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from Anatole Kaletsky:

An ‘atomic bomb’ is hovering over France’s economy

France's President Hollande and German Chancellor Merkel talk during a conference on jobs in Milan

An “atomic bomb” is about to blow up in “the confrontation between Paris and Brussels.”

It was in these terms that Le Figaro, perhaps the most influential French newspaper, reported the European Commission’s near-certain rejection of President Francois Hollande’s 2015 budget on Oct. 29.  That is the date the commission must issue a judgment on the French budget, which proposes a two-year delay in reducing the  budget deficit to the EU-mandated maximum of 3 percent of gross domestic product.

German Chancellor Angela Merkel has insisted that she will not tolerate any such relaxation of the European Union’s new, toughened budget rules. Meanwhile, Hollande has stated repeatedly that France will refuse any demands from Brussels for more cuts.

A full-scale budget war between Paris and Berlin/Brussels looks inevitable, with catastrophic effects on the European economy and markets. But on closer inspection, this impending budget battle is no more lethal than the fiscal shadow-boxing in Washington last year.

from MacroScope:

Draghi tries to keep show on the road

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The European Central Bank has one of its two offsite policy meetings of the year, in Naples. After a glut of measures last time it’s inconceivable that further action will be taken now but there is plenty to ponder.

A first tranche of cheap four-year loans has been offered to banks in the hope they will lend it on but the take-up was poor. The ECB is playing up the prospects of a second round in December after bank stress tests are out of the way. But having pledged to add the best part of 1 trillion euros to its balance sheet to rev up the euro zone economy, there is a lot of ground to cover.

from MacroScope:

French budget to fire EU growth debate

hollande5.jpg

France is unveiling its 2015 budget right now and it’s not making pretty reading, confirming that Paris will not get its budget deficit down to the EU limit of three percent of GDP until 2017, years after it should have done.

The health minister has said the welfare deficit is expected to run nearly one billion euros over budget this year and data on Tuesday showed France's national debt hit a record high in the second quarter, topping two trillion euros for the first time. It will near 100 percent of GDP next year.

from MacroScope:

After “get in the hole!”, Europe remains in a hole

Team Europe golfers pour champagne over captain Paul McGinley as they celebrate retaining the Ryder Cup at Gleneagles

Who says Europe is broken? The Ryder Cup stays here again and even Nigel Farage, leader of Britain’s anti-EU party, said he wanted Europe’s golfers to win.

The euro zone is not winning the economic competition however, despite the European Central Bank’s best efforts (it should be noted that only 3 of the 12 Ryder Cup team come from euro zone countries).

from MacroScope:

Showdown for Hollande

French President Hollande and Finance Minister Sapin take part in the assizes for financing and investment at the Elysee Palace in Paris

The French government faces a confidence vote in the national assembly after President Francois Hollande and his prime minister, Manuel Valls, ousted dissident ministers in a signal perhaps that they are prepared to push ahead with unpopular structural reforms to breathe life into a moribund economy.

Rebel lawmakers in Hollande’s Socialist party say they may abstain. On top of the reshuffle, they are angry at Hollande's policy switch in January to favour tax cuts to business in a bid to revive the economy - a move that has failed to kickstart a flatlining economy.

from MacroScope:

All to play for

A "No" campaign poster is seen in a field after being vandalised by a "Yes" supporter on the outskirts of Edinburgh

The latest Scottish opinion poll puts the unionist camp ahead by 52 points to 48 – still way too close to call given the statistical margin for error.

The last two polls have given the “No” campaign clinging to a narrow lead following a dramatic narrowing of the gap and one survey giving the separatists a lead. So has the “Yes” momentum stalled? If you chart the numbers over the past two weeks you might think so but if you did so over the past two months you would say emphatically not.

from MacroScope:

Nearer the brink

A man walks past cutting boards, that have been painted with images of Russia's President Vladimir Putin, at a street store in the center of St. Petersburg

Ukraine is nearer the brink with Russian forces now pretty clearly operating over the border. The past week has seen Ukrainian forces flee in the path of a new rebel advance which Kiev and its western allies says has been directly aided by Moscow's forces.

Russian President Vladimir Putin called on Sunday for immediate talks on "statehood" for southern and eastern Ukraine, though his spokesman tried to temper those remarks, that following an aggressive public showing in which Putin compared the Kiev government to Nazis and warned the West not to "mess with us".

from MacroScope:

Evening of reckoning

EU heads of government and state dine in Brussels this evening to discuss their response to a big slap in the face from the bloc’s electorates.

Italy’s Matteo Renzi, who bucked the trend by winning handsomely as an incumbent prime minister, has the wind in his sails and has pledged to change Europe’s focus towards growth and job creation after years of fiscal austerity in response to the euro zone’s debt crisis.

from MacroScope:

Secession vote looms

 

Despite Vladimir Putin’s apparent attempt at rapprochement, pro-Russian separatists in eastern Ukraine insist their Sunday referendum on secession will take place, a move which could lead to civil war.

More signs of concern from Washington last night with Russian Foreign Minister Sergei Lavrov urging U.S. Secretary of State John Kerry to press Kiev to begin “direct, equitable dialogue” with its restive regions. In turn, Ukraine's acting president and prime minister proposed a "round table" drawing in political forces and civil groups from all regions with international mediators helping out.

from MacroScope:

Five days on, Ukraine accord at risk of unravelling

An international agreement to avert wider conflict in Ukraine, brokered only five days ago, is teetering with pro-Moscow separatist gunmen showing no sign of surrendering government buildings and Kiev and Moscow trading accusations over who was responsible for killings over the weekend.

Washington, which signed last week's accord in Geneva along with Moscow, Kiev and the European Union, said it would decide "in days" on additional sanctions if Russia does not take steps to implement the agreement. U.S. Vice President Joe Biden is in Kiev where he is expected to announce a package of technical assistance.

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