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from Photographers Blog:

Front row at the Sarkozy show

By Philippe Wojazer

April 31, 2012 The day before French President Nicolas Sarkozy's last big political meeting.

During a rally one month earlier I had the idea to place a go-pro camera on a television arm to capture general views of Paris's place de la Concorde. I went to the TV production team to ask if I could hang the small camera under their camera without disturbing their images. The problem is that if you put something on the end of their arm, you need to add some weight to the other end so it is balanced and can "fly" over the crowd. Balancing weight can be long work. The team were really helpful and at the end of the day, I had my go-pro camera fixed up-there.

When I returned the next morning they explained that a rescue helicopter had to land near the arm and that all the adjustments had to be redone. We also needed to clean the camera as it was covered with dust from the helicopter. It took us an hour to re-balance, clean and check the go-pro settings (timed to take a picture every 10 seconds). I explained to the technician how to start the camera. Later, when I was among the crowd, I tried to see if the little red light was blinking every 10 seconds. I wasn't sure it had worked until I got the camera back and saw it had taken more than 1500 pictures.

from MacroScope:

Euro election fever

We will return on Monday knowing whether the Greeks have elected a pro-bailout government and probably to find socialist Francois Hollande – the man leading the growth strategy charge – as the new French president. 

An Hollande victory could cause some jitters given his rhetoric about the world of finance. But we’ve looked at this pretty forensically and there may not be much to scare the horses. Yes he is making growth a priority (but even the IMF is saying that’s a good idea) yet his only fiscal shift is to aim to balance the budget a year later than incumbent Nicolas Sarkozy would. Contrary to some reports, he is not intent on ripping up the EU's fiscal pact and of course the bond market will only allow so much leeway.

The heavyweight Economist magazine may have labelled socialist Hollande “dangerous” but the reality is likely to be that he will rule from the centre and his demands for a dash for growth -- and a change to the ECB's mandate to aid it -- will be tempered. Spain has shown everybody that too much fiscal loosening will be pounced upon by the bond market and while there is a lot of talk about a growth strategy for Europe, what we've heard so far amounts to tinkering.

 While an Hollande victory looks priced in, Greece still has some power to shock the euro zone.

If the two main Greek parties – PASOK and New Democracy – fail to win enough votes to govern together, they may have to turn to a fringe anti-bailout party which would put a big question mark over Athens’ ability to  stick with the austerity terms demanded by its international lenders. However, the threat of contagion, while still alive, has shrunk. With creditors already having taken a massive haircut, most non-Greek banks completely out or at least having written down anything they hold, a 500 billion euros rescue fund shortly to be in place and the IMF raising an extra $430 billion of its own, the power Greece has to start a domino effect in the euro zone is diminished. The caveat to that is, if it has to be cut some slack by the EU and IMF, Portugal and Ireland would presumably demand the same and then the whole austerity edifice starts to look wobbly again.

Despite the much vaunted growth strategy, the focus remains on structural reforms (which will take years to bear fruit) plus reconfiguring of some EU funds and a beefed up European Investment Bank. It will help, or at least can’t hurt, but what’s being discussed so far does not look like anything like a game changer, breaking the spiral of debt-cutting  deepening economic downturns which in turn will make it yet harder to cut debt.

And those who really count -- Merkel and Draghi at the top of the list -- insist the austerity drive must not be dimmed. The markets would probably respond well to growth measures which did not undermine debt reduction. But that's some trick.

from The Great Debate:

What happens if Hollande wins?

His political allies wrote him off as a lightweight, "a pedal-boat captain in a storm" as one memorably put it. European leaders, including Germany’s Angela Merkel, have gone out of their way to avoid him, and the markets have been unimpressed by his declaration, to the City of London, that “I am not dangerous.”

Yet with opinion polls in France unanimously predicting that François Hollande will be elected president on Sunday, this is a good time to be asking just how bad his presidency really would be for France, for Europe and for the markets.

