In Portugal, pessimism about the country's chances for prospering in the euro zone is growing as the economy remains depressed, even though Portugal has done everything asked of it under its €78 billion ($101 billion) bailout from the European Union and the International Monetary Fund. Budget cuts have hit domestic demand hard, while exports aren't growing much amid slumps in other euro-zone economies, including Spain, Portugal's largest customer. Indeed, the Portuguese economy is expected to contract for the third consecutive year in 2013.   This past Thursday, at one of the many recent public debates on the euro. Mr. Ferreira do Amaral faced off against prominent Socialist politician and euro supporter João Galamba. "I believe we should openly discuss all the alternatives there are for us to exit this crisis," Mr. Galamba said, though adding: "Leaving the euro isn't a solution, unless we want to isolate ourselves completely from the rest of the European Union, which would be a catastrophe."  The debate sparked a lively discussion in the audience, with many arguing for a return to the former national currency, the escudo. "People say if we leave the euro our salaries and savings will fall, and we will find ourselves isolated again; but how is that different from now?" said Nuno Pires, a 30-year-old business consultant who attended. "I now think we have a better chance of recovery if we leave," he added.  Mr. Ferreira do Amaral, a 64-year-old economics professor at the Technical University of Lisbon and a former finance-ministry official, says the only hope is to return to a national currency that would devalue sharply, making Portuguese products cheaper abroad and spurring exports.  Under Portugal's 2011 bailout, deep public spending cuts, tax increases and labor-market overhauls were supposed to attract investment and spur economic growth by this year. But the benefits aren't in sight. And slumping economic output is keeping Portugal's deficit wide, as austerity forces the government to cut spending and employment further.  "We are now at a stage where it is becoming clear the austerity policy isn't working despite all our efforts," says Mr. Ferreira do Amaral says "The next step is for us to realize the euro simply isn't sustainable for Portugal." The idea of leaving the euro makes many uneasy. In a televised debate, ex-Finance Minister João Salgueiro warned that even talk of leaving may harm Portugal. "All the investments that come in will be at a higher cost," he said.Mr. Ferreira do Amaral is getting some high-profile backers. This month, Supreme Court of Justice President Luís António Noronha Nascimento called for Portugal and other Southern European countries to quit the euro, warning the gap between Europe's richer and poorer states will keep widening otherwise.Whether the debate gains traction depends on the economy, analysts say. Portugal's government insists the long-awaited recovery will arrive in 2014, but many economists doubt that. If the recession continues, politicians will need to enact even more budget cuts to meet EU deficit targets. "It may become too hard for politicians to sell austerity measure after austerity measure," says Antonio Costa Pinto, political scientist at the University of Lisbon. "This could create the perfect environment for a shift of ideas."...A version of this article appeared May 28, 2013, on page A16 in the U.S. edition of The Wall Street Journal, with the headline: Idea of Euro Exit Finds Currency in Portugal.

Who gives these people the right to change the rules that many signed up for years ago? Nothing is sacred anymore and no one can be sure that their investment in making provision for retirement and their families is safe. Unelected mad men hell bent on creating more and more regulation and more and more control of the individuals rights to care for themselves. This one might have been stopped or delayed but you just know they are working on other ways to screw the little man.  I am in the US but more than half of my retirement funds are in UK investments that I toiled for, for years and its already been f####d over by the Brown government. Worse that it's my money but I can't take it out of the UK because of punitive rules it is still vulnerable to these  idiots in Brussels. Where did the people give the right to have this controlled outside of British sovereignty? The rules, known as "Solvency II", would have required schemes to hold more much money in reserve. Experts say that their introduction would have caused every remaining pension scheme in the private sector to close.  The European Commission announced today that it would not include solvency rules in a new pensions directive, effectively kicking Solvency II into the long grass.  It said: "Commissioner Barnier has indicated his intention to come forward with a proposal for a directive to improve the governance and transparency of occupational pension funds in the autumn of 2013.  "At this stage, and as long as more comprehensive data is needed and Solvency II is not in force, the proposal for a directive will not cover the issue of the solvency of pension funds. In light of the differing situations in member states regarding retirement products and pension funds, it is necessary to continue technical work on the issue of solvency."  The National Association of Pension Funds (NAPF) said this meant the Solvency rules had been postponed indefinitely and would become a task for the next commissioner, who will take office in November 2014.

