ECB’s rate rise – critisised by Sarkozy, backed by Merkel

 

Ahead of the immanent interest rate rise, Nicolas Sarkozy started again an offensive against the ECB. On TV he said that the ECB should also consider economic growth and not simply inflation, reports Le Monde. He said that inflation is due to the price explosion in raw materials and that doubling, trebling interest rates would not bring down the oil price. By contrast, Angela Merkel gave some support for the ECB saying that she was very concerned by inflation. The Irish Independent reports that the German finance minister Peer Steinbrueck echoed Mr Sarkozy's views, saying the ECB should consider the impact of its interest rate decisions on economic growth, but said he shared Ms Merkel's concern about inflation.  

 

 

Poland refuses ratification of Treaty

 

President Lech Kaczynski of Poland chose the first day of the French EU presidency to refuse ratification of the Lisbon Treaty. He said the Irish no was sufficient reason not to going this process. Nicholas Sarkozy said Kaczynski had signed the treaty himself, so it was inconceivable that Poland would refuse it on grounds of a presidential veto. FT Deutschland had a story quoting senior French officials as saying that EU enlargement was a catastrophic mistake – a comment that apparently did not go down well in Poland, according to the report.

 

The blog Coulisse de Bruxelles also has a lengthy discussion about the Polish presential refusal, and whether he could veto it under the Politish constitution. The answer is not clear, though politically it would be very difficult for him to do this.

 

The Blog A Fistful of Euros makes the point that the Franco-German threat to link Lisbon ratification to future enlargement does not seem to be working in Eastern Europe.

 

The Lisbon Treaty has provoked once more a lot of Oped comment.

 

Larry Siedentop writes in the FT that there is a fundamental problem with EU democracy. Over the years, national parliaments have ceded power, but the European Parliament has been unable to use its additional power to influence public opinion. It operates in a vacuum. It is no surprise therefore that ordinary Europeans know more about the US primary election process than about the function of the EU’s own political institutions.

 
 

Frankfurter Allgemeine says in a comment that Europe’s political process of intergovernmental negotiation followed by semi-automatic ratification has run its course. The paper called for a new debate about the future of Europe.

 

 

Sarkozy’s strategic alliances might be in vain

Arnaud Leparmentier in Le Monde argues that Sarkozy’s ambition is to be seen as a European leader not only as a French one might not succeed. There was no lack of trying:  he paved the way for a new treaty by discarding a second French referendum; instead of promoting the French exception he praised the success of other countries; he woes the European Commission and the European Parliament, institutions that were traditionally ignored by the French. But Leparmentier warns against the risks: Sarkozy’s unpredictable character that irritated his partners already in the past;   Germany and its chancellor Angela Merkel for whom he has no coherent strategy and that partners might hold against him the situation of the French public finances and his attacks against the ECB despite his other concessions. While Sarkozy multiplied his strategic partners ahead of his EU presidency, his presidency still lacks strong propositions that mobilize his partners.

 

 

IMF: Euro’s role as reserve currency is slowly rising

Frankfurter Allgemeine has an article on the IMF’s latest foreign reserve statistics, showing that the euro’s role global share as a reserve currency is now 26.8%, which is partly explained, however, by a rise in the euro’s exchange rate against the dollar. The total amount of global reserves has gone up by $477bn to $6.87 trillion.

 

Robert Wade on Iceland

Robert Wade says Iceland, the canary in the mine, is heading into ever deeper trouble due to a policy of reckless liberalisation in the financial sector. The economic toll of the Iceland financial crisis has been severe. GDP shrank by 4% during the first quarter (actual, not annualised!). The stock market and the currency are down by about a third from the start of this year. At the hight of its boom, the current account deficit was 25% of GDP. Gross short-term foreign debt amounted to 15 times the value of the central bank’s foreign exchange reserves at the end of 2007, or roughly 200 per cent of GDP. He concludes the only good news is a political development that might bring the Social Democrats, currently in a coalition with the conservative Independence Party, into the driving seat of Icelandic politics, which promising a more Scandinavian approach to economics.

 

 

Munchau on Kurt Beck

Wolfgang Munchau takes a look at the media campaign against Kurt Beck, SPD leader, and compares his mobbing to previous episodes when political leaders suffered similar attacks. Among those was Helmut Kohl before and right after he became chancellor in 1982, and Angela Merkel in 2002, when a similar campaign force her to yield to Edmund Stoiber as the top candidate for the 2002 elections. Munchau concludes that the political media, and especially the commentary, usually converges to positions that do not stand the test of time. He says that the media underestimate Beck, just as they did underestimate Kohl and Merkel.

 

 

Philip Lane recommends that Ireland should defy stability pact

Writing in Vox, Philip Lane takes a look at the appropriate fiscal response, and finds that Ireland should ignore the stability pact its fiscal response to the crisis. According to the last provisions, the 6% slowdown in GDP growth brings the fiscal balance down from a surplus of 3% in 2006 to a projected deficit of 2.8% this year, and to 3.9% next year if no further action is taken. Lane says the conditions for a temporary breach of the stability pact are met. The fall in growth constitutes a large macroeconomic shock; a large part of the budget deficit is to maintain investment spending; the level of overall debt is very low at only 25%. Forth, the forecast is for a recession with short duration, so that the breach of the 3% deficit rule will only be temporary. Sticking to the Maastricht Treaty budget rules would be mean a procyclical fiscal policy.

 

 

Italy vs. Spain

Tommaso Nannicini, writing in Lavoce, argues that in Spain, the political classes have clearly prioritised productivity growth, not fearful to leave bad universities and bad companies behind. In Italy, the finance minister blames globalisation for the country’s problems. Nannicini recommends that Italy must reactivate its two most underutilised resources – the workforce in the Mezzogiorno and woman.

 

 

 

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