If he does win, will he be able to inspire confidence and rebuild and renovate the fragile economy, with its heavy debt, stagnant growth and rising unemployment? Or will he preside over its rapid descent into Greek- or Spanish-style chaos, as Nicolas Sarkozy, the incumbent at the Elysée Palace, keeps warning?

Hollande’s track record gives few clues. He spent years as a Socialist Party apparatchik, serving as party leader during an extended period of infighting and presiding over two stinging election defeats. He’s only where he is today because he was in the right place when Dominique Strauss-Kahn shot himself in the groin.

Yet, unlike the last Socialist Party candidate who was elected president, François Mitterrand, Hollande would take office without heavy ideological baggage. Mitterrand in 1981 nationalized French banks and experimented with a full-scale reflation of the economy before being forced to change course two years later when the French franc collapsed. Hollande admires Mitterrand but lived through the U-turn. He has identified the world of finance as his true enemy, but his proposals are more Glass-Steagall than Lenin: His main plan for French banks calls for a separation of their trading and commercial operations. He calls for a new European emphasis on growth, but his solutions are mild: bigger investment by a French government development bank and a promise to persuade European leaders to launch Eurobonds – a non-starter for Germany’s Merkel.

His program is classic tax-and-spend, of the pre-Clinton, pre-Blair era. There are expensive commitments to row back on Sarkozy’s pension reform, to hire tens of thousands of new teachers and to raise the minimum wage. France already comes near the top of Europe’s league tables for the size of its government spending in relation to its overall economy – more than 55 percent – but this spending will be financed by big tax increases totaling 44 billion euros. They include higher payroll taxes on business and a new marginal income tax rate of 45 percent for those earning more than 150 000 euros. (His full program is detailed, in French, here.) These and other measures will push taxes and social charges up to almost 47 percent of GDP; that’s about 10 points more than in Germany or the UK and 20 points more than in the United States.

Yet this is 2012, and there’s a debt crisis raging, so deficit reduction is on the agenda, too. Hollande is promising that the 90 billion-euro deficit, about 5.2 percent of GDP, will drop to zero in 2017. Look a little closer, and that forecast is premised on economic growth averaging between 2 percent and 2.5 percent for three of the next five years. By French standards, that’s a lot; there hasn’t been a sustained growth spurt that strong since the late 1990s, when global conditions were very different and taxes were going down, not up.

from MacroScope:

A curate’s egg — good in parts

An action-packed weekend with both good and bad news for the euro zone, which may -- net -- leave its prospects little clearer.

Item 1: The IMF came up with $430 billion in new firepower to contain the euro zone-led world economic crisis, although some of the money will only be delivered by the BRICS once they have more sway at the Fund. Nonetheless, the figure at least matches expectations and could give markets pause for thought. The official line is that it is for non-euro countries caught up in the maelstrom but no one really believes that. If a Spain is teetering, IMF funds will be there. Together with the 500 billion euros rescue fund set up by the euro zone, there is still barely enough to ringfence both Italy and Spain if it came to it. But will it come to it?

Item 2: Socialist Francois Hollande came out top in the first round of the French presidential election and is now a warm favourite to win. Some fear that could weaken the Franco-German motor which must be humming smoothly if further crisis-fighting measures are to be convincing. Others say he is essentially a centrist who, either way, will be constrained by the realities of the euro zone situation. Domestically, his focus on tax rises over spending cuts and a slower timetable for cuts could drive up French borrowing costs. Attempts by Hollande and President Nicola Sarkozy to woo the substantial votes that went to the far right and far left could lead to some nerve-jangling campaigning messages for the markets to swallow in the run-up to the May 6 second round.

Item 3: The left-field event of the weekend was the collapse of the Dutch government over budget plans. The hawkish Dutch could now delay ratifying the EU’s new fiscal pact. Finance minister De Jager, a hardliner, promises to try and cobble together enough support in parliament for a tough budget but there is absolutely no certainty he will succeed. The standoff raises the prospect of a rating cut and an even smaller band of top-rated euro zone members. Early elections, and a period of limbo, are quite likely – a negative for the euro zone which could well balance out the progress made at the IMF. And polls suggest popular support for austerity is waning in even this “core” euro zone member.