The European Union - in the longest recession ever

The eurozone has slumped into its longest recession ever, after economic activity across the region fell for the sixth quarter in a row.  Economic output across the single currency area fell by 0.2% in the first three months of 2013, statistics body Eurostat reported on Wednesday. France, Spain, Italy and the Netherlands all saw their economies shrink as the economic crisis in the eurozone continued to hit its largest economies. Eurostat's figures showed that the eurozone economy has contracted by 1% over the last year, putting further pressure on leaders as unemployment climbs to new record highs. The 0.2% contraction in the first quarter was an improvement on the 0.6% drop recorded between October and December, but analysts warned that the eurozone's economic outlook is darkening.  "What seems incontrovertible, on this evidence, is that the member-states of the euro zone are on the wrong track," commented Stephen Lewis, chief economist at Monument Securities. "The costs of the zone's one-size-fits-all strategy are becoming brutally apparent."

France was dragged back into recession by a 0.2% drop in GDP, announced on the first anniversary of François Hollande being sworn in as president. Pierre Moscovici, French finance minister, denied Paris's forecast of 0.1% growth this year was too optimistic. "I'm sticking to the figures," Moscovici told reporters, adding that the EU must prioritise growth over tackling budget deficits.

There was also disappointment that Germany eked out growth of just 0.1%, worse than economists had expected. The Dutch economy shrank by 0.1%. "The bottom line is that both the German and French economies, which together account for half of the eurozone's output, are in the doldrums," said Nick Spiro of Spiro Sovereign Strategy. "Add in the persistent recession in the Netherlands, which accounts for a further 6.5% of eurozone GDP, and the core and semi-core of the eurozone are in significantly worse shape than a year ago."

Italy's new prime minister, Enrico Letta, was given an early reminder of the challenge he faces with the news that Italian GDP fell by 0.5%. Italy's economy has been shrinking for the last seven quarters, its longest recession since at least 1970.

Beyond the eurozone, the Czech Republic suffered a 0.8% decline in GDP during the quarter. The data came a day after the Washington-based Pew Research Centre reported that public support for the European Union had fallen over the last year, from 60% to 45%. Pew warned that the ongoing financial crisis means the European project was "in disrepute" in some countries, with many Europeans losing faith in closer integration. "These results spell trouble ahead for the EU," said Lewis."They are likely to be taken seriously in Washington."

Eurostat's figures also showed that the European Union shrank by 0.1% during the last quarter, despite the UK growing by 0.3%.

Figures released last week showed that Spain's economy contracted by 0.5%.

Commission published a web-based information guide....

Small and medium sized enterprises (SMEs) will drive the recovery in Europe, but they need improved and easy access to finance. Over the last few years the European Commission has been constantly working to improve their situation.  This commitment is reiterated in a joint European Commission/European Investment Bank (EIB) Group report published today. At a time when the situation remains difficult, the EIB Group's support for SMEs reached €13 billion in 2012. In addition, with a budget of €1.1 billion, Commission-funded guarantees helped to mobilize loans worth more than €13 billion, boosting nearly 220 000 small businesses across Europe. Today´s report covers the results of the current funding schemes as well as the new generation of financial instruments for SMEs. Financial resources for SMEs will be significantly enhanced through the €10 billion increase in the EIB’s capital.  As part of the Commission’s continuing efforts to support SMEs, European Commission Vice President Antonio Tajani, responsible for enterprise and industry policy, today also launched a new single online portal on all EU financial instruments for SMEs as well an information guide to promote SME stock listings, at a meeting of the SME Finance Forum on the eve of an Informal Competitiveness Council on 2 and 3 May in Dublin.  European Commission Vice President Antonio Tajani, Commissioner for Industry and Entrepreneurship, said: "

Access to finance of SMEs remains difficult and is one of the main reasons for the current economic downturn. Therefore we intend to enlarge our loan guarantees to SMEs under the new COSME  programme as of 2014. Each euro dedicated to our guarantees has the power to stimulate - on average – 30 euros in bank loans. This is crucial to help Europe's jobs engine, our small enterprises, to run smoothly again. It is they who create 85% of all new jobs."

The European Commission also launched today a targeted information campaign to promote SME listings and stimulate investors’ interest in SMEs and mid-caps. To this end the Commission published a web-based information guide for SME stock listings. This tool provides advice to small and medium-sized businesses on how to go public.

It will be combined with the creation of an award for the best European stock market listings among small and mid-cap companies.

