April 10, 2014

Francois Hollande nominates Jean-Pierre Jouyet as his chief of staff and reshuffles the office coordinating European affairs among ministries;
  • Harlem Desir is to the new European affairs minister, replacing Thierry Repentin;
  • New Socialist party leader is Jean-Christophe Cambadelis, an ally of Martine Aubry;

April 10, 2014

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Hollande reshuffles his office to tighten reign on European policy

Francois Hollande did surprise once again with 14 new nominations in the government, his own office and to the party leadership. He appointed a close friend and former European affairs minister Jean-Pierre Jouyet as his chief of staff on Wednesday and reshuffled his private office to tighten relations with Brussels. Jouyet, 60, director-general of the state-owned bank Caisse des Depots (CDC), is a well-connected political operator with deep European experience. "Jean-Pierre Jouyet has a lot of tricks up his sleeve, including on financial matters, which are also important now," Reuters cites a source. The nomination was also to ensure better coordination with the government of new Prime Minister, Hollande told the daily Le Monde.

The president also reorganised the government office in charge of coordinating European policy among ministries, making the General Secretariat for European Affairs (SGAE) report directly to himself instead of to the prime minister.

At its head, he appointed his European adviser, Philippe Leglise-Costa, in a move to mirror a similar structure in German Chancellor Angela Merkel's office.

Leglise-Costa is to travel to Brussels on Thursday to brief European Commision President Jose Manuel Barroso's staff on France's deficit cutting plans and the implementation of the "responsibility pact", a presidential source said.

Socialist Party Secretary Harlem Desir was ‘demoted’ to run the European Affairs ministry. It was the first government post for Desir, who has struggled during his 18 months at the helm of the Socialist Party to hold back dissent. He has been a member of European Parliament since 1999. He replaces Thierry Repentin, who acknowledged he had little knowledge of EU affairs. Naming Desir to a ministerial post avoids having to hold a party congress to choose a new party head. Jean-Christophe Cambadelis, an ally of Martine Aubry, is be named the new secretary.

Les Echos writes that Hollande showed his decisiveness with this reshuffle and also his intention to strengthen his role vis-a-vis Manuel Valls.

Francoise Fressoz in her blog on Le Monde writes that it took a municipal elections for Hollande to start through. He now fights for his survival choosing a strategy of opposites: the serious and well respected Jean-Pierre Jouyet and Michel Sapin to represent France vis-a-vis the European partners, the loud Arnaud Montebourg, Claude Bartolone and Jean Christophe Cambadelis to lead the campaign in the European elections, promising a rude confrontation between liberals and social democrats.

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April 10, 2014

José Carlos Díez finds Spain’s labour market reforms are hurting productivity and public finances through increased temporary, part-time and unqualified employment, and blames Eurozone policymakers for providing the impetus for the reforms;

    April 10, 2014

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    The negative effects of “reform” on Spain’s labour market

    Blogging in Cinco Días, economist José Carlos Díez analyses the evolution of Spain’s labour market over the crisis years and concludes that long-term employment is being replaced with temporary employment, experienced workers are being replaced by trainees, and full-time employment is being replaced by part-time employment. As a result, productivity is down and so are wages and social contributions. This means not only is Spain not transitioning to a higher value-added economy after the construction binge of the past decade, but also that the sustainability of the social security is threatened. Díez holds European policymakers (“Merkel-Juncker” and the ECB with its letter to Zapatero) responsible for pressuring Spanish governments to adopt legal reforms encouraging this evolution of the labour market, and says it is all liable to get worse if the “neocon” win the European elections again.

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    April 10, 2014

    Wolfgang Munchau says an environment of persistently low real rates could raise sustainable sovereign debt thresholds, but would lead to even great debt divergence in the eurozone;

      April 10, 2014

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      On the consequence of low real rates

      In his Spiegel Online column, Wolfgang Munchau discusses a chapter in the IMF World Economic Outlook on why real interest rates have fallen, and why real rates are likely to remain low for some time. In addition to the arguments made in the article (see also Gavyn Davies’ excellent discussion) Munchau makes two additional points. The first is that if interest rates were to remain low, sustainable debt ratios may be higher than generally thought. And the return to easy financing of sovereign debt will reduce the incentive by eurozone member states (except Germany of course) to consolidate their fiscal position in line with the fiscal rules and the fiscal compact, which might lead to political and economic tensions in the eurozone.