The euro is on the back foot, getting limited support from the IMF deal, with looming Italian and Dutch debt auctions casting a long shadow. Safe haven German Bund futures are up at the open, French bond futures are down, which tells you something. Dutch debt will doubtless come under pressure. The main focus remains on Spain and Italy with the latter trying to sell a variety of debt through the week against an unfavourable backdrop. Concerns about Spain in particular are well justified but it is not yet close to the precipice. The banks are at the heart of the country’s problems and are carrying the biggest burden of bad loans since 1994. They will almost certainly need more capital at some point. On the other hand, the central bank points out that thanks to the ECB’s three-year money offer the banks have loaded up on cash to the extent that their funding needs are covered for this year, and maybe next too. Add to that the fact that Spain has shifted half its government debt issuance for 2012 in the first third of the year and it is clear it has some time to turn around market sentiment, which soured sharply when Madrid reneged on an agreed deficit target back in March.

The European Central Bank remains the key player. Weekly bond-buying data  later on Monday are likely to show it remained inactive last week but with Spanish 10-year yields back above six percent, it’s a live issue again. Given the stiff opposition from Bundesbank chief Weidmann and others, who are actually pushing for an exit strategy from extraordinary measures, it is likely that things would have to get a helluva lot worse before the ECB would return to the fray.

from MacroScope:

Euro zone looks to Washington

So the debt crisis is back (did it ever really go away?) but it’s not yet anything like as acute as it was late last year.

Spain is coming under real market pressure, and dragging Italy with it to an extent, but there are good reasons to think it won’t fall over; banks well funded for now and the government’s savvy move to take advantage of benign early year conditions to shift almost half its 2012 debt issuance in three months.

Madrid faces another key test with a Thursday bond auction. Two weeks ago, it suffered its first wobbly debt sale for some months. The turning point is pretty clear – Prime Minister Mariano Rajoy’s decision to rip up Spain’s agreed deficit target for 2012 without consulting his partners. Since then, Spanish borrowing costs have soared though given the amount of debt Madrid has already shifted, that might not be as damaging as it was.

Aside from the auction, Rajoy is holding talks with his powerful regional leaders about where the axe should fall on health and education spending. The consensus so far is that having bitten this bullet, he is deadly serious about cutting debt and reforming the economy. Any backsliding in the face of regional recalcitrance could be taken very badly by the markets.

Aside from Spain, everything builds to the big IMF meeting in Washington at the back end of the week, which hopes to make some headway on boosting the Fund’s crisis-fighting resources.

IMF chief Christine Lagarde said more crisis-fighting funds were needed, though maybe not as much as had been thought as risks were receding (the Spanish will be heartened and maybe surprised to hear that!). But the deal may not be done in Washington and she emphasized that IMF resources would be devoted to protecting non-euro zone countries caught up in the turmoil. That may be the political message she needs to deliver to make headway.

There is some doubt surrounding the IMF fund-raising drive. Germany (and China) refuses to heed calls from Washington and elsewhere to play a part in rebalancing the world economy by consuming more. For the euro zone, such a move would give Germany’s debt-ridden partners half a chance of recovering while they stick to the austerity drive. Without it, ever deeper recessions are likely.

from The Great Debate UK:

What would markets and Merkel make of Hollande?

It’s time I came out of the closet and ‘fessed up. My friends, colleagues and family all know anyway, so ......OK, here goes.

All my adult life I have been and remain a Francophile. It is a perversion I can neither defend nor explain.

Having got that off my chest, I’ve a feeling my position is going to get more uncomfortable than ever over the next few weeks, as the French Presidential Election campaign gets going. Elections invariably expose the most unattractive aspects of any country, but with the National Front breathing down the neck of the incumbent, the immediate outlook for France is distinctly unappetising.