A revised European Bathing Water Directive which is due to come into force in 2015 will require water to be twice as clean to achieve the highest standard – a rating of Excellent. Tourism bosses fear that the new rules could have a big impact on the communities around any beaches that fail to make the grade.
They are calling for a more flexible approach that would allow them to provide daily updates on the water quality meaning that they would only have to close the beaches to bathers on those days when the pollution reaches hazardous levels.  Malcolm Bell, the head of Visit Cornwall, said: “We are going to face a challenge to explain to people that things have not got worse – it is just that the hurdle has got higher.  “If a beach is on the new borderline, it doesn’t mean it will be borderline all the time.  “Sometimes it will be beautiful and other times there will be problems, so we want to be able to put up signs on those incidents but be able to take them down when it is more than safe.”  Jonathan Ponting, principal environment planning officer at the Environment Agency, said work was under way to improve the water quality in those areas at risk.  He said: “The vast majority of our beaches pass the current standards and they have seen a massive improvement over the past 20 years, but we are moving to a system that uses much tighter standards than the current ones that we report to.  “Tourism is a massive part of our economy in some of these areas and there is no doubt that if some of these beaches do have signs advising against bathing it could be damaging for the economies in those areas. “The Environment Agency has been working to get as many of those beaches as possible to meet those standards.”  Temperatures are expected to rise tomorrow to just shy of the hottest seen this year, with the South East expected to get up to 73.4F (23C), about the same as is forecast for the south of France.
 

The ECB's governing council on Wednesday announced the first cut in borrowing costs since July 2012, reducing interest rates to a record low of 0.5%. The bank's policy meeting in Bratislava came to its decision against a backdrop of weak economic data, including unemployment across the 17 member countries of the single currency hitting a record high of more than 12%.

The euro fell more than 1% against the dollar to $1.304 in the wake of Draghi's comments. The ECB president also suggested that the ECB would consider imposing a negative interest rate on deposits held at the central bank, to prevent banks parking money at the ECB instead of lending it out to companies. The ECB's deposit rate already stands at zero.

Explaining the bank's decision to cut rates in his regular press conference, Draghi pointed out that GDP across the eurozone has now declined for five consecutive quarters, and that "weak economic sentiment has extended into spring of this year".

However, Draghi urged policymakers to keep faith with austerity amid a fierce debate in Europe about whether crisis-hit countries should be allowed to ease up on their drastic deficit-reduction plans.

"In order to bring debt ratios back on a downward path, euro area countries should not unravel their efforts to reduce government budget deficits and continue, where needed, to take legislative action or otherwise promptly implement structural reforms, in such a way as to mutually reinforce fiscal sustainability and economic growth potential," he said.

David Brown of New View Economics said: "The ECB rate cut is no surprise as it was well flagged by Draghi at last month's meeting. Is it enough? No. The marginal effect of the cut is very limited, but at least it should have some symbolic rallying effect on economic confidence".

However, the ECB dashed hopes that it would announce a detailed set of policies to unblock lending to small businesses, which are often unable to access bank lending at affordable rates, particularly in the eurozone's bailed-out peripheral economies.

George Soros, the billionaire speculator best known as "the man who broke the Bank of England" in 1992, has launched a stinging critique of Germany's role in the euro crisis and suggested the single currency's prospects would be improved if its most dominant member were to quit. In an incendiary speech made on Tuesday afternoon in Germany's financial centre of Frankfurt, the hedge fund trader told Europe's richest country it had gone too far during the bailout of Cyprus, was itself heading for recession and should either leave the euro or reverse its long held opposition to eurobonds – a form of sovereign debt that would mean each member country's borrowings were guaranteed by the whole eurozone.  "My first preference is eurobonds; my second is Germany leaving the euro," he said in his lecture, entitled: How to save the European Union from the euro crisis. "It is up to Germany to decide whether it is willing to authorise eurobonds or not," he said at Frankfurt's centre for financial studies.  "But it has no right to prevent the heavily indebted countries from escaping their misery by banding together and issuing eurobonds.  "In other words, if Germany is opposed to eurobonds it should consider leaving the euro and letting others introduce them." In an address which appealed over German chancellor Angela Merkel and directly to German voters, who go to the polls in federal elections later this year, Soros implored the country to change course. "I hope that by offering you a different perspective I may get you to reconsider your position before more damage is done," he said. "That is my goal in coming here."

He added: "The financial problem is that Germany is imposing the wrong policies on the eurozone. Austerity doesn't work. You cannot shrink the debt burden by shrinking the deficit.

Heil ....

Merkel disapproves of the Cypriot proposal, which involves bundling state assets into a "Solidarity Fund" that includes the country's retirement fund to back bond issues. According to reports on Friday, she is not alone. The troika, made up of the European Commission, the European Central Bank and the International Monetary Fund, agrees with her assessment.

