Ayrault’s tax overhaul endangers his political survival
Jean Marc Ayrault’s promise an overhaul the tax system risks in resulting in nothing much but a short term boost for a prime minister, who is currently fighting for his survival, suggests Pierre Alan Furbury in Les Echos. The coup was prepared neither with the cabinet nor with the finance ministry. Although Francois Hollande gave the green light for the interview with Les Echos, he keeps himself now at a distance, to watch the story unfolding, it seems. Some MPs are sceptical over the benefits of such a long and complicated reform project where losers are quasi guaranteed. The outcome is thus uncertain. The longer the process, the more everybody will retreat into his reasoning for doing nothing, leaving Ayrault exposed politically. Ayrault promised the overhaul to be ready by mid-2014, but the enthusiasm already starts to abate one week after the announcement.
Portugal’s constitutional court not much of a blocking force after all
Jornal de Negocios dug out all austerity measures that were submitted to Portugal’s constitutional court over the last three years to find out whether there is any truth in the government’s claim that the constitutional court is the blocking force to government action. The journal found that in total, the judges validated government initiatives worth €7.7bn, or 82% of the proposals that were submitted to the court. Over those three years, the government had to give up or reshape only 18% of its plans, or €1.7bn. Two of the four blocked measures - transfer cuts to pensioners and civil servants with more than €600 per month - forced the government to find alternative revenue sources. The other two - the so-called "rehabilitation" and the extraordinary tax on sickness and unemployment – had been reformulated.
Merkel’s indecent offer to Zapatero
Former Spanish Prime Minister José Luis Rodríguez Zapatero claims that Angela Merkel offered him a €50bn bailout in November 2011, the same month that Spain held the general election which Mariano Rajoy’s PP would win in a landslide. In a preview of Zapatero’s soon-to-be-released memoir, Reuters writes that Zapatero categorically rejected the awkwardly-timed offer. According to the former Prime Minister, Merkel’s plan included a parallel €85bn rescue of Italy.
This comes on the heels of El País leading Sunday’s edition with Zapatero’s claim that his urgent reform of the Spanish Constitution at the end of the Summer of 2011 was the only way to avoid “a technical government”. In a long-winded interview on the issue of Spain’s possible constitutional reforms (on succession in the Monarchy, the Catalan question, etc), the issue of the 2011 reform of Article 135 is briefly touched upon. That reform was part of the push by Merkel and Sarkozy (recall their letter to van Rompuy of August 2011) to enact Eurozone-wide balanced-budget legislation, preferably in the Constitutions. Nevertheless, Zapatero insists in the weekend’s El País interview that the idea of a balanced budget constitutional amendment as a way to fend off a “technical government” occurred to him “autonomously” without external pressures. We also recall that, that same Summer, Jean Claude Trichet and Mario Draghi wrote a letter (later leaked to the Financial Times) to Silvio Berlusconi demanding economic reforms.
At about the same time that Zapatero’s book is being released, former finance minister and EU commissioner Pedro Solbes is also releasing a book about his time in government. Solbes resigned from government in 2009 in disagreement with Zapatero’s and handling of the economic crisis (see interview in El País, English edition, also this weekend), citing Zapatero’s rejection of an internal government memo by Solbes in 2009 in the mold of what was later done under EU pressure, such as pension reform. The two men, who appear to have had a tense relation, have been caught in a newspaper-mediated debate over Zapatero rejecting of the “necessary” reform package proposed by Solbes.
Merkel wanted to export austerity to the Ukraine
The Eastern Partnership is definitely off our reservation, but nevertheless we feel there is an overlooked aspect in Ukraine’s suspension of the talks with a more direct relevance to our debate. We would like to draw attention to a little-reported speech delivered on last Monday the 18th by Angela Merkel to the Bundestag (video) in which she demanded that Ukraine engage in fiscal consolidation as part of the agreement. We have found this speech reported in English only in the Russian site Vestnik Kavkaza.
“… An additional serious problem for Ukraine is fiscal consolidation. Without serious finances, there will be no agreement on economic support from the IMF. We believe that such an agreement with Ukraine is necessary. Bilateral credits of the EU for macrofinancal support of Ukraine depend on this.
We constantly recommend Ukraine to conduct reforms. We cannot do this for the Ukrainian government. The reforms should be provided, notwithstanding, the association agreement will be signed or not. We understand that they cannot be provided in a single day.
