Austerity light? Maybe a shade lighter
There is a groundswell building in the euro zone that austerity drives should be tempered.
France’s Francois Hollande, favourite to take the presidency next month, said last night that leaders across Europe were awaiting his election to back away from German-led austerity, and even ECB President Mario Draghi called yesterday for a growth pact.
He was rather opaque on how – although he was clear the European Central Bank would not be doing anything more — but his colleague Joerg Asmussen was a little more forthcoming, saying some EU structural funds could be funneled to countries in crisis to boost employment. These sort of ideas are actively part of the mix and could well be enacted at the June EU summit.
Thay also tally with some of Hollande’s policy slate. He is promoting joint European bonds to finance infrastructure projects, greater investment by the European Investment Bank more efficient deployment of EU regional development resources and a financial transaction tax levied help fund youth and education projects. Some of those options are quite likely to happen. Others much less so.
Reality check: The EU’s German paymasters and the ever-present bond market will only tolerate a marginal shift in direction – you need look no further than at what has happened to Spain and its borrowing costs since it upped its deficit target in March — so there will be not much let-up on the debt-cutting front. Nonetheless, there has been a distinct shift in the rhetoric. Even Angela Merkel is pushing for a more broadly-based minimum wage in Germany, which could be construed as a growth tactic.
Dutch finance minister De Jager says multi-party talks about the 2013 budget have been constructive. They will continue today.
The Netherlands is supposed to hand Brussels its budget deficit target next week – the government was targeting 3 percent of GDP but lost its coalition partners, who demanded a softer goal, and collapsed earlier in the week. With elections not due until September, a failure to cobble together a budget deal by the main parties would lead to a dangerous period of uncertainty.
Citi solicits staff donations for its political lobby
Citigroup, the third largest U.S. bank, is actively soliciting donations from its employees for its political action committee (PAC) or fundraising group. In a letter to staff obtained by Reuters, the bank stressed the importance of the upcoming presidential and Congressional elections, urging staff to give to Citi’s PAC. From the letter:
Our Government Affairs team already does a great job promoting our positions on important issues to lawmakers, but there is one thing that each of us can do to enhance their efforts: contribute to Citi’s Political Action Committee (PAC).
Citi PAC is one of the most effective tools we have to amplify the voice of the company in Washington and enhance our profile with lawmakers. The PAC provides the resources to help suport government officials who share our views on key policy objectives and who understand the impact various policy decisions may have on overall economic investment and growth.
Said a Citi spokesperson:
Citi PAC is funded by the voluntary, personal contributions of its employees. The PAC contributes to candidates on both sides of the aisle that support a strong private sector and promote entrepreneurship.
The firm, which was forced to alter its plans to raise dividend payments following weak results from the Federal Reserve’s bank stress tests earlier this month, is also offering some professional incentives for those employees who are willing to open their wallets.
Over the coming weeks and months, we will host a series of briefings, calls and receptions for Citi PAC supporters. For examples(sic.), contributors to Citi PAC will be invited to attend a closed-door, high-level election year briefing with senior Citi executives and nationally renowned political analyst Charlie Cook. Additional details will soon be circulated.
‘Ken Clarke for Chancellor’ is no joke
Ken Clarke shouldn’t underestimate how strongly the city economists polled by Reuters last week want to see him serve as Britain’s finance minister next term.
The Conservative shadow business secretary and one time ex-Chancellor gleaned a few laughs from Thursday’s BBC Question Time audience when asked about the poll, saying: “There’s a limit to how much of a glutton for punishment you’re going to be.”
But economists would dearly like to see the 69-year-old’s appetite for punishment return soon. No-one came close in the Reuters poll to touching Clarke for popularity. Some 16 out of 29 economists picked him as their first choice for Chancellor.
This was more than twice the number of economists who want to install second-placed Vince Cable, the experienced Liberal Democrat treasury spokesman whose quick wit has made him a public favourite.
For Clarke to serve, Conservative leader David Cameron would first have to dump the party’s likely choice for finance minister George Osborne – a decision that would mean Cameron had gone “slightly off the rails”, according to Clarke.
On Question Time, Clarke was loyal and wholesome in his support for Osborne, who fared poorly in the Reuters poll. He finished fourth from the five choices on offer and behind the current Labour incumbent, Alistair Darling.
Britain heading for rude awakening?
There is a divisive election ahead for Britain, the threat of a ratings downgrade on its sovereign debt and a deficit that has ballooned into the largest by percentage of any major economy. UK stocks, bonds and sterling, however, are trundling along as if all were well. What gives?
For a fuller discussion on the issue click here, but the gist is that all three asset classes are being support by factors that may be masking the danger of a broad reversal. UK equities have been driven higher by the improving global economy, bonds held up by the Bank of England’s huge buying programme and sterling by valuation and the distress of others.
But with the Bank of England’s buying spree due to end soon and the possibility that UK voters won’t give a clear victory to either the Conservatives or Labour, meaning political stalemate, is this set to change?