What happens next? "I hope that it doesn't result in a crash," Merkel told FDP parliamentarians according to a meeting participant. Merkel has long warned of a potential domino effect should a euro-zone member state enter insolvency. But now, her government is no longer excluding the possibility.

The chancellor is particularly frustrated by the lack of communication with Cypriot leaders even as the situation worsens dramatically. Some in her party have even used the word "autistic" to describe Nicosia's apparent unwillingness to communicate with Berlin. "What we have never experienced before is that, over a period of days, there has been no contact with the EU or with the troika," Merkel reportedly told the parliamentarians. Merkel, for her part, managed to force herself on Friday to return to the moderate words for which she has become famous. She insisted she will try to "be emotionally wise." On this particular Friday, it wasn't easy.

Doing more with less money. This is what the European Council believes with the adoption of the conclusions of the MFF, the European Union's Multiannual Financial Framework 2014-2020. For the first time in history, the EU budget has been reduced. As a first reaction, the leaders of the biggest political groups in the European Parliament underlined in a joint statement that they cannot accept the deal reached by the European Council. MEPs debated the EU's long-term budget with European Council President Herman Van Rompuy and Commission President José Manuel Barroso here in the European Parliament. Watch this Event of the week ...The 'Event of the Week' is a weekly programme highlighting a key event in the European Parliament. This video will soon be available in German, French, Spanish and Italian on our website. ...For free broadcast-standard video, please visit http://epp.synapticdigital.com/ . If you are a first-time user, please take a moment to register. In case you have any questions, please email journalisthelp@thenewsmarket.com. Please note that all our videos can be found on our YouTube Channel and Facebook page. For any comments and reactions please contact us at epp-tv@europarl.europa.eu or the Producer :ioannis.zografos@europarl.europa.eu

In a statement released this morning, leaders promised that their fiscal and monetary policies would “not target exchange rates.”

“We, the G7 Ministers and Governors, reaffirm our longstanding commitment to market-determined exchange rates and to consult closely in regard to actions in foreign exchange markets,” said the statement.

“We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates.”

Spelling out the fears that have been raised, particularly by Francois Hollande, the French president, the statement added: “We are agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability. We will continue to consult closely on exchange markets and cooperate as appropriate.”

Fears of so-called “currency wars” were sparked when Japan's new prime minister Shinzo Abe ordered the country's central bank to be more expansionary. Mr Abe is determined to force down the value of the yen in a bid to boost exports and in turn Japan's sluggish economy.

Fresh data from the Bundesbank show that Anglo-German trade in goods and services soared to €153bn in the first nine months of 2012, with both exports and imports booming at double-digit rates.

It is one of the fastest growing trade relationships in the developed world. France lagged behind at €150bn as trade stagnated, with the US at €149bn and China at €115bn.

David Marsh from the financial group OMFIF said the trade swing underlines a “sobering truth” that Germany’s fundamental interests are shifting away from the eurozone core as Berlin embraces the wider world. The EMU share of German trade has fallen from 46pc to 37pc since the launch of the euro, displaced by Asia, as well as Eastern Europe and the Anglo-sphere.

British goods exports to Germany rose 20pc over the first three quarters compared to a year earlier, despite the economic downturn. The surge was led by medical equipment, drugs, car components, and petroleum goods. The deficit with Germany narrowed slighty to €17bn, a sign that trade is becoming better-balanced.  Although rarely acclaimed, British suppliers and manufacturers are deeply integrated into the German industrial machine and enjoy the follow-through benefits of German exports to the rest of the world....Now...Does anyone believe British conmpanies have won this business based on EU membership or on the timely and safe delivery of quality products at a competitive price?  The UK and Germany are the two major players and net contributors in the EU. France talks it large and is extremely well represented in positions, but without the massive EU funding it receives it would struggle.  The real danger here is not the UK leaving the EU and sinking, it is that we will leave and surge ahead. Weakening the EU and strengthening our own position. Add to this the repeated polls in Germany where the majority do not want to be run by the EU and also wish to leave the Euro, and the real danger is clear. The UK leaving the doomed EU project will hasten its demise and open Europe up to trade and competition with the World. The very last thing Socialist leaders want.

A thriving UK outside of the EU would prove an irrisistable pull to other net contributors to leave. This is what keeps the EU commission up at night, not wondering what Pro-EU Cameron will mumble in his speech this week.

Germany's central bank, the Bundesbank....

The German economy grew by 0.7% in 2012, a sharp slowdown on the previous year, preliminary figures show. The figure was well below the 3% growth seen in 2011 and suggests the economy contracted in