We also would like to support Ukraine in its reforms by our cooperation and financial aid for the European neighboring policy, but Ukraine has to provide necessary conditions for this. And it has to do it right now.”
Renzi’s challenge to Letta
Italy’s newspapers are full of the latest twists in the Berlusconi saga, which will reach a new climax tomorrow with the Senate due to vote to expel him from political office. What we found more interesting were reports in Corriere and La Repubblica, both quoting an extraordinarily worded challenge by Matteo Renzi, the mayor of Florence, who is currently campaigning in his party’s leadership primary. The newspaper quoted him as saying that on the day after the primary, which he expects to win, he would present the government with a list of reforms, starting with electoral reforms. “If you do not do what I say, it’s over,” Italian papers quote him as saying. Silvio Berlusconi called Renzi a mine about to explode in the face of the government.
Separately, the government is preparing for the 2014 budget vote with negotiations still ongoing. To speed things up Enrico Letta has resorted to the time-tested procedure of a confidence vote, as Reuters reports, which he is likely to win, given the majority of his coalition.
Jens Nordvig on the ECB’s gargantuan challenge
This article by Jens Nordvig in Vox argues that the ECB will need to do a lot more than it has done to stem the massive capital inflows into the eurozone, which are currently putting pressure on the real effective exchange rate. He says after the battle to save the euro, the ECB now needs to confront the negative growth dynamics in the eurozone, which are reinforced by a 6% appreciation in the trade-weighted euro index. He writes that there is already evidence that the ECB is doing more than the Bundesbank would have done under similar circumstance, but it will need to do a lot more to prevent the exchange appreciation of destroy the still fragile recovery.
Spanish judge finds evidence of PP parallel accounting
The Bárcenas case has flared up again with the issue of a court order in which the investigating judge states that there is “evidence” or an account used to channel payments “outside the official accounting” of the PP. This is in relation with payments to the architect responsible for remodeling the party’s Madrid headquarters in 2005-2011, reports Europa Press. In response to the allegations, PP spokesman Esteban González Pons said “the PP’s leaders and voters are as honest as everyone else, and the only one that can get Spain out of the crisis”. Opposition parties have announced that they will demand that PM Mariano Rajoy appear in Parliament to respond to the apparent contradiction of his statements to the Parliament before the summer recess.
Golden Dawn gained 2.5pp in popularity over the last month
The latest poll for Greece from Metron Analysis show that the crack-down on Golden Dawn backfired, the support for the ‘victimised’ far-right party rose 2.4pp in just one month, from 7.6% to 10%. Syriza is slightly leading the poll with 29.9% (+1pp) with a margin of 0.7pp ahead of New Democracy with 29.2% (-1pp), while Pasok is lingering at low popularity levels of 6% (-1.1%). Among the political leaders the one best suited for Greek prime minister is Antonis Samaras with 33%, followed by Alexis Tsipras with 16%, while 36% voted for “no one.”The rise of Golden Dawn caused a stir in the Greek media, Greek Reporter summed it up with its quote that “the neo-Nazi organization is once again in full force before Pavlos Fyssas‘ blood has even dried.”
In a comment for Kathimerini, Alexis Papachelas warns not to stir up the hornet nest, as anger of the Greek people is growing and spreading. Another article in Kathimerini reminds us that local and European elections next May could well turn out to be a catalyst for snap general elections.
Alexis Tsipras’ to-do list for his first 100 days in office;
As Syriza continues leading the polls, though with a tiny margin, its leader Alexis Tsipras gave the newspaper Avgi his Todo list for his first 100 days in office (as picked up from Klaus Kastner’s blog):
- Cancelling the EU-IMF memorandum and replacing it with a national reconstruction plan;
- The plan will include bringing back collective bargaining laws and restoring the minimum wage to the pre-crisis level of 751 euros, from which it was reduced by 22 percent in 2012;
- The creation of an assets register to help with taxation, and the drafting of a new tax system;
- The renegotiation of Greece’s loan agreement;
- Increasing social welfare;
- Reopening public broadcaster ERT and legislating for the awarding of digital licenses;
- The overhaul of Greece's banking system, providing greater state control of lenders and the creation of small, regional development and cooperative banks;
Munchau on Mody
Wolfgang Munchau takes a detailed look in his FT column on Ashoka Mody’s essay, in which he advocates a renationalisation of several policy areas, with the explicit purpose to strengthen the eurozone. Munchau notes that there have been a number of suggestions by serious people recently, all advocating some form of nationalisation (Heisbourg, Gros, now Mody). Munchau says he agrees with the core of their analysis – which is that the neither-here-nor-there approach to banking union, for example, is worse than the extreme positions of a full banking union, or none whatsoever. But Munchau says he disagrees with the idea that a return to national control could work. He cites Mody’s suggestion that Germany – under such a system – would first need to clean up its own banking system, and merge the deposit insurance systems into one. He says the chance of that happening, voluntarily, and given the latest political trends, is lower than the chance of genuine political union. The whole history of the eurozone is proof that loose policy co-ordination cannot work, and nor do compacts, such as the stability and growth pact. Repatration of powers is a way back to the status-quo ante – and in reality, it will be a first step to the dissolution of the eurozone.
