The Czech government is facing a vote of confidence in parliament tomorrow,
in the latest test for a European government struggling to stay in office in the
age of austerity - Although the Czech Republic is not part of the eurozone, he
writes that the EU's strict new fiscal regime is at the root of problems for
prime minister, Petr Necas, who "is hanging on by the most slender of margins,
battered by large street protests over spending cuts, tax increases, job losses
and corruption, and the splintering of his smallest coalition partner, after
less than two years in power".....Last weekend about 100,000 demonstrators
marched to demand the government's resignation in the biggest street scenes
since the rallies that brought down communism at the end of 1989. At the same
time, the center-right coalition in the Netherlands collapsed over its failure
to agree on swinging budget cuts, while Nicolas Sarkozy also lost the first
round of France's presidential election.
The European Commission is threatening to take Greece to the European Court
of Justice over concerns that it has too much say in the Hellenic
Telecommunications Organization (OTE), Dow Jones reports. The Commission has
given Greece two months to respond to its concerns, released in a statement
today:The Commission considers that the national law enables the Greek
government to participate in OTE's governing bodies in a more significant manner
than its shareholder status would normally allow.
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S&P cut the country's rating to BBB-plus and added a negative outlook, saying it expected the Spanish economy to shrink both this year and next, raising more challenges for the government.
Esther Barranco, a spokeswoman for the Economy Ministry, told Reuters: "They haven't taken into consideration the reforms put forward by the Spanish government, which will have a strong impact on Spain's economic situation."
S&P also said that eurozone-wide polices were failing to boost confidence and stabilize capital flows, and that the region needed to find ways to directly support banks so that governments were not forced to take on those burdens themselves.
"We believe that the Kingdom of Spain's budget trajectory will likely deteriorate against a background of economic contraction in contrast with our previous projections," it said in a statement.
"At the same time, we see an increasing likelihood that Spain's government will need to provide further fiscal support to the banking sector."
Martin Weale, a member of the Monetary Policy Committee, on Thursday said: "The argument [for quantitative easing] is stronger than it would have been had the economy shown growth".
His comments run counter to the Bank's clear recent signal that QE is likely to have stopped at £325bn.
Following the 0.2pc contraction in the three months to March and 0.3pc in the final quarter of 2011, economists have called for low interest rates for the foreseeable future and for the Coalition to start taking decisive action. "We do not have a growth strategy. That's a problem," said Vicky Pryce, the former joint head of the Government Economic Service.
Experts have urged the Chancellor to boost infrastructure spending and "backload" austerity measures to boost growth.
TOP OF THE AGENDA
It’s a day for lovers of blood sports. Those who like seeing chief executives and chairmen pilloried by their shareholders should take a front row seat. The term absentee landlord is not one you’re likely to see in tomorrow’s newspapers.
Barclays has done its best to calm the furore over pay practices for its top executives. First it imposed stricter rules on bonuses, then last night the contents of Marcus Agius’s AGM speech were leaked. Barclays chairman, it seems, is set to apologise for the bank’s handling of the pay issue. Or communication of it, to be exact. It’s a far cry from rolling over, but it’s contrition of sorts.
Whether it will make much different is altogether a different matter. Up to 30pc of shareholders are still expected to vote against the bank’s remuneration report.
Things could be equally dramatic in Dundee where Alliance Trust chief executive Katherine Garrett-Cox will be attempting to see off the latest assault from activist shareholder Laxey Partners. In many ways this revolt is rather more threatening – there have been signs in recent weeks that Laxey’s efforts are gaining some support among fellow shareholders.
There’s a solid looking quarterly trading update from Sir Martin Sorrell’s WPP this morning. Revenues are up 7.4pc while profits and margins are also higher.
As usual though it’s the advertising chief’s pearls of wisdom that provide the interest. They include talk of a "positive double whammy" of investment among companies in the developing and developed world, the benefits of the "maxi-quadrennial events" of the Olympics, Euro 2012 and the US elections, and optimism that Europe "might just muddle through" the debt crisis after all.
Standard & Poor's hasn't done much to help in that regard though. The ratings agency announced a two-notch downgrade for Spain overnight. The silver lining of sorts is that traders in Europe appear to have taken the news very much in their stride. More likely, the bad news is already priced in.
Of greater consequence is likely to be the release of first quarter GDP numbers in the US. They'll determine how markets head into the weekend. With the developed world – and Europe in particular – pinning its hopes on the US leading the rest out of the doldrums, the numbers will be closely watched.
Fourth quarter GDP rose 3pc, and economists are forecasting a 2.5pc reading for the first three months of this year.
Spain's government will need no reminder that the the key issue in Europe now is whether the German-inspired drive towards €450bn worth of cuts across Europe can hold. We've already seen the Dutch government collapse under the pressure of trying to hit fiscal targets this week and the Czech leadershiop is also under threat as it trieds to cut.
