a prominent Italian businessman tells Matteo Renzi to forget about the tax wedge and to address the destitute situation of the country's small businesses and the unemployed;
What business is telling Renzi
This is from the Huffington Post - something we would not normally report on, but since Matteo Renzi has not yet clearly worked out his economic strategy in any detail, a lot of important decisions are currently up for grabs -and the lobbying machine has started to go into overdrive. The online paper quotes Mario Moretti Polegato, the founder of Geox shoe brand, who has told Renzi to forget about cutting the tax wedge (the gap between wage costs to the employer and take-home pay of the employee). The sums were peanuts - about 1% of total labour costs. What is far more important is to heal the massive wounds which the Italian crisis has torn up. The are hundreds of thousands unemployed kids on the streets, there are entrepreneurs who are committing suicide, companies that have no credit. Renzi should do all this medium-to-long term stuff later, and deal with the acute emergency. Moretti Polegato said Renzi had come to listen, not to lecture. Renzi had told that there were about €10bn to play with, some 0.6% of GDP.
For light entertainment, here is an example of a picture series from the German press. We could not resist.
the "58" group of Greek social democratic intellectuals have rejected an alliance with Pasok, thus cementing the fragmentation of the centre-left in the EP elections.
Greek centre-left politics fragments
Bad news for an effort to forge a new centre-left movement in Greek politics. As Macropolis reports, the so-called "58" group of Greek intellectuals and politicians has turned down a co-operation agreement with Pasok for the European elections in May. The two sides had been in talks for several weeks about placing joint candidates. The trigger for the decision was a decision by the government, in which Pasok is a member, to change the electoral system from closed lists to preferential voting. The article said the co-operation with Pasok was fraught from the beginning. The whole point of the 58 group was to make a break from Pasok and create a new social democratic movement. Pasok, meanwhile, is now likely to face a severe defeat at the elections - with the polls putting at 4 to 7%. Another rival social democratic movement is currently being formed by the journalist Stavros Theodorakis, be To Potami (The River). There are now six very similar parties or movements.
Wolfgang Munchau dismisses the news of high German inflation expectation as a case of stastical illiteracy: this is about purchasing power, not inflation;
Munchau debunks the rise in German inflation expectations
In his Spiegel column, Wolfgang Munchau debunks the story that 90% of the Germans dismiss the deflation scare, and fear inflation instead. He says one cannot measure inflation expectations by asking people, which is where this number came from. When you ask about inflation expectation, you get an answer about purchasing power. So 90% of Germans are fearful of a fall in a real wages - and that is not unrealistic at all, given last year's decline. As for inflation expectations, they are dropping in Germany too. If that was not case, how would interpret the market prices for inflation-index bonds? If the statistic had been true, they should have risen. Munchau concludes that this is another case of lies, damned lies and statistics, and in Germany, as elsewhere, inflation expectations are declining.
Adam Posen, meanwhile, says policymakers usually get economic reforms wrong - either they get the analysis wrong, or they set the wrong priorities, or put process over substance.
Posen on Japan
This is evidently off our reservation, but Adam Posen's FT articleon Japan makes a number of pertinent points on economic reform programmes - which is the part on which we focus here. He writes that economic reforms rarely work. Some are based on the wrong analysis - Japan in the 1990s. Others get the analysis right, but fail to prioritise - like Indonesia in 1998 and more recently Greece. Others place too much faith in austerity - as did Argentina and now the eurozone. The Italians make the mistake of placing process over substance - witness the debate of doing political reforms first, and economic reforms second. Posen then goes on to the subject of his article -Japan - making the point that Abenomics has so far avoided these pitfalls.
former management of Banco Pastor indicted for accounting fraud;
A Spanish criminal case of bankruptcy cover-up.
Banco Pastor, one of Spain’s oldest banks, was taken over by Banco Popular in 2011 after failing stress tests but continues to operate as a separate brand. Now, in a story illustrative of the excesses of the banking sector, El País reports that a judge investigating the failure of the bank has indicted and is interrogating two former executives of the bank, its President and CEO, for fraud committed in 2008-2010 to cover up the bank’s insolvency. The lawsuit was filed by a single shareholder who alleges that the bank issued equity and preferred shared in order to cover real estate losses and cooked its books to appear solvent to savers who were sold the investments.
a proposed bill to withdraw Iceland’s application for EU membership triggers pro-EU demonstrations before the parliament;
Icelanders demonstrate for continued EU accession negotiations
The introduction of a bill in the Icelandic parliament to withdraw the country’s EU accession application has triggered demonstrations by pro-EU activists in Reykjiavik, reports Iceland Review. Demonstrators gathering for the second day in a row demand a referendum on the issue. The government interrupted accession negotiations shortly after gaining power last year, and a majority of the MPs of the two ruling parties Progressive and Independence supported a pull-out in internal party votes last week. Nevertheless, Iceland Review writes that more than half of Icelanders favour continued negotiations according to some polls.