Fratzscher on Germany’s three illusions
Marcel Fratzscher is one of a very small group of German commentators with a genuine eurozone-centric view of the world. In a Project Syndicate column he writes about Germany’s three delusions. The first is that the Germans think that they have weathered the crisis well. But since 1999, Germany has recorded one of the lowest rates of productivity and employment growth among all eurozone members, and real wages have barely gone up – for 60% of workers they have fallen. With one of the lowest investment rates of all European countries, German growth is likely to be low in the years ahead. The second illusion is the paranoid idea that the others are after their money. The German opposition to OMT in particular is counterintuitive, given the success of the mere announcement of the programme has had on the sovereign debt markets. Third, the Germans have bought into the view that the euro crisis is a currency crisis. The stability of the external exchange rate contradicts this view. The crisis is about the lack of political will to implement the policies need to solve the crisis, such as a banking union, and a fiscal union.
Mário Soares calls on Portugal’s government and president to resign
In Portugal, former president Mário Soares hits the headlines these last two days, calling on the current president Cavaco Silva and the government to resign. According to Jornal de Negocios, Soares said "With a government completely paralyzed and directionless, not dialoguing with the people, and a President who only thinks about his party, we create despair and violence. This is why I say that the President and Government should resign,…otherwise they will be responsible for the wave of violence. Nobody accepts austerity today, which is the source of all evil. The 'troika' is king in Portugal. Shame on a state that discovered the world and has its borders in for more than nine centuries," he said, receiving prolonged ovations from the audience.
German constitutional court says it won’t rule this year
Protests against mono-cultured economic teaching
Off our reservation, technically, but an important overall theme for us as this is also a big issue in the eurozone. In a letter to the Guardian, a prominent group of academic economists have backed student protests against neo-classical economics teaching. Academics from some of the UK's most prestigious institutions, including Cambridge and Leeds universities, accused the higher educational bodies in the UK for its "intellectual monoculture" reinforced by a system of state funding based on journal rankings "that are heavily biased in favour of orthodoxy and against intellectual diversity". They write that "Students can now complete a degree in economics without having been exposed to the theories of Keynes, Marx or Minsky, and without having learned about the Great Depression." The attack follows protests at Manchester University. Students there, who formed the Post Crash Economics Society, said their courses did little to explain why economists failed to warn about the financial crisis and had too heavy a focus on training students for City jobs. Earlier this month an international group of economists, backed by the New York-based Institute for New Economic Thinking, pledged to overhaul the economics curriculum and offer universities an alternative course.
Álvaro de Vasconcelos on the re-nationalisation of the crisis
Álvaro de Vasconcelos in Público (translated in Presseurop) argued that it is the absence of a political sphere in Europe why austerity could be imposed so easily and how the re-nationalisation of the crisis led people to perceive Europe as a zero-sum game, one of the underlying causes for populism and xenophobia:
“The absence of a European public space, the absence of mechanisms for participation in a supranational democracy, which makes it impossible for its citizens to mount a concerted response to the crisis and which explains the ease with which austerity policies are imposed. The “Indignado” protesters of the various countries are lobbying at a national not European level, as if every crisis had an exclusively national ring-fence and could be resolved within the context of each separate state. This re-nationalisation of the crisis has another perverse effect. Steadily more impoverished, Europe’s middle classes are jeopardising democracy. They see relations with other countries, within the EU and elsewhere, as if it were all a zero-sum game. This is one of the underlying causes of the perilous ascent of populism and xenophobia. “