Joseph Stiglitz, the Nobel-prize winning economist, doesn't think that governments will be able to hold the line. Or at least thinks it will be diisastrous if they do. Yesterday he described the pursuit of austerity measures as "suicidal".
According to Bloomberg, he told reporters in Vienna:
There has never been any successful austerity programme in any large country. The European approach definitely is the least promising. I think Europe is headed to a suicide.
If Greece was the only part of Europe that was having austerity, authorities could ignore it, Stiglitz said, "but if you have the UK, France, you know all the countries having austerity, it's like a joint austerity and the economic consequences of that are going to be dire."
10.50am: The markets seem to have shaken off their early pessimism and are heading back up again. FTSE 100 is up 0.16% while, remarkably, Spain's Ibex is now up 0.26%.
Perhaps Italy's successful, though expensive, foray into the bond markets this morning has helped calm some nerves.
10.33am: It's a busy day in euroland and our Europe editor Ian Traynor has been looking at a survey of bank lending by the ECb which suggests that its policy of pumping money into the eurozone is failing.
According to Jens Weidmann, the young economist who became President of the Bundesbank after a meteoric political career in the shadow of Angela Merkel and is surely the most influential member of the Governing Council of the European Central Bank (ECB), some types of interest at a rate of six percent are not "the end of the world" and therefore are not sufficient grounds for the ECB to mobilise to relieve the pressure on Spain in the debt markets. One is curious to know just how far Weidmann is aware that Spain and Germany are in a monetary union and also the extent to which he shares in the concern that such spreads in the interest rates call into question the ultimate meaning and existence of that union.
We might suppose that for Weidmann, whose mandate includes neither growth nor employment, merely price stability, it would be an inflation rate of six percent that would spell out the end of the world for sure. Fortunately, the President of the Bundesbank can sleep easy, as the average inflation in the eurozone is 2.7 percent. In Spain, moreover, for greater peace of mind for Weidmann, inflation is at 1.8 percent and in Greece at 1.4 percent, which is lower even than in Germany (2.3 percent).
The value of that statement by Weidman, so sincere and yet so clumsy, is that it explains with total clarity what is happening to Europe, and very directly and particularly to Spain.
The lessons of Weimar
The lack of insight and sensitivity that is bogging us down dates back to the blindness of the French elites at the end of World War I, who stifled any chance of recovery and economic growth in Germany by imposing punitive war reparations. Some of the reparations, while fair, since Germany had started the war, gave way to a mixture of populism and irredentism that lit the fuses of Nazism and World War II. It’s still an irony that Germany, which has admirably overcome Nazism, could not do the same with the inflation that brought down the Weimar Republic. Undoubtedly, if the euro ends up collapsing or if the European Union itself falls apart, historians will reach for phrases like this to explain what went wrong in Europe and to describe the errors that were made.
With its blind spots and with a similar attitude (do the right thing though the world perish), the German government is not only endangering the European Union but is also encouraging the emergence of anti-German sentiment. One example: although in Spain the image of Germany as a country is still good, the most recent poll by the Real Instituto Elcano shows that three out of four Spaniards (73 percent) believe that Germany does not take Spain’s interests into account, and even more unanimously, 87 percent believe that "the country in command in Europe is Germany". Note: not the country that commands "more", but the country that commands, full stop.
Has the time come to say "enough" to Berlin? Yes, no doubt. How? By coordinating the national reform agenda with the European growth agenda – from Brussels. This requires the restoration of political and institutional balance in Europe, which has been blown sky high. On the one hand, the European Commission, which should speak for all the states, has been taken out of play as a political actor. At the beginning of his second and final term, the President of the Commission, Barroso, made out as if he would turn into a true leader. But when the going got tough he simply dropped the sustainable growth agenda that he had been pushing for years.... On the other hand, France, which has always served as a counterbalance to Germany, is for now in the hands of someone like Sarkozy, who compensates for the failure of his reform agenda at home with the unworthy and typical practice of the servility of the weak towards his betters (Germany) and the arrogance of the strong towards his inferiors (Spain). That France, unrecognizable, has become a problem for the future of Europe as serious as the rigidity that dominates the Bundesbank. Hollande may turn out to be a salutary shock: to France, to the Commission, and to Germany itself.
It is "not for Germany to decide for the rest of Europe", said Francois Hollande, the frontrunner to replace Nicolas Sarkozy as French president.
If elected, Mr Hollande says that he will not pass the fiscal austerity pact agreed by the leaders of 25 European nations, unless it contains measures to spur on growth.
His stance puts him on a collision course with Angela Merkel, the German Chancellor. She hit back at the French Socialist candidate's plans, warning the deal is "not open to new negotiations".
"The fiscal pact is negotiated, it was signed by 25 government leaders and has already been ratified by Portugal and Greece," she told a German newspaper.
"Parliaments across Europe are on the verge of passing it. Ireland is having a referendum at the end of May."
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