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      April 09, 2014

      Kenneth Rogoff has an intellectually lazy essay on German surpluses;

        April 09, 2014

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        Rogoff says German surpluses are ok

        Having provided the now intellectually bankrupt case for austerity with his discredited 90% debt rule, Ken Rogoff is now riding to the defence of intra-eurozone imbalances. In a Project Syndicate column, he makes the following points – if you want to call them that. First, he says, the proportional scale of German surpluses are not higher than US deficits (which is factually not true. They will have risen to over 7% in 2013). Then he says, surpluses are really complex, and in Germany’s case not primarily due to fiscal policy. And it’s not just Germany but other countries, too. And Germany is certainly right to claim that its strong balance sheet underpins European stability today. Would Draghi have ever launched OMT in this case? 

        We are not sure whether he wrote that essay in two minutes, or in five minutes. In any case, it is truly awful. Defending German surpluses on the (false) premise that they are no greater than the US deficit, is entirely mischievous, given the role those deficits played in the last financial crisis. It is a very weak argument to say German surpluses do not matter since other countries have them too. Nobody denies that the causes for German surpluses are complex, and nobody claims that they are primarily fiscal. He is also wrong on the idea that German surpluses are underpinning the eurozone’s financial stability. Investors are not piling into Greece because of German surpluses, but because of Greek surpluses. And he also wrong on OMT. The German current account surplus was not an issue for Draghi at the time. Why should a balanced Gemran current account have stopped Draghi? It is one of the most awful essays on the eurozone we have ever read.
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        April 08, 2014

        Spanish family businesses are sceptical of the economic and political outlook, though the perception is improving;
        • Mariano Rajoy lets in that Luis de Guindos will try to chair the Eurogroup;
        • Spanish finance minister Cristóbal Montoro announces a new tax credit for working mothers, then takes it back within 30 minutes as it’s already in the books;

        April 08, 2014

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        Spanish family businesses are becoming less sceptical of the future

        A poll of participants in the general meeting of the Family Business Institute IEF revealed an improved but still negative economic outlook, writes El País. Small business owners also have a very negative opinion of the political situation and of the government, which scored lower than the European Commission and the ECB (which still got a failing grade). Nevertheless, the business cycle appears to be turning as 60% of those polled intend to increase investment and a majority expect increased sales. Higher sales and investment have a weaker effect on employment, as only 21% intends to increase their staff.

        At the event, Spanish PM Mariano Rajoy delivered what is becoming a standard message of optimism and pride for steering Spain out of the crisis, with the obligatory admission that the unemployment situation is unacceptable. According to the paper, Rajoy admitted for the first time in public that he will lobby for his economy minister Luis de Guindos to become president of the Eurogroup. Rajoy said he was worried about the low inflation and high Euro exchange rate, and criticised the ECB’s inaction. On fiscal matters, he said his government will meet the deficit targets without raising taxes or further spending cuts but gave no details of the upcoming tax reform.

        Speaking of tax reform, finance Minister Cristóbal Montoro put his foot in his mouth at a separate event. After announcing that the government would introduce a tax credit for working mothers like they did last time the PP was in power, an aide pointed out that the tax deduction was still in force, and half an hour later he apologised saying “I am hopeless”, reports El País.

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        April 08, 2014

        the Catalan Socialists PSC have reportedly offered Catalan Premier Artur Mas support to serve his full term until 2016, as a way out of the looming showdown between his regional government partners of ERC and Rajoy’s PP;

          April 08, 2014

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          Catalan Socialists to offer deal to Mas

          As the Spanish parliament prepares to debate (and reject) the Catalan regional parliament’s request for a referendum on independence to be held on November 9, the self-described Catalan National Assembly prepares a road map including a mass mobilization on September 11 (Catalonia’s national day) and culminating with independence on Sant Jordi (April 23) next year. In this context, Vozpópuli writes that Catalan premier Artur Mas feels overwhelmed as he’s caught between two incompatible and uncompromising nationalisms, that of his Catalan regional government partner ERC and that of the PP in the central government in Madrid. According to Vozpópuli, the leader of the Catalan Socialist party PSC, Pere Navarro, has offered Mas support to serve his full term until 2016 in case his agreement with ERC breaks down in the face of insurmountable legal difficulties. The PSC has itself fractured and tensions with the national PSOE have mounted as a result of ambiguity around the so-called “right to decide”.

