03 October 2013

EIM Member State Events September 2013

Germany: Graham Bishop’s comment on the elections result: link;  Spiegel: Social Democrats demand new stance on Europe from Merkel: After the federal elections, the SPD laid down its first conditions for a possible grand coalition, including an end to radical austerity measures in Europe. "This is a policy Merkel will not be able to continue with", said EP President Schulz. The German EU Commissioner Günther Oettinger (CDU) also spoke in favour of an alliance of the Union with the SPD: "A grand coalition is good for Europe”. Union parliamentary leader Volker Kauder (CDU), however, urged in an interview with the Spiegel that the SPD should not unnecessarily delay coalition negotiations with the CDU. Although one should take time for negotiations, Kauder said that "Europe is not waiting for the government in Germany to be formed - we must be able to act".

France:  François Hollande: "I do not believe in a United States of Europe": Le Monde interview: “Whoever is victorious [in Germany] will be Chancellor for four years, the same amount of time as is left of my mandate. This means that we will have enough time to launch initiatives on the European front. I envisage three...improving the functioning of the euro area with better coordination of economic policies and fiscal and social harmonisation by introducing a minimum wage; there is no need for treaty change in any of these points.”

Italy:  Reuters: New Italian targets show lack of progress since Berlusconi's fall: More important than the numbers is the fact that Italy's political situation has made no more progress than its economy, dimming prospects for the reforms needed to turn things around. According to Lucrezia Reichlin, a former head of research at the European Central Bank, Italy's medium-term growth potential is now close to zero due to its failure to reduce costs and bureaucracy, tackle corruption or reform the justice system. "Since the days of the deepest crisis (in 2011), Italy has done nothing to improve its competitiveness.”

Cyprus:  ECFIN - First review of the economic adjustment programme: The team found that the Cypriot authorities have taken decisive steps to stabilise the financial sector and have been gradually relaxing deposit restrictions and capital controls. The fiscal targets have been met as a result of significant fiscal consolidation measures underway and prudent budget execution. Structural reforms have been taken forward in important areas, although delays and partial compliance were observed in a number of cases.

Greece: Bruegel/Mody: A new Greek test for Europe. Greece is set to test Europe again, with a vengeance. Greece has so far repaid almost none of the €282 billion ($372 billion) in loans that it has received since 2010. To escape from this morass, Greece needs a massive debt write-down. But there is a twist. Virtually all of the debt repayments due in the next few years are to the IMF, whose implicit status as “senior” creditor ensures that it is repaid first. Because Greece is rapidly running out of cash, it will first have to borrow more from either its European neighbours or the IMF itself. The European Union would thus be transformed into a true federation...

Ireland:  ECB rules out backstop funding for Ireland without conditions: Börsenzeitung interview - Asmussen dismissed the idea of no-strings-attached funding to ease Ireland's return to financial markets. Finance Minister Noonan has announced that Ireland is seeking a €10 billion precautionary credit line from the ESM. ”I have of course read what he said. He knows that a precautionary ESM programme also involves conditionality. OMTs can only be activated under the conditions that have been made known: a country requires an ESM programme, and that may also be a precautionary programme with the option of the ESM engaging in purchases in the primary market. OMTs are a monetary tool, not a substitute for a lack of capital market access.”

Portugal:   Simon Nixon WSJ: Portugal could be cooking up a storm: The focus is on whether the troika will relax the 2014 budget deficit target agreed to in June—the issue that triggered the summer political crisis. Is this target really achievable, particularly if the Constitutional Court continues to block public sector pay and pension cuts? The truth is that what really matters for Portugal—and Europe—in the long term isn't whether the deficit target is 4 per cent or 4.5 per cent next year, but whether Portugal will ever succeed in turning itself into a dynamic economy capable of escaping its grim history of recurring debt crises. The risk is that the crisis is causing Portugal's elites to retreat to familiar comfort zones just when they need to be embracing radical change.

© Graham Bishop