A shocking Ipsos poll says the French are turning against everything - the EU, the euro, foreigners, the lot;
The French are turning ever more anti-euro and anti-everything
With a hat tip to Kevin O Rourke, this story from the Ipsos polling institute in France is quite shocking. Their latest sentiment poll suggests that France might be heading for an insurrection with a complete loss of confidence in all national and European institutions. The number of French in favour of quitting the eurozone has risen by 5 points to 33% compared to last year. 45% believe that the French membership of the EU is a good thing, while 40% think of it in negative terms. A three-quarters majority of the people have no confidence whatsoever in the National Assembly and the Senate. Among workers, there is a majority in favour of quitting the euro. An increasing number of people are now saying that the National Front was representing their own views.
Matteo Renzi received a vote of confidence in the Senate, the penultimate stage to the start of his new administration;
- He promises to cut the tax wedge by more than 10% and to end the blanket restrictions on local government expenditures - leading Frankfurter Allgemeine to question how is going to finance all this;
Matteo Renzi goes to the Senate
We rarely write in this newspaper that not much happened yesterday, but in Italy not much new substantive happened yesterday. Matteo Renzi went to the Senate, held a pompous speech on the need to change, and got confirmed by a majority of 169 to 139. Corriere della Sera has the long list of the points he made. We find the pictures more interesting with Renzi wildly gesticulating and everybody appearing to looking pretty sceptical. Maybe it's just us. The one quote that will be remembered from yesterday's speech is that the statement: "If we lose this fight, the fault will be mine alone". In other words: he will never admit to have lost the fight.
The most important point he made is a firm commitment to a double-digit percentage cut in the tax wedge - no further details though. Frankfurter Allgemeine has been watching Renzi with eagle eyes and great suspicion. The paper's headline this morning says that the big spending programme had begun, adding that Renzi does not say how he is going to finance it. The paper picked up on his promise to cut in the tax wedge and the one-off payment of all public-sector obligations. The paper says that with these promises, Renzi also put into question the country's internal stability pact, which stopped communes with available resources to spend them because of budget gaps in places like Rome or Naples.
Jean-Marc Vittori writes that the euro's chances of failure are now higher than the chances of success;
Jean-Marc Vittori on the eurozone's likely demise
This is an extremely pessimistic comment from Jean-Marc Vittori, the economics commentator of Les Echos, who writes that the euro has a much higher chance to perish than to survive. The choice is either deepening or dismantling and by waiting, the tension will escalate. France could be the pivotal country in this process. A third of its inhabitants want to return to the franc as neither governments of the left or the right have managed to find a way out of the crisis. He quotes a recent statement by Christopher Pissarides who said that if the reform process in France fails, he would be concerned about the future of the euro.
Estonia’s prime minister resigns after 9 years in office to allow his successor to gather support one year ahead of 2015 elections;
Estonia’s prime minister resigns
Estonia's Prime Minister Andrus Ansip said on Sunday he would submit his and his government's resignation to the country's president on March 4, Reuters reports, more than a year to go before parliamentary elections. In 2012 Ansip already announced in 2012 that he would not form another government. His early resignation is meant to give his successor a chance to gather support ahead of the elections in March 2015. On Friday, the party's management board gave authority to Siim Kallis, current Vice-President of the European Commission, to form a new coalition government if and when Ansip resigned. The Reform Party still holds the largest block of seats in the 101-seat parliament with 33 seats while the junior party in the ruling coalition, the centre-right Pro Patria and Res Publica Union (IRL), holds 22. The left-leaning opposition Centre Party and Social Democratic Party hold 21 and 19 seats respectively with six members in the parliament unaligned.
political appointees are also leaving Spain’s Ministry of Industry;
- an election poll shows voters favour a full cabinet reshuffle rather than just replacing the Agriculture minister if he goes to Brussels as expected;
- the Spanish Secretary General of the EPP is concerned about “the rise of extremes” by which he means anti-Euro, not extreme nationalists;
Harbingers of a Spanish cabinet reshuffle
We reported last week on departures of political appointees in Spain’s economy ministry as a sign of a likely government reshuffle. Over the weekend, El Diario wrote that the ministry of Industry is also seeing an exit of political appointees, in this case to the Inter-American Development Bank and to the board of Enagas, manager Spain’s natural gas distribution network. The paper suggests that the atmosphere within the ministry has become extremely tense, among other things because of interferences from the ministries of Economy and Finance.