Royal Bank of Canada does not go as far as saying it will. But it says it is clear that not enough attention is being paid the prospect of politics grinding to a halt and failing to solve the fiscal problem
Many sacred cows will have to be sacrificed in the years ahead, and this will require effective leadership, imagination, and courage. But the danger is that because of the political situation, the country is instead left with weak government, temporary expedients, and initiatives that are the lowest common denominator of long and exhausting negotiation.
Britain is not yet headed back to the 1970s, in our view, but such economic and political recidivism cannot be ruled out. Policy makers and money managers would do well to consult their history books and be alert to the errors and failings of 35 years ago
Vote here on Japan’s economy and its election
Britain’s Association of Investment Companies has UK investors who run Japanese equity funds whether they think the general election on Sunday will have a positive impact on the country, which is slowly emerging from recession.
Their answers can be found here, but the consensus was that the Democratic Party of Japan would defeat the ruling Liberal Democrat Party and that this would result in more consumer friendly policy or economic revival through higher living standards.
Managers were more divided on how long-lived any positive impact on stock market would be.
Our unscientific mini-poll below gives you the chance to vote on the issue — but as ever your comments are also welcome.
Brown gets helping hand from Obama
He loves the Queen and the British people. Truth be told, President Obama was always going to be a hit on his first overseas trip.
But Gordon Brown probably could not believe his luck. The prime minister just could not stop grinning as he stood next to the new president at a news conference in the Foreign Office ahead of the G20 summit.
He must have always been hoping for a bit of the Obama magic to rub off on him and revive his battered ratings but he can’t have expected the ringing endorsement he got.
Tony Blair and George W Bush. Ronald Reagan and Margaret Thatcher. Britain has always liked to make much of the special relationship between it and America and any doubts it was in danger under Obama could be put to rest this week.
Obama looked on intently as Brown made his opening statement, referring to him by title.
But the formality dropped as soon as it was Obama’s turn, as he thanked his hosts “Gordon and Sarah” and said he had been discussing dinosaurs with their two sons.
Mr. Obama is a great person. I have all the confidence in his ability to instil confidence in the capitalistic and noncapitalistic reaches of our country and the world; that’s what it’s all about anyway.
Stealing Steinbrueck’s show?
Peer Steinbrueck, the front man in Germany’s fight against the financial crisis, has a new challenge on his hands: Karl-Theodor zu Guttenberg. The young economy minister, in the job for only a month, is already proving to be a thorn in Finance Minister Steinbrueck’s side. The telegenic 37-year-old is coming up with policy initiatives that challenge Steinbrueck’s plans, and draw media attention away from him.
This is new territory for Steinbrueck. Until last month, he was able to capitalise on the low profile of former economy minister Michael Glos to make himself Germany’s primary spokesman on matters financial and economic — and the man Chancellor Angela Merkel turned to for leadership on these issues. Glos’s shock resignation last month opened the way for Guttenberg to make the step up from Bavarian politics to the national stage, and he hasn’t looked back.
This week he proposed amending a planned law on saving stricken banks, which was drafted by Steinbrueck’s ministry, to try to avoid nationalising them. The idea may not take off, but it grabbed media attention. And while Steinbrueck (wiping face in picture) joins other G20 finance ministers this weekend for a meeting in England, Guttenberg (left in picture) will be preparing for a trip to the United States next week, where he will meet Treasury Secretary Timothy Geithner — Steinbrueck’s opposite number — as well top White House adviser Lawrence Summers, IMF Managing Director Dominique Strauss-Kahn and World Bank President Robert Zoellick.
“Peer Steinbrueck has to share the crisis management with high-flyer Karl-Theodor zu Guttenberg — much to his displeasure,” ran a headline in Friday’s edition of the Handelsblatt business newspaper.
With a federal election looming in September, Guttenberg is using every opportunity he can to boost his profile. As a member of the conservative Christian Social Union (CSU), Bavarian sister party to Merkel’s Christian Democrats, he is naturally more politically allied with the chancellor than Steinbrueck, a Social Democrat. His suave demeanour and aristocratic background are a contrast to Steinbrueck’s plain-speaking approach, and his media blitz could start to drown out Steinbrueck’s message.
“Like fire and water, these two”, Handelsblatt wrote.
(Reuters photo: Fabrizio Bensch)
Being a half Swiss, half German I can say that I understand both sides. However Mr Steinbrück’s tone and constant attack on Switzerland is starting to stir an anti-German feeling in Switzerland, which has absorbed over 50’000 highly qualified German citizens in 2008. Maybe it is time to look inside Germany: how to stop the brain drain and the biggest tax payers leaving the country. Last year I went to Aachen for the first time in 5 years and I was shocked; the whole high street was covered with 1 euro shops. Mr Steinbrück your citizens have no money and the ones that do are leaving, wake up!