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          April 07, 2014

          Jyrki Katainen is to resign as Finland’s prime minister in June;
          • Katainen is potential candidate to succeed Jeroen Dijsselbloem, Herman Van Rompuy, or even as a compromise candidate for head of the commission;
          • Finnish press names finance minster minister Jan Vapaavuori or European affairs minister Alexander Stubb as favourites for the PM job;

          April 07, 2014

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          Jyrki Katainen resigns as PM to get EU job

          Yle reports that Jyrki Katainen is to resign as Finland’s PM this summer, and will also give up the chairmanship of the National Coalition party. Katainen said he would be interested in becoming Finland's next EU commissioner after the European elections in May. The FT writes that he is a potential candidate also to succeed Jeroen Dijsselbloem, head of the European Council to replace Herman Van Rompuy, or even as a compromise candidate for head of the commission.

          Katainen’s resignation, however, further unsettles the fractious coalition that has governed Finland since 2011. The second governing party, the SDP, also faces a leadership election in the coming, with Jutta Urpilaihnen currently trailing in the polls of SDP delegates, Yle reports. Katainen’s move appears to have been well prepared for a long time in advance, Yle writes, though the announcement was made in a hastily prepared conference in Brussels and came as a surprise at home.

          Timo Soini, head of the EU-sceptic opposition Finns party, told Finnish television: “This amounts to the government declaring [itself] bankrupt. They either run off to Europe or quit, like the Left Alliance did. If the prime minister quits in the middle of the term, it’s hands up.”

          Finland’s government is increasingly seen inside the country as having achieved little in its three years in power with the economy contracting in both 2012 and 2013 as the coalition pushed through spending cuts.

          The opposition Centre party is in the lead ahead of likely elections next year although Mr Katainen’s National Coalition party has narrowed the gap in the polls recently.

          There are four favourites to succeed Katainen, according to this Yle article, economics minister Jan Vapaavuori, European affairs minister Alexander Stubb, Administration minister Henna Virkkunen and NCP parliamentary group chair Petteri Orpo. None of them has yet declared their intention to run.

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          April 07, 2014

          Spiegel has a report that the Russian/European business ties, including gas imports, are currently rising, contrary to the stated intentions by European politicians;

            April 07, 2014

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            Russian-EU business ties strengthen despite tensions

            So much for reducing our dependence on Russia. Der Spiegel has some interesting statitics about gas sales, which show that Europe is currently increasing its dependence on Russian gas. Depsite the mild winter Gazprom increased its sales to Germany by 15% and to the UK even by 30%. There also seems to be no break in the negotiations by Rosneft’s proposed 13% acquisition of Pirelli, while RWE sold its oil and gas division DEA to a Russian consortium. 

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            April 07, 2014

            Angelo Baglioni dismisses the most commonly mentioned arguments in favour of a euro exit in Italy;

              April 07, 2014

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              Against a euro exit

              Italy;

              Angelo Baglioni has an article in Lavoce, in which he dismisses most of the anti-euro arguments. Here is his list of the argument, followed by his comments.

               

              1. The exit can be done in a week. Wrong, there will be huge and damaging capital flight.
              2. The exit will increase production and employment. Wrong, except for a short period. Inflation will creep up and neutralise the gains.
              3. The exit will reduce debt. Not really, except that external debt may be redenominated to lira.
              4. The Bank of Italy could monetise debt. Sure, but that will drive up inflation and create moral hazard.
              5. The euro is a failed economic project. No, the euro is a political project.
              6. Europe is too far from its citizens. Correct. It is important to address the democratic deficit. 
              We urge caution here. For example, the argument that the devaluation gains from a euro exit would be compensated by inflation depends very much on the post-exit institutional setup. For a country to achieve a lasting real devaluation, all it needs to do is to set up a credible monetary policy framework that operates from day one. If the new national central banks imposes a 2% inflation target, and if the labour market structure is sufficiently flexibile, there should be no reason to expect an increase in inflation. We think that if you want the euro to survive, you should try to make it work for its citizens, which is not the case today, rather than come up with scare stories, which may at one point no longer be believed.
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              April 04, 2014