In a European Parliament election survey commissioned by El País from Metroscopia ¾ of respondents favour a full cabinet reshuffle in case Rajoy nominates Agriculture minister Miguel Arias-Cañete to lead the PP’s list, as is likely, rather than simply replacing the one minister. Even among PP voters 3/5 are in favour of a reshuffle. The poll results haven’t changed from those reported a month ago, with the PSOE leading with 18 seats and 28% of the vote, the PP in second place with 16 seats and 26% of the vote. This is a major loss for the center as the two parties combined obtained 81% of the vote in 2009 and would lose 26% to smaller parties notably the United Left (IU) and non-aligned (centrist) UPyD.
In this context Spaniard Antonio López Istúriz, secretary general of the EPP, advocates a post-election alliance of the PP and PSOE “against extreme parties”, writes Público. While Istúriz’s rhetoric is against parties who “want to end the European Project” (of which there really aren’t any), the alliance he proposes is of Spanish nationalist parties such as UPyD and Vox, a newly created splinter party to the right of the PP. EU Observer has a short piece about Vox, explaining that in Spain it is possible to be both xenophobic and pro-EU, and that as a result of political isolation during Franco’s regime wholesale anti-EU positions fail to take hold on the left or on the right.
Research report finds austerity cuts in Greece caused rising infant mortality rates, soaring levels of HIV infection among drug users, the return of malaria, a spike in the suicides and leaves 800000 without healthcare;
The shocking health consequences of austerity cuts in Greece
Studying the impact of spending cuts on the Greek health system, academics from the UK found evidence of rising infant mortality rates, soaring levels of HIV infection among drug users, the return of malaria, and a spike in the suicide count, the Independent reports. In their report published today in the medical journal The Lancet the authors accuse the Greek government and the troika to be “in denial” about the scale of hardship inflicted on the Greek people. Between 2009 and 2011Greece’s public hospital budget was cut by 25% and public spending on pharmaceuticals has more than halved, leading to some medicine becoming unobtainable. Rising unemployment in a country where health insurance is linked to work status has led to an estimated 800,000 people lacking either state welfare or access to health services and in some areas international humanitarian organisations such as Médecins du Monde have stepped in to provide healthcare and medicines to vulnerable people. Government disease prevention schemes have also been cut resulting to a revival of rare infectious diseases like Malaria to return. Reductions in the numbers of syringes and condoms distributed to known drug users has led directly to a spike in the rate of HIV infections in this community, the report said – from just 15 in 2009 to 484 in 2012. There was a 21% rise in stillbirths between 2008 and 2011, which was attributed to reduced access to prenatal services, and infant mortality also rose by 43% between 2008 and 2010. “The experience of Greece demonstrates the necessity of assessing the health impact of all policies carried out by national governments and by the European Union.”
Stefan Aust, meanwhile, says that the case of a paedophile MP highlights an unbelievable degree of incompetence at all levels of the German state.
Aust on the incredible incompetence of Germany's institutions
Stefan Aust is best known for having edited Der Spiegel, and for his books on terrorism. Writing in Die Welt Aust offers a devastating criticism of the incompetence of various parts of the German system in its handling of the Edathy affair - the way politicians improperly discussed, and passed on information in a paedophile scandal involving a recently departed prominent SPD-MP. Aust starts by drawing comparisons with WWI - saying that one common factor between then and today that has not been cited much is the sheer incompetence of the respective governments. Edathy himself was going after Germany's secret service, which messed up an investigation into a right-wing terror organisation at a time when the Federal Police investigated So everybody was investigating each other. Aust lists what has to happen in a situation like this. Search warrants, arrest warrants all have to be issued at the same time when information is passed on by the ministries. The sequence of events that actually occurred with the interior minister tipping of his SPD counterparts is what you expect in a banana republic, not in a modern democratic state. Aust concludes with the statement that Germany can be lucky not to have had a government like this during unification.