One common factor the French share with the Americans is a belief in their own exceptionalism, which in the current situation translates into a sort of deficit-denial syndrome, where either the fiscal balance is ignored altogether or the need to do anything about it is questioned. This delusion makes it possible for the French Socialist candidate to enjoy a 10%-plus lead in the polls in spite of running on an unreconstructed tax-and-spend platform for all the world as if it were still 1972 and the intervening decades were some kind of dreadful aberration. Not only does M. Hollande want to spend 20 billion euros or more on job creation schemes, he intends to pay for it by squeezing more tax out of the rich, which has to be good news for estate agents in Monaco and South Kensington. That should raise the French government’s share of national income, already one of the highest in Europe, to nearly 60%, and just to prove his insanity, he is also dead set on reversing the rise in the pension age from 60 to 62, a change which marked the highpoint of President Sarkozy’s timid reform programme.

Now it is often said that markets can only ever concentrate on one problem at a time. Certainly that was the way it looked, as for years they remained totally relaxed about the build-up of debt in the ClubMed countries, before suddenly waking up to the fact that Greece was barely months away from default. In recent weeks, they appear to have become calmer, either because they expect an eleventh hour agreement to save Greece or possibly because they have got so used to the endless sequence of last-chance deadlines that they are now reconciled to a disorderly default.

In the meantime, having moved on to worrying about Spain and the biggest borrower of all, Italy, they remain quite relaxed about France, presumably because they are still counting on President Sarkozy to save France from itself.

That confidence may yet turn out to be justified, because if he is able to win reelection against all the odds, he will be well placed to push through the reforms the country so desperately needs, and which he so predictably failed to deliver in his first term. But right now, the odds are stacked against him getting the chance.

from Breakingviews:

France is heading for a major spring crisis

By Pierre Briançon The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

France is heading for a major political and financial crisis in the spring that could dwarf the big Italian euro scare of 2011. Next May’s quasi-simultaneous elections of a new president and parliament may well spark the conflagration.

Neither of the two main presidential candidates seem able or willing to convince the French that they need serious reforms to avoid a major financial storm. Worse, the possibility of political gridlock caused by a divided government must now be taken seriously.

The most likely election scenario, according to year-end opinion polls, is that socialist François Hollande will sweep to victory. If he does win France would then have a president with no prior cabinet experience, for the first time in more than 50 years. They would also be saddled with a president who appears ill-equipped to deal with the current global economic problems.

Hollande didn’t include a single word on the euro crisis in the electoral manifesto he published with much fanfare on Jan. 3. This is in line with the silence he has kept on the matter for several months and adds to the legitimate concerns his candidacy raises over the French left’s tax-and-spend insouciance. Not only will Hollande struggle with coming up with solutions to euro mess, but he could also add to the French economy’s problems.

If, on the other hand, Nicolas Sarkozy manages to keep his job, it is more than likely he will have to face a parliament dominated by the socialists. He would then have to appoint an opposition prime minister who would govern for all practical matters – except on foreign policy, a presidential preserve. This distinction, though long-standing, is a recipe for disaster in the context of the euro crisis, where diplomacy and finance can’t be separated.

Add to this the impact of the likely recession on France’s finances, the downgrade of the country’s credit ratings, and the fact that both the right and the left are embroiled in a string of corruption scandals. Before long, France could look and smell like Berlusconi’s Italy, without the bunga-bunga.

from Lawrence Summers:

It’s time for the IMF to step up in Europe

By Lawrence Summers The opinions expressed are his own.

European leaders will meet today for yet another “historic” summit at which the fate of Europe is said to hang in the balance. Yet it is clear that this will not be the last convened to deal with the financial crisis.

If public previews from France and Germany are a guide, there will be commitments to assuring fiscal discipline in Europe and establishing common crisis resolution mechanisms. There will also be much celebration of commitments made by Italy, and a strong political reaffirmation of the permanence of the monetary union. All of this is necessary and desirable, but the world economy will remain on edge.