              Michel Sapin wants a discussion in Europe over the “rhythm" of deficit reduction;
              • Arnaud Montebourg says it is time to change some of the EU decisions;

              April 04, 2014

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              Sapin wants to discuss the rhythm of deficit reduction

              France’s low growth prospects will give new munition to the French government in their quest to get more time for its deficit reduction. Michel Sapin, said yesterday he wanted to "discuss" the “rhythm” of how to reach the target of 3% of GDP. a request already rebuked by the ECB and Germany. Sapin said on Radio France Inter that "It is in Europe's interest to find the right timing ... "Europe will be better off when France is better off," he said, adding that there was a "thin line" between the budgetary rigour needed to bring public finances into line and an excess of austerity that would choke economic recovery, quotes Reuters. The article in Les Echos notes that while the CDU is deadly against any sort of prolongation, the SPD might be more receptive to French concerns. The article cites Ingrid Arndt-Bauer, president of the Budget committee in the Bundestag, saying that the French are right to ask for a delay and that Europe would not be served well if France is attaining its deficit target but with a worse off economy.

              Arnaud Montebourg also did not miss the opportunity to call for change in Europe. "Everyone is worried, it is time to change a number of EU decisions" Montebourg said on television France 2 adding: "the French government wants sources of economic growth to be mobilised in Italy and in Germany, according to Le Monde.

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              April 04, 2014

              a remarkable summons by the judge investigating the ‘Gürtel case’ takes it for granted that the ruling PP had shadow accounts as described in the ‘Bárcenas papers’, and that Bárcenas embezzled from them;
              • Bárcenas appears ready to give the judge more information and insinuates other party officials kept Swiss accounts;

              April 04, 2014

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              Judge convinced that PP had shadow accounts which Bárcenas embezzled

              In the so-called Gürtel case, investigative judge Pablo Ruz has summoned former People’s Party treasurer Luis Bárcenas and his wife to testify again, after finding evidence that Bárcenas embezzled money from the PP parallel accounts, writes El País (English edition). The summons is notable for two reasons: first, it takes it for granted that the PP financed itself illegally and kept “B” accounts; and second, it responds to a request from Luis Bárcenas himself (who is in preventative imprisonment) six weeks ago in which he offered to provide the judge for additional evidence against the PP in exchange for parole while he awaits trial.

              Judge Ruz ascertained that Bárcenas took money from the PP accounts by tracing a couple of cheques cashed by his wife for amounts and dates matching items from the alleged PP shadow accounts (the so-called “Bárcenas papers”). Bárcenas has reacted by insinuating that the rest of the annotations (which would implicate PM Rajoy) should also be considered accurate, and also that the judge should request information from Switzerland about possible accounts held by people appearing in the shadow accounts as reported by El Diario in mid-March.

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              April 02, 2014

              Troika wants to de-radicalise Greek student scene with a new fast-track degree, eligible to those students who sign a letter of commitment to austerity;

                April 02, 2014

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                Troika looks to reward students accepting austerity

                And from Eleutherotypia we learn that the troika prepares fast track university degrees for students who accept austerity as a way forward for Greece. Politically reliable students could then graduate in just one year. The troika says the new era requires a new type of student, who should be afforded the possibility to get in and out of university as quick as possible in order to avoid political radicalisation.

                Senior government figures say that the troika has linked the sluggish pace of reform in Greece with the lack of politically reliable graduates who accept the need for austerity and for Greece to move forward into a new era. According to one troika official involved with the drafting it is a quid-pro-quo: all interested students would have to do is to privately dedicate themselves to troika-mandated reform by signing a personal letter of commitment. That would then make them eligible for a fast-track degree. 

