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May 09, 2016

High noon over debt relief

All eyes are on the eurogroup meeting today, after the Greek parliament adopted the pension and tax bill and sent its proposal for a automatic fiscal cut mechanism to the eurogroup members. We still don’t see a deal happening today for the review to conclude, nor any agreement on debt relief. But the finance ministers might agree on a procedure about how talks could move forward.  

In a letter to all euro finance ministers, Christine Lagarde insisted that the eurogroup needs to move on debt relief and fiscal targets as the numbers still don’t add up: current measures only produce a 1.5% primary surplus in 2018 at best, and the 3.5% target is not only unrealistic but also undesirable, which means debt relief is unavoidable. The letter, posted by the WSJ blog, is worth reading in full. Without change in the target or debt relief the IMF is out of the picture. The letter also made clear its frustration with the Greek government and the short-term measures that are, in the end, counter-productive: 

“Based on past performance, those ad hoc measures are not very credible, but they are also undesirable as they add to uncertainty and fail to resolve the underlying imbalances.”

The letter also makes the point that Greece legislated a dozen contingency-type measures in the past, and they all did not work. What the Greek government came up with is another bundle of ad-hoc measures, not what the IMF would call structural reform. Also, whenever the fiscal stance improved  in the past, new spending demands arose and the pressure for fundamental change was lost. KT Greece makes the point that in the seventh year of economic crisis, with pensions one of the main sources of income for whole families, it is virtually impossible to reverse the grave mistakes and missed chances of the past.

In Athens, meanwhile, the Greek parliament adopted two bills on pension and tax reform yesterday after a two day debate in parliament. The bills got the backing from all of its 153 MPs, while all opposition parties voted against. The passage was helped by some last-minute amendments, such as tax-free thresholds distinguishing four types of family status. There are also exceptions here, including for the armed forces. This is a boost for Alexis Tsipras, showing that his powers of persuasion have not waned and that the coalition is cohesive enough, comments Macropolis. The measures represent two third of the bailout package, coming up to 2% of GDP. There is another 1% to be legislated, mostly increases to indirect taxes, but this should be comparatively easy. Outside parliament there were protests everywhere. Professional unions threaten to expel those MPs who voted in favour of the measures, including PM Tsipras as well.

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May 09, 2016

A French plan for a core Europe

El País reports about the French plans to press ahead on European integration with a core group of countries. François Hollande intends to launch the initiative after the Brexit referendum at the end of June, in order not to interfere. On the other hand, the multiple crises currently facing Europe - the euro, the refugees, and the rise of populism and xenophobia - contribute to feeling of urgency such that Hollande does not want to wait until after the French and German elections next year. The plan includes: closer defence cooperation, also in recognition that the US wants its NATO allies to pull more of their weight; a eurozone economic government, with a eurozone parliament and a common investment budget; and fashionable policy areas in Brussels such as the digital agenda and energy policy. The plan is said to have been broadly agreed with Germany - and the core group might include Italy, the Benelux, and Spain and Portugal. Though Poland is a key country, its recent political turn makes it less likely to agree to closer integration.

One wonders whether Hollande's urgency relates to the likelihood that he won't by back at the Elysée after next year's election. Also, it is interesting that the 'core' countries mentioned are the original six, plus the two from the 1980s wave of expansion. The countries joining in the 1970s, 1990s, or 2000's would not be in the proposed core.

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May 09, 2016

Polish opposition takes to the streets

In what is being called the largest anti-government demonstration in Poland since 1989, an estimated quarter million people (or 70,000 according to the police) marched in Warsaw against the illiberal policies deployed by the Law and Justice (PiS) government in the six months since its election. These include threats to press freedom, and a dispute over the appointment of five constitutional court judges which has escalated into a constitutional crisis as the government now refuses to publish court decisions in the official journal. Another message of the demonstrations is pro-EU. The leading opposition party Civic Platform (PO), formerly in the government, has taken a leading role in the protests alongside a so-called committee for the defence of democracy (KOD).

It is a sign of how serious the institutional crisis is in Poland that the parliamentary opposition takes to the streets so soon after losing an election. We can't know where it will go from here, but in the short term both sides are likely to dig their heels.

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