economic output could shrink by more than 4% next year. Ireland had the highest rate of immigration since enlargement, with 5% of its population 10 times as high as for the EU as a whole. The availability of all that labour coincided with the credit bubble, causing economic growth to explode. While politicians, officials and economists welcomed this immigration inflow, Irish citizens thought otherwise. The Lisbon treaty was massively rejected by the working class and they are not ready to change their verdict. It is hard to think of any explanation for this apparent sudden outbreak of EU hostility, other than the impact of the foreign workers.

 

 

Latvia is jailing economist for expression a view

Edward Hugh, in a Fistful of Euros, has the outrageous story of a Latvian academic, arrested by the country’s security policy and detained for two days on grounds of spreading rumours about the country’s currency. The poor guy said the crisis was really bad, and the Latvia had done excessive foreign currency borrowing, which is merely stating a fact. Apart from what this tells you about respect for human and civic rights in Latvia, the story is indicative of the nervousness all over eastern Europe, where things are turning from bad to worse.

 

 US credit markets: the recovery has stalled

The global bank bailouts have essentially failed to get the credit markets back into shape. Calculated Risk has a useful compilation of the latest crisis indicators, such as the Ted spread, which continues to hover at a rate of over 2%. Treasury bills now yield 0%, which is a sign of extreme risk aversion. The money and credit markets are not going to sort themselves out.

 

The Citigroup bailout details

The US government is to inject $20bn in new capital into Citigroup, and provides loan guarantees in the order of $306bn, which is over 2% of US GDP. Citigroup is the world’s largest bank, and letting iot fail was obviously not an option. The bailout was greeted by the stock markets as a good signs, and triggered a huge stock rally in New York yesterday.


 

European Socialists should look to Obama

John Thornhill writes in the Financial Times after the shambolic leadership election of the French Socialist Party, that European socialists are in danger of losing the plot, and should instead try to learn from Obama. He said “politicians must address their supporters’ core concerns. Second, they must compete for new supporters by emphasising change. Third, they should project an image of calm, non-ideological competence.”

 

 

 

 

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