MacroScope

Renzi and Schaeuble: Compare and contrast

By Mike Peacock
July 2, 2014

renzi2.jpgItalian Prime Minister Matteo Renzi will spell out to the European Parliament his priorities for Italy’s six-month tenure of the EU presidency.
Emboldened by a strong showing in May’s EU elections, Renzi is pressing for a focus on growth rather than austerity and has even managed to get Germany to talk the talk.

At an EU summit last week, leaders accepted the need to allow member states extra time to consolidate their budgets as long as they pressed ahead with economic reforms. They pledged to make “best use” of the flexibility built into the bloc’s fiscal rule book – not, you will notice, countenancing any change in the rules.

As always in the EU, this will stand or fall on the attitude in Germany. We could get an early reading on that when German Finance Minister Wolfgang Schaeuble presents 2015-2018 budget plans. Berlin plans to refrain from any net new borrowing from 2015 for the first time since 1969 and will spend projected higher tax revenues on education and infrastructure.

It has come under pressure internationally to consume more as part of an effort to rebalance the world economy but has generally resisted although there are some signs of movement, such as the coalition government’s commitment to a generous national minimum wage and somewhat higher sectoral pay deals than in recent years.

After being held for questioning on Tuesday, former French President Nicolas Sarkozy has been placed under formal investigation on suspicions he tried to use his influence to thwart an investigation into his 2007 election campaign.

This could clearly put a big dent in his hopes of making a political comeback. Polls suggest Sarkozy would be one of the centre-right’s best candidates to unseat President Francois Hollande whose popularity ratings are at rock bottom.

Iran and the six world powers – the United States, Russia, China, Germany, Britain and France – start a new round of negotiations on an accord to settle their decade-old dispute over Tehran’s nuclear programme. This round is expected to run between July 2 and July 15, with the aim of reaching an agreement by a July 20 deadline.

The signs are not great. U.S. Secretary of State John Kerry said on Tuesday Iran had failed to prove its nuclear ambitions were peaceful while Iranian President Hassan Rouhani said Western sanctions imposed to curb Iran’s nuclear programme were already crumbling.

Both capitals are looking on nervously at events in Iraq. Iran’s deputy foreign minister said on Tuesday that Baghdad had not requested any weapons to be supplied as yet but that Tehran stood ready to do so. Washington has so far pledged 300 mainly special forces advisers and said on Monday it was sending a further 300 troops to help secure its embassy and Baghdad airport.

Sunnis and Kurds walked out of the first session of Iraq’s new parliament on Tuesday after Shi’ites failed to name a prime minister to replace Nuri al-Maliki, dimming any prospect of an early national unity government to save Iraq from collapse.

Berlin will host a meeting of the foreign ministers of Russia, Ukraine, Germany and France this afternoon with the focus on establishing a new ceasefire and preventing fighters and weapons from entering eastern Ukraine. Kiev refused to extend a truce beyond Monday night and sent its troops on a new offensive against pro-Russian separatists yesterday.

It was that decision that may have prevented the EU from considering new sanctions on Russia though Washington said the separatists had not abided by the ceasefire and President Petro Poroshenko had a right to defend his country. Vladimir Putin said he would continue to defend ethnic Russians abroad.

NATO Secretary-General Anders Fogh Rasmussen is also in Berlin for talks with German Chancellor Angela Merkel.

Britain’s Nationwide housing survey, just out, showed British house prices rose at their fastest annual pace in more than nine years last month, and prices in London have shown their biggest jump in a generation. That followed tentative signs that the market was coming off the boil with the number of mortgage approvals waning.

In London, where the market has been partly propelled by an influx of foreign money, prices in the three months to June were a staggering 25.8 percent higher than a year earlier. Bank of England policymaker Andy Haldane, who has said he would err on the side of raising interest rates sooner rather than later, speaks today.

Poland’s central bank holds a policy meeting but is not expected to shift interest rates from 2.5 percent. Most analysts polled by Reuters see rates at that level for the rest of the year and well into 2015. That, however, jars with markets pricing in a 75 percent probability of a rate cut over the next 6 months due to Poland’s extremely low inflation, now just above zero.

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