Given that Europe is the largest single component of the global economy, the rest of the world has a stake in helping to avoid major financial accidents. It also has a stake in aiding continued growth in Europe and ensuring that the European financial system supports investment around the world – particularly as cross-border European bank lending dwarfs that of banks from any other region.

Now is also a historic juncture for the International Monetary Fund. The focus of the policy response to the crisis must now shift from Brussels and Frankfurt to the IMF’s boardroom.

From the problems of the UK and Italy in the 1970s, through the Latin American debt crisis of the 1980s, the Mexican, Asian and Russian financial crises of the 1990s, the IMF has operated by twinning the provision of liquidity with strong requirements that those involved do what is necessary to restore their financial positions to sustainability. There is ample room for debate about the precise policy choices the fund has made in the past. But, the IMF has consistently stood for the proposition that the laws of economics do not and will not give way to political considerations. At key points the IMF has offered prescriptions, not just for countries in need of borrowed funds, but also for those whose success is systemically important for the global economy.

Christine Lagarde, the head of the IMF, highlighted the seriousness of problems in Europe to members of the international financial community assembled in Jackson Hole in August. She pointed to capital shortfalls in the European banking system and the need for adjustment to be carried on in ways that were consistent with continuing growth. Now, the IMF needs to speak and act on several fronts.

from James Saft:

Merkozy decrees: no more losses

James Saft is a Reuters columnist. The opinions expressed are his own.

Call it the Merkozy Plan - there shall be no more losses.

German Chancellor Angela Merkel and French President Nicolas Sarkozy unveiled on Monday yet another final plan to save the euro, this time calling for new treaty provisions to ensure members maintain fiscal discipline as well as an all-too-predictable move to hold monthly meetings of EU heads, seemingly an attempt to revive Europe by providing business for its caterers.

Perhaps most importantly, the two agreed to scrap a previous agreement to make private sector creditors share in the losses in all future bailouts. Bondholders still face a 50 percent write-down on their holdings of Greek debt, but that's it, from here on out it's all going to come out of the hide of taxpayers.

Of course there is the (slim) possibility that future bailouts will include burden sharing by banks and others who hold European government bonds, but given how poorly it was received this time it is best not to hold your breath. The policy U-turn is wise, reckless and deeply depressing all at the same time.

Wise because there is a direct line of causation between the imposed Greek writedown and the subsequent massive sell-off in Italian bonds. Investors are capable of imagining the future, and in the future they saw no guarantee for toxic Italian bonds (as well as others).

"It was a terrible mistake," European Central Bank Governing Council member Athanasios Orphanides said on Monday. "By forcing the impairment of any state bond we have triggered concern internationally of all state bonds in the euro zone and that's one of the key reasons we have a problem," the Cypriot central banker said.

from Tales from the Trail:

Washington Extra – New Year state of mind

New Year often means out with the old and in with the new.

On Capitol Hill, the new 112th Congress will start its 2-year run that will end after the 2012 presidential election. (For numerologists -- that's an awful lot of 2s).

Today was Nancy Pelosi's last day as the first Madam Speaker. The most powerful woman in American politics and second in line to the presidency turns into House minority leader next. Her exit line: "No regrets."

Tomorrow will be John Boehner's first day as speaker when Republicans take control of the House and the new Tea Partiers get seated. We'll be watching for tears of joy.

Before embarking on something new, Republicans have promised to rehash something old -- namely President Barack Obama's signature health care law.

House Republicans will likely approve scrapping health care reform at a Jan. 12 vote, but a repeal was unlikely to succeed since Democrats still control the Senate and can block it.

President Obama has returned from Hawaii and it’s back to dealing with Congress and world leaders. He meets French President Nicolas Sarkozy on Jan. 10, will they go to Ben's Chili Bowl for a half-smoke? (It's the only smoke for Obama these days since he gave up cigarettes).