Coalition negotiations in Italy have hit a last minute glitch as New Centre Right leader Angelino Alfano seeks concrete assurances from Matteo Renzi that the administration will last the entire term;
- the only way to achieve that would be to delay Renzi’s pet project of electoral reforms;
- Renzi plans to introduce his cabinet list later today with Pier Carlo Padoan considered in pole position for the job as finance minister;
Last minute glitch in Italian coalition negotiations
There seem to be last-minute jitters in the Italian coalition negotiations, as Angelino Alfano, the head of the New Centre Right, seeks assurances from Matteo Renzi that he will not call early elections. As one of the NCR cabinet ministers is quoted in the Huffington Post Italia, the only way to give this guarantee is for the electoral law not to come into force until after the reform of the Senate – which would take us beyond 2015. Silvio Berlusconi, meanwhile, is preparing his troops for elections in 2015.
Renzi said he will present his cabinet list today with no hard news yet on who is going to be finance minister. La Repubblica says Pier Carlo Padoan, currently chief economist of the OECD, is in pole position for the job while Tito Boeri, a labour market economist at Bocconi, is certain to be the next labour minister. What these rumours show is that Renzi seems to have given up on nominating a politician for the finance ministry job. There are a lot of media rumours that the ECB and the Bank of Italy have leaned on Renzi not to rock the boat too much.
The German grand coalition is on the rocks over a child pornography case – we give the background in today’s briefing;
- Wolfgang Munchau says the real problem with this coalition is that it lacks a joint project – and is highly vulnerable to exogenous shocks – no good omen for the eurozone issues that are likely to come up;
German Grand Coalition on the rocks
With events unfolding in the Ukraine, the German grand coalition crisis was pushed a little into the background. It has now became an affair of state – so we are going to briefly summarise what had happened:
What we know is that the former interior minister Hans-Peter Friedrich made a phone call to Thomas Oppermann, who was then SPD parliamentary treasurer, during last year’s coalition negotiation. In this call, Friedrich told Oppermann about a child pornography investigation against SPD MP Sebastian Edathy. The reason for this call was that Friedrich, a member of the Bavarian CSU, feared that this case could blow the negotiations. So he decided to break the law and leak the information of an ongoing criminal investigation. Friedrich later became agriculture minister in the Grand Coalition, and was forced by Angela Merkel to resign after the news of the phone call leaked out. Friedrich thus became the first political casualty of the case. The CSU wanted a eye-to-eye type sacrifice from the SPD. Oppermann, who has since advanced to become the SPD’s parliamentary leader, has come under immediate fire.
The Edathy case is strange in many ways. Edathy, who has now quit politics, was quite a prominent politician in the probing the German secret service’s mishandling a right-wing terrorist group. He was consider to be ministerial material. There is obviously a lot of speculation whether he got framed by the secret services and/or the police, a suspicion that is now cemented by the fact that there is no legal evidence for a prosecution. The alternative explanation, even more troubling, is that Edathy might have been tipped off by a senior SPD leader. After Oppermann received that fateful telephone phone call from Friedrich last year, Oppermann immediately told Sigmar Gabriel, SPD leader, and Frank-Walter Steinmeier, who was the SPD parliamentary leader at the time –now foreign minister. The German police believes that Edathy did get a tip-off, but that could plausibly only have come from the SPD’s leadership. So either the guy was framed by some giant conspiracy involving a rather large number of people, or someone in SPD headquarters was either not careful enough or thought they were very smart. On the balance of probability, it is not hard to make a guess what happened. But there is no proof.
Oppermann yesterday gave testimony to a Bundestag committee, in which he said sorry for having messed things up. But he denied any allegation of improper conduct. One of the strange things he did was to have contacted the head of the federal police to ask for further information on this case – which he did not get. Expect this affair to run and run.
In his Spiegel column Wolfgang Munchau writes that this affair marks the end of a glorious honeymoon for the Grand Coalition. The fundamental problem is that this coalition is all about appearances. They disagree on almost everything. They have no joints projects. They relucatantly tolerate each other’s programmes (like the SPD’s minimum wage proposal). Considering the kind of economic policy stress this coalition is very likely to confront in the next four years, this affair does not forebode well for the future. More resignations are certain in this case. There is going to be a lot of political blood on the carpet, together with a general loss of trust.