MacroScope

Mixed results for right in early voting

The British and Dutch got EU elections underway yesterday and gave only mixed support to the rise of the right.

An exit poll from the Netherlands showed the anti-Islam, Eurosceptic Freedom Party of Geert Wilders’ – which plans to forge an alliance with France’s far-right National Front – had fallen well short of its goal of topping the poll and may even have slumped into fourth place. That would give it three out of the 26 Dutch seats in the EU assembly, down from four in the last elections held in 2009, when it came in second place.

Britain’s anti-EU UKIP seems to be doing much better. There were no indications of how the EU parliamentary vote had gone in Britain, we’ll have to wait for Sunday for that, but parallel local government election results showed a surge in support for the party.
With those results still coming in, Nigel Farage’s party – many call it a one-man band – had secured a net gain of 90 local council seats and was winning well over 20 percent of the vote, mainly at the expense of the ruling Conservatives.

If it performs even more strongly in the EU poll, UKIP will heap pressure on Prime Minister David Cameron to adopt a more extreme position on repatriating powers from the EU and possibly change the dynamics of a planned in-out referendum in 2017.
Given UKIP’s signature policy of withdrawing from the EU, there is some reason to think it will fare even better in that vote.

In terms of the national picture, the early local government results do not suggest that the opposition Labour party has done well enough to be confident of winning national elections next year.

PMIs next signpost for ECB

Following a mixed bag of euro zone GDP data last week which showed Germany charging on and Spain holding its own but France stagnating and Italy, Portugal and the Netherlands slipping back into contraction, flash PMI surveys for the euro zone, Germany and France certainly have the power to jolt the markets today.

As things stand, there seems little to dissuade the European Central Bank from loosening policy next month. Five senior sources told us it was  preparing a package of policy options for its early June meeting, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized firms.

Bundesbank chief Jens Weidman speaks later. He told a German newspaper it was not yet certain that action would be taken in June. The three PMI readings are not expected to move much from April with the French numbers lagging those of the euro zone and Germany.

Putin desperately seeking gas deal

Ukraine seems to be in something of a holding pattern before Sunday’s election though the question of how those polls can be securely conducted in parts of the country where pro-Russian rebels want to secede remains a very live one.

We reported yesterday from Donetsk where officials working to prepare for the May 25 presidential poll described intimidation and threats from separatists which prompted them to shut down their office. The interior minister in Kiev has said it would be impossible to hold “normal elections” in the regions of Donetsk and Luhansk which are home to nearly 25 percent of the electorate.

Moscow said yesterday that President Vladimir Putin had ordered Russian forces near Ukraine’s eastern border back to their bases, though NATO and the United States said they saw no sign of a pullback.

Why EU elections can matter

Some interesting action over the weekend: in a foretaste of this week’s EU elections, Greece’s leftist, anti-bailout Syriza party performed strongly in the first round of local elections on Sunday, capitalizing on voter anger at ongoing government austerity policies.

If it did even better in the EU polls it could threaten the ruling coalition and tip Greece back into turmoil just as there are signs that it has turned the corner.

Bank of England Governor Mark Carney sounded dramatically more alarmed about Britain’s housing market, saying it posed the biggest risk to the economy and harboured deep structural problems.

Smoke signals from the Bank of England

Given the silence that attends Bank of England policy meetings which result in no change of course, today’s quarterly inflation report is the main chance to hear the latest thinking. Governor Mark Carney will talk to the media for an hour or so after its release.

The ongoing strength of economic data means the odds of a first interest rate rise this year are narrowing and one could certainly come before May 2015 elections, an unwelcome prospect for the government.

The main imponderable is how much spare capacity there is in the economy, which would allow further growth without feeding inflation pressures. There are differing views on that with no one quite sure how much activity was permanently destroyed by the financial crisis.

Russian sanctions … and France

After the EU widened its sanctions to include Vladimir Putin’s deputy chief of staff, the commander of Russian paratroopers and two Crimean energy firms, Ukrainian prime minister Yatseniuk is in Brussels today for talks. The EU is looking to shore up the situation to allow national elections to take place on May 25 and, along with Washington, has set any disruption of that vote as a red line.

Vladimir Putin, perhaps fearing significantly tougher sanctions, has belatedly given rhetorical support to the election. Whether it can legitimately take place given the chaos in parts of the country remains an open question.

The latest additions bring to 61 the number of Russians and Ukrainians the EU has slapped with asset freezes and visa bans and for the first time it has targeted companies after foreign ministers agreed to broaden the scope of sanctions. However, only broader trade and financial sanctions would really bite and on that, Washington is much keener than Europe which is heavily dependent on Russia for its energy needs.

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.

Putin’s motives are, as usual, opaque though it could be he hopes to avoid a third round of western sanctions – which would have to be much tougher – by calling on the separatists to suspend their vote on independence.

from Lawrence Summers:

Britain and the limits of austerity

The Bank of England is seen in the City of London

The British economy has experienced the most rapid growth in the G7 over the last few months. It increased at an annual rate of more than 3 percent in the last quarter -- even as the U.S. economy barely grew, continental Europe remained in the doldrums and Japan struggled to maintain momentum in the face of a major new valued added tax increase.

Many have seized on Britain’s strong performance as vindication of the austerity policy that Britain has followed since 2010, and evidence against the secular stagnation idea that lack of demand is a medium-term constraint on growth in the industrial world.

Interpreting the British strategy correctly is crucial because of the political stakes in Britain, the question of future British economic policy and, most important, because the British experience influences economic policy debates around the globe. Unfortunately, when properly interpreted, the British experience refutes the austerity advocates and confirms John Maynard Keynes’s warning about the dangers of indiscriminate budget cutting during an economic downturn.

A question of gas

A Ukrainian soldier sits on top of an APC at a checkpoint outside the city of Slaviansk

German Chancellor Angela Merkel is in Washington for talks with Barack Obama after Europe and the United States imposed wider sanctions on Russia.

Obama is already looking ahead to a third round of measures and has hinted at impatience with Europe, saying there had to be a united front if future sanctions on sectors of the Russian economy were to have real bite. At home, the Republicans are accusing him of weakness so will he put pressure on Merkel to move ahead in a way that the European Union has shown it is entirely unready to, at least yet?

The east of Ukraine remains in turmoil with pro-Russian separatists, who have seized civic buildings and police stations in a number of cities and towns, saying Ukrainian forces had launched a big operation to retake the eastern town of Slaviansk. That would mark the first significant military response from the government in Kiev.

Britain’s economic sprint probably tripled U.S. growth in Q1

What a difference a year makes.

This time last year, analysts and investors were nearly unanimous in their expectation for a whole lot of nothing from Britain’s economy which, after a valiant leap higher from a spectacularly successful 2012 Olympic Games hosted in London, was back to just bumping along.

Now the UK is looking to clock the best sprint in the G7 for the first three months of a year – and by a wide margin.

The Reuters poll found a consensus for 0.9 percent growth in the UK in the first three months of the year on the quarter before. That would be the best in nearly four years, and just slightly below the Bank of England’s newly upbeat prediction. The data are due on Tuesday.