Sarkozy calls on the Irish to make up their mind or risk relegation

 

Ever the diplomat, Nicholas Sarkozy yesterday told “our Irish friends” to get going and not to wait to long to make a decision about how to get out of the mess created by the No vote. Le Monde reports that he, as rotating president of the EU, wants to propose a solution either at the October or the December EU summit. Speaking in front of the European Parliament to outline the French EU presidency’s action plan, he said it was vital for the EU to know whether next year’s European Parliament election are held under the current rules of the Nice Treaty, or new the rule of the Lisbon Treaty. He said a reversal to Lisbon would end EU enlargement, though he said accession negotiations with Croatia should continue – though he did not mention Turkey, Frankfurter Allgemeine notes. He also made the point that if all else fails, a two-speed Europe is the ultimate outcome – of course as a last resort if all other efforts fail. As a nice aside: Martin Schulz, the leader of the Socialists told Sarkozy yesterday not to take Bernard Kouchner with him on his trip to Ireland. Kouchner had outraged the Irish through some tough remarks before and after the referendum.

 

 

Sarkozy also re-iterated his criticism of the ECB

In his speech, Sarkozy also said that with all respect to his “German friends”, he would continue to criticise the ECB. While he does not challenge the ECB’s independence, nobody had the right to suppress a debate on this issue (He is right of course, but this is a culture shock to many of his “German friends”, including his best new friend in Berlin).

 

 

Reaction by MEPs

Le Monde and FT Deutschland have nice colour pieces telling us the warm reaction by MEPs to Sarkozy’s speech. They quote some as saying that Sarkozy was the best prepared head of state/government ever to speak in the assembly. The whole show, plus Q&A, lasted three and a half hours, and MEPs were particular impressed with the detailed way he answered questions.

 

 

Euro area economy slows down

France and Italy reported falls of 2.6% and 1.4% in industrial output in May. Like Germany their manufacturing sectors had been hit by the impact of rising oil prices on global growth prospects. The FT reports that euro area industrial production figures, due Monday, could show a drop of 3%, which would be the biggest monthly decline since 1984. The article quoted analysts saying that this slowdown was expected, and that France in particular was recession-proof given the French government’s determination to increase public spending during the downturn.

 

 

 

 

The international role of the euro – bigger in some segments, smaller in others

On this point, we better refer you to the ECB’s press release – rather than any dumbed-down news reports. The international role of the euro decreased for international securities, it increased in international loans. The euro poses no challenge to the dollar in the market for forex derivatives, but a big challenge in the market for interest rate derivatives. As for the euro’s role as global reserve currency, the ECB has detected the same pattern as recently the IMF – a little larger in terms of actual exchange rate, a little smaller in terms of constant exchange rates.

 

 

No sign of second round effects in latest German wage negotiations

German retailers and the Verdi trade union have ended a long wage dispute with agreement for a 3% wage increases, a one-off payment of €400, in exchange for the abolition of overtime bonus on Saturday, Frankfurter Allgemeine reports. So this is wage deal that grants more flexibility without adding much to costs to retailers. At this rate, Germany’s relative competitiveness to other euro area member states is increasing even as the German economy slows down.

 

 

Lisbon ratification watch

It’s now 22 out of 27 countries after Belgium has ratified the treaty. Jean Quatremer writes that Sweden will ratify in the autumn, which leaves the eurosceptic Czechs and the Irish as the odd ones out.

 

 

The lawyers are already at work over an accession of Francophone Belgium to France

Le Monde has an article about a Belgium MEP has a drawn up a document outlining the legal and constitution of a hypothetical Belgian Walloon accession to France, in case of a forced break-up of Belgium. Apparently, 29% of Walloon are open to such an idea (which means we are a long way from a majority yet). The text was the product of a reflection group, headed by the well known Belgian MEP Daniel Ducarme, and it was edited by a group of Belgian and French lawyers.

 

 

Martin Wolf on UK house prices

In his FT columns, Martin Wolf takes an in-depth look at UK house prices and concludes that the peak-to-through fall is likely to be at least 30%, and probably a lot more. He said house price are now falling at a faster rate than during the previous housing downturn. The drought in the credit market is one of the big drivers of this house price decline.

The FT also has a news report according to which the Halifax house price index dropped 2% in June, bring the total fall since the beginning of the year to 6%.

 

 

De Grauwe on transparency

FT Deutschland has a long interview with Paul de Grauwe, in which he makes two fundamental points. The first is that transparency itself does not insure that financial markets do not create bubbles. The explosing in the price of oil, a market which is very transparent, is a good example.  Secondly, the ECB should not continue to raise interest rates from now onwards. 4% inflation is no catastrophe. Even Germany’s post-war inflation performance was 3-4% for many years. The focus of the ECB should be financial market stability.

 

 

 

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