                This story seems so surreal that it is hard to believe. But then again, in this crisis we have seen many things happening that are from the onset hard to believe. What happens if the student does not wish to sign the commitment but still want to do the one year degree?
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                April 01, 2014

                Local elections in the Netherlands highlight loss of mainstream parties, with worst results for Labour;

                  April 01, 2014

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                  Labour lost in local Dutch elections

                  Dutch Socialists got trounced in local elections last week, where they lost traditional strongholds like Amsterdam and Rotterdam and nationwide realised only a 10% share of the vote, down from 15% earlier. Abstention was high (the turn-out was an all-time low of 53%) and local parties all over the country managed to get a combined 30% of the vote with the socio-liberal D66 party becoming the biggest party in nearly all big cities (12.8%). A poll shows that the D66 would be the biggest party in parliament if there were a general election tomorrow, according to Dutch News. They would win 25 out of 150 seats in a general election with 16.6% of the vote. Geert Wilders' anti-Islam PVV would win 23 seats, or 15.3% of the vote and remains in second place. The PVV has lost the equivalent of four seats when Geert Wilders led his supporters in an anti-Moroccan chant on local election night, the focus of much of the news reporting.

                   

                  The De Hond poll puts the Socialists on 22 seats or 14.6% and the VVD and CDA both on 21 – or 14%. This means the five big parties are separated by just a few percent. Labour, currently in the coalition government with the VVD, recorded its worst score ever in a De Hond poll, with just 11 seats.

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                  April 01, 2014

                  An expert group set up by the European Commission effectively buries the idea of a debt redemption fund and euro bills, saying there are advantages and disadvantages, and in any case, it would take a treaty change to do it;

                    April 01, 2014

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                    Expert group buries debt redemption fund and eurobills

                    The key conclusions of the expert groups set up by European Commission to report on a debt redemption fund and eurobills yesterday presented its key conclusions. The report was broadly positive, saying they would stabilise government debt markets, support monetary transmission mechanisms, and strengthen financial stability and financial integration. But the report also warned of offsetting economic risks and moral hazard, though it said this would critically depend on how such a scheme is structured. The group also raised a number of legal concerns. Without treaty change, a debt redemption fund would be a purely inter-governmental construction, and this would raise issues of democratic accountability. To set up joint issuance and joint and several liability, a treaty change would be necessary. The report remains overall neutral on the desirability of the scheme.

                    So much for that. An expert group that raises lots of concerns and does not come to any conclusion is by far the most effective way to bury an issue. We conclude that the experts have done the job for which they were appointed.
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                    April 01, 2014

                    Matteo Renzi presents his Senate reforms - a constitutional change designed to end the gridlock in Italian politics;

                      April 01, 2014

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                      Another week, another reform: Italian Senate edition

                      Matteo Renzi presented another big-item reform yesterday - the de facto abolition of the Senate as an equal chamber of the Italian parliament, and its replacement with a committee of the regions. The goal is to end the gridlock that has resulted from the present bicameral system. The new chamber will be called the Senate, but will have different functions and powers. The best source are Renzi's Powerpoint slides. Here is our summary of their summary:

                      • there will be no more elected Senators;
                      • the future Senate will consist of 148 representatives of regions and autonomous provinces, including two regional counsellors, two mayors and 21 elected citizens from each region, plus former presidents as Senators for Life;
                      • the new Senate shall have equal powers with the chamber of deputies on constitutional law - but no right of censure of the government;
                      • the main focus of the Senate would be on legislation that affects the regions - including European legislation;
                      • a united parliament - Senate and Chamber - will also in future carry out the same joint functions as in the past, e.g. the election of the head of state.

                       

                      Renzi is pushing for speedy implementation, and hopes to persuade Silvio Berlusconi to support this change on the grounds that a failure to reform the Senate speedily would also scupper the electoral reform, and the risk that the next parliamentary elections would be held under the present voting system.

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                      Left mobilises as Valls announced general pay freeze

                      • Manuel Valls announces general freeze on pensions, benefits and public sector pay until October 2015;
                      • Socialists on the left of the party said they will oppose measure if it is not amended;

                      Further News

                      • The EU Commission will ask the Andalusian government whether any European Social Fund money was involved in the unemployed training programme which allegedly suffered massive misappropriation;
                      • Wolfgang Munchau, meanwhile, writes that the eurozone crisis is not fundamentally about spreads, but about deep-seated imbalances that are very unlikely to be resolved.