BlogSpot - October 4th, 2013
The politics, the politics…
Unicredit, in an analytical note, stress the importance of politics in the current environment—with the US government shutdown, the debt ceiling fight as well as the confidence vote in Italy, adding to the post-German election context, with attempts to assess the potential economic damage...
A mandate for Germany?
Nouriel Roubini reminds us, in Project Syndicate, of Europe’s unaddressed issues—low potential growth and only partially reversed competitiveness gaps, very high unemployment, very high private and public debt, and still a drag from fiscal consolidation—with delayed progress on institutional building (toward banking, fiscal, economic, and political union) and reform fatigue in countries. This may lead to a breaking point, possibly in next year’s European Parliament elections.
Jean Pisani-Ferry, in Project Syndicate, looks at the options ahead for Merkel, in particular which risk-minimizing strategy she should choose: first, restore trust in Europe’s economic fundamentals, and that implies serious repair work; second, restore trust in Europe’s political institutions (appointing exceptional individuals to the next European Commission for example); third, restore hope in southern Europe, with capital and investment and external demand; fourth, complete the reform of the euro system; and, finally, give some form and substance to the concept of European political union.
Daniela Schwarzer and Guntram Wolff (Bruegel) see important priorities that should guide the new German policy views: (i) allowing market forces to drive German inflation rates above 2 percent to allow the necessary relative price adjustment at the regional level without inducing deflation in the South; (ii) completing the banking union; with (iii) complementary efforts for investment, with a more capitalized European Investment Bank to finance SME investment in Southern Europe and a European Youth Unemployment Fund.They also suggest changing the overall strategy to reform the euro area governance structures—towards more federalism and democratic accountability.
EuroIntelligence quotes Suddeutsche to note that Angela Merkel has no legitimacy to forge any EU-level decisions as long as those negotiations take place—stalling two areas of EU-level discussions: the setting up of guidelines for the future of economic co-ordination, and the resolution mechanism.
Philine Schuseil, in a Bruegel article, reviews the debate on the German minimum wage, which potential coalition partners are pushing forward. The absence of a minimum wage in Germany, according to Patrick Bernau, stems from the principle of collective bargaining - wages are determined by unions and employers - and the principle of ordoliberalism according to which minimum wages can only be useless or harmful. Bernau explains the renewed interest for the topic from the prevalence of low-wage employment, the diminishing role of trade unions, the lack of clear evidence on whether a minimum wage really jeopardizes employment.
In the meantime in Italy…
Berlusconi failed at bringing down the Letta government—a victory for Italy according to the FT (hat-tip EUR Communications Group). Speculation is now mounting about a split in Berlusconi’s party and the creation of a new moderate right under Angelino Alfano. Sixteen expressive photographs chronicle the low point in a political career of the billionaire.
Roubini.com notes that the attractiveness of the eurozone for Eastern Europe has faded and that a majority of economies would be better off outside the EMU.
