Serbia's big step towards EU membership

 

This morning’s European newspapers are obviously full of reports about the arrest of Radovan Karadzic, the political impilcations, and reports how he lived and worked as a practioner of alternative medicine in an outskirt of Belgrade. For our purposes the most interesting aspect is how this leaves Serbia in its relations to the EU. The FT has a very good news analysis, which makes the following pionts. With the arrest of Karadzic, Serbia has a made a huge step towards eventually EU membership, and there is now a good prospect that the pre-accession treaty, signed in April, is likely to come into force as the country is more likely to be judged co-operative with the war crimes tribunal in The Hague, which was one of the EU’s conditions. However, the FT also makes the point that failure to ratify the Lisbon Treaty will mean no further accession, including Croatia, where accession negotiations are nearing the final phase. The article also says the arrest of Karadzic, while a victory for the country’s pro-European president Boris Tadic, does not end the deep divisions between pro-westerners and nationalists.

 

 

 

IMF says dollar’s fall will not redress global imbalances

The IMF’s ever optimistic deputy deputy managing director John Lipsky said at a Brookings Institution speech that global imbalances are here to stay, and that the dollar’s fall will not make a big dent, according to the Wall Street Journal’s economics blog. The main factor driving global imbalances are China’s monetary and exchange rate policies and high oil prices. The current situation means that the euro area is doing most of the adjustment.

 

 

What if China does not change its policies?

Writing in the FT, Morris Goldstein and Nicholas Lardy argue that China urgently needs to address the dual problem of its exchange rate and its interest rates. The country must reduce the gap between the real and equilibrium exchange rate by reducing intervention and sterilisation. It also must accelerating the pace of renminbi appreciation. Otherwise, the Chinese government will risk huge speculative capital inflows, which would undermine its monetary policies.

 

 

 

Greece to revise its fiscal goals

Greece might be forced to revise its fiscal goals for 2008, as budget revenues in the first six months of the year rose only by 5.7%, instead of 12.1%,  Kathemerini reports. The government tried to play down the poor results in the first half of the year but stopped short of stating that the annual 1.6% deficit target will be achieved. According to the newspaper’s sources has Finance minister Giorgos Alogoskoufis  ruled out any new taxes and counts on collecting outstanding taxes ( around €15bn) instead.

 

 

Turkey cannot escape an accession referendum in France

Jean Quatremer takes a closer look at the constitutional changes for EU accessions, as adopted by the French parliament on Monday. A French referendum for EU accessions, introduced by Jacques Chirac, remains the rule. This is contrary to Sarkozy’s wish of more discretion, but much better than an earlier discriminatory version of his UMP party that would have required a referendum only in cases of accession countries that have a population larger than 5% of the EU, in other words Turkey and the Ukraine. In future there will be only one way to escape a referendum: parliament and senate could express their wish, each with a 3/5 majority, that the accession treaty is to be adopted by a congress (reuniting parliament and senate). To pass it would need again by 3/5 majority of those present at the congress. Quatremer writes that even if Turkey is no longer singled out, it is clear that it is Turkey for which it will be difficult to rally such a majority. In other words a Turkey accession will remain subject to a French referendum. 

 

 

 

 

 

Housing crisis to wipe out 75% of the US banking sector’s assets

The key to this financial crisis is the housing market. Nouriel Roubini has tried to put some numbers to work, according to a news report in Yahoo! (hat tip Calculated Risk), which look like this: estimated peak-to-trough fall in US house price 30% nominal (which translates as over 40% real). Total estimated credit losses through delinquancies, jingle mail etc, about $1 trillion, about 75% of the capital of US financial institutions. He says the 50% of Fannie and Freddy backed mortgages will eventually have to be nationalised.

 

 

The economis of the German minimum wage

The recent decision by the German government to introduce a €7.50 minimum wage for a number of sectors, is likely to reduce employment in the country by about 200,000, according to a calculation by the Berlin-based DIW institute. The biggest effects of the minimum wage will be an 18% increases in wages for low-skilled women, and 35% for low-skilled men in eastern Germany. According to Frankfurter Allgemeine, the negative effect on the labour market will be felt no matter whether the companies are able to pass on the highers costs to consumers or not.

 

 

Willem Buiter on the ECB

Willem Buiter has a long post on the ECB. He starts with a statement that the ECB has never taken a vote (which he said he had heard from somebody who had attended every meeting from start to finish. On our count, this can only be Mr Trichet himself, or perhaps the tee lady!). Well in any case, Buiter says the should take a vote, and then publish the minutes. Not taking a vote was at the heart of the ECB strategy of non-transparency.

As for Sarkozy’s proposals, Buiter says no chance of a eurogroup secretariate (unless Sarko wants to use an Elysee slush fund to set one up). It would take ratification of the Lisbon Treaty to turn the eurogroup into an official body. Until then, not much will happen.

 

 

Schmieding on the euro area

Holger Schmieding has a pessimistic comment on the euro area in the FT this morning. While the euro area is fundamentally in better shape than either the US or the UK, it face a much more severe macroeconoimc policy mix with a modestly restrictive monetary policy, a neutral fiscal stance and an overvalued exchange rate. Schmieding expects “semi-stagnation” in the US and the euro area, “but the risk that any additional shock could cause a recession is now as high for the eurozone as it has been for the US for more than a year already.” Schmieding also makes the piont that real M1 in the euro area is falling, and this has been an excellent guide to future growth prospects.

 

 

 

Another perspective on the dollar as a global currency

Writing in Vox, the economic historian Marc Flandreau looks at the question why took it so long for the dollar to emerge as a leading global currency. He argues that what matters are economic fundamentals, rather than network externalities, as some economists, including Jeff Frankel, have recently argued. He does not answer the question whether the dollar will lose its role, but says the answer will again depend on fundamentals.

 

 

 

Munchau on Grand Coalitions

Writing in FT Deutschland, Wolfgang Munchau criticises German politicians’ repeated statements that they consider this type of political construction responsible government, on the grounds that it keeps extreme parties in opposition. Munchau says this argument is dangerous nonsense, because the main effect is that it strengthens small radical parties. This is exactly what happened in the Netherlands, and in Austria, and which is beginning to happen in Germany, too, where the CDU currently achieves some 35% in the polls, and the SPD some 27%. Strong democracies need strong oppositions, and at the moment the opposition consists of three disaparate small parties.

 

 

 

Eurointelligence wishes to thank the Collegio Carlo Alberto for their support to help us maintain eurointelligence.com a free public service.

---