April 23, 2013

Jose Manuel Barroso signals a shift in austerity policies – but what does this mean?
  • says policies are losing the support of electorates;

April 23, 2013

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Barroso says austerity has run its course

A large number of European media are leading with comments by Jose Manuel Barroso according to which he signalled a change in the EU’s demand for austerity policies. "While I think this policy is fundamentally right, I think it has reached its limits." he is quoted as saying, adding that for a policy to work, it would require a minimum of political and social support. In its coverage of the story, the FT linked the policy reversal to the outcome of the Italian elections, the recession and the re-assessment of Reinhart-Rogoff. 

As we pointed out at the time, the fundamental problem is the fiscal pact, which is the ultimate cause for all this pro-cyclicality. The Commission has some leeway in implementing the policies, but not enough power to reverse them. For the eurozone as a whole, which is what matters the most, a policy reversal would have to include a readiness by Germany to expand its fiscal policies. The opposite is happening. This is what Mr Barroso and Olli Rehn should address.
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April 23, 2013

A grand coalition with PD, PDL, Scelta Civica and Northern League is becoming increasingly probable;
  • Giuliano Amato, Enrico Letta, Corrado Passera touted as possible PMs;
  • market reaction to events in Italy highly favourable;
  • Beppe Grillo says he might join the PD’s left wing, which might not be part of the new government coalition;

April 23, 2013

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Towards a grand coalition in Italy

The PD is now expected to support a so-called presidential government, Il Corriere della Sera reports. The solution after Giorgio Napolitano re-election is simple: a broad coalition government by PD, PDL, Mario Monti’ Scelta Civica and Northern League, with a comprehensive programme prepared by the wise men group. There will be a limited mandate, just to pass some key reforms, including a new electoral law, a new fiscal system and a measures to limit the competitiveness gap with the eurozone. The lastest rumors about the next PM sees Giuliano Amato in pole position, then Enrico Letta and Corrado Passera.

The reaction by investors to the latest events in Italy have been highly favourable. Long bond yields fall to a touch over 4%.

La Repubblica reports, Beppe Grillo has stepped up his attacks on Napolitano’s re-election, saying it was the death of democracy. Those who are now appointed to the command of the nation were responsible for its destruction. He said he may be join the PD’s left wing, which could refuse to back this new government backed by Napolitano.

 

Call it what you like, but this is another technical government, which will implement unpopular reforms without a political mandate, as nobody has campaigned in favour of these reforms. There must be a significant probability then that Grillo or Silvio Berlusconi would win the ensuing elections with an outright majority, given the state of the PD. It is not clear to us why markets are so enthusiastic about the re-election of Napolitano.
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April 23, 2013

The UK Treasury, meanwhile, cites euro disaster as reason against Scottish use of the pound after independence.

    April 23, 2013

    0

    Scotland, the pound and the euro

    The UK treasury said the experience of the euro – with a group of countries sharing a currency, but not a government – suggests that there is no clear case for Scotland to be allowed to use the pound if it decides to become independent. The treasury said in a report that a currency union with Scotland may not be desirable in the light of recent events in Europe. The report said that the arrangements had served Scotland well, but would not be an option after independence.

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    Barroso says austerity has run its course

    • Jose Manuel Barroso signals a shift in austerity policies – but what does this mean?
    • says policies are losing the support of electorates;

    Further News

    • A grand coalition with PD, PDL, Scelta Civica and Northern League is becoming increasingly probable;
    • Giuliano Amato, Enrico Letta, Corrado Passera touted as possible PMs;
    • market reaction to events in Italy highly favourable;
    • Beppe Grillo says he might join the PD’s left wing, which might not be part of the new government coalition;
    • The UK Treasury, meanwhile, cites euro disaster as reason against Scottish use of the pound after independence.