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May 13, 2016

Brexit polls inconclusive, but Leave is getting stronger

The FT's Brexit poll tracker still has the two sides running neck-and-neck, but it is noteworthy that of the last ten polls six have the Leave camp ahead. And of the three polls in May, two have the leave camp ahead. The latest ICM poll has Leave at 46% and Remain at 44%, while the latest YouGov poll has Remain at 42% and Leave at 40% with a correspondingly higher number of undecided voters. The numbers are telling us that the outcome remains wide open, and most likely subject to further events between now and polling day on June 23.

The Bank of England yesterday gave a predictable warning of the Project Fear variety. This is about as stark as it gets:

"A vote to leave the EU could materially alter the outlook for output and inflation and therefore the appropriate setting of monetary policy. Households could defer consumption and firms delay investment, lowering labour demand and causing unemployment to rise."

We noted a comment from Tom Goodenough in his Spectator blog in which he made the point that warnings don't come much starker than this, and compares this with David Cameron's warning that Brexit would lead to war. The real problem with statements like these is that they could become self-fulfilling.

We also noted a comment by Ruth Lea in the FT, with which we largely agree, that the post-Brexit situation will not be as bleak as people suggest. 

"But all would not be lost. In some areas the EU already has “regulatory equivalence regimes” to allow non-EEA financial services firms — Swiss insurers, for example — to trade with the EU in a way that is similar to the passport. Given the UK already complies with EU financial regulations, “regulatory equivalence” should be all but automatic on Brexit."

She also makes the point that the lobbying power of German exporters to the UK in particular will be strong enough to prevent a vindicative response.

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May 13, 2016

What future for the Socialist rebels?

What will happen to French socialist party rebels who put their name under the request for a no-confidence motion against François Hollande’s government? Party leader Jean-Christophe Cambadélis now referred this question to the party's High committee for ethical questions, the HAE, according to Europe 1. The sanctions the committee can chose from range from warning, blame and shame, temporary suspension or exclusion, or definitive exclusion. Several Socialist members expressed their exasperation over the frondeurs' attempt to topple the government (though we reported yesterday that this might have been purely a strategic choice). The motion of the left failed to get enough signatures, just two short of the 58 required. 

The other motion of no-confidence, filed by the Republicans, was voted down yesterday, with 246 votes thus falling short of the required 289. The Socialist rebels did not support the opposition's motion. Trade unions, meanwhile, mobilised for another day of protests against the reforms with some violent clashes here and there, Les Echos reports.

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May 13, 2016

Christian Kern, a manager, to be the next Austrian chancellor

The next Austrian chancellor will be a businessman by the name of Christian Kern, the head of the state-owned Austrian railways. A man with a habit to dress in sharp suits, Kern is widely respected both in the Austrian business community and - more importantly - in the SPÖ, which is seeking a reformer with a social conscience. The German media immediately drew parallels with Gerhard Schröder and his economic reforms. There is a crucial difference, however, which this comparison overlooks. Schröder was not a businessman but a politician with a strong talent for electoral campaigning - probably the best campaigner Germany has ever seen. And even he ended up losing the 2005 elections. It is not clear to us that the best response to the populist FPÖ is to undertake structural reforms, such as changes in the labour market, that will only pay off a long time after the next elections. We think a better strategy would have been to focus on winning those elections first, and then do the reforms.

Der Standard reports that Kern enjoys broad support within the party. His official nomination is due today. Kern is planning a big government reshuffle, though this is mostly a balancing act between the left and right factions of the SPÖ and an exercise of purging some of Werner Faymann's loyal allies.

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May 13, 2016

On bank capture of the press

In a minipaper released as a blog, Luigi Zingales looks at the question whether financial reporting by newspapers is captured by the banks. He starts by noting that economists dismiss Noam Chomsky's classic argument that the mainstream media serve a propaganda function to support the prevailing system ("manufacturing consent"), as they usually argue that reader pressure will keep the media honest in a competitive market. Zingales concedes, however, that on technical issues where readers may not have strong opinions, media in financial difficulty may be biased in favour of their advertisers and creditors. When reporting about banking, being beholden to creditors introduces a conflict of interest. Zingales then goes on to show evidence of a pro-banking bias in the Italian press, by comparing the Italian and foreign reporting on the Atlante fund (more positive in Italy than abroad) and on the demutualisation of the cooperative banks (more negative in Italy than abroad). 

Speculating about the mechanism at work, he proposes that the use of banking sources may be a factor, but he discounts it because the foreign press needs Italian banking sources for its reporting more than the Italian press. He concludes that it's more likely that editorial selection is a more important factor. Some Italian commentators did not publish negative opinions on Atlante in the printed press, but did so online or in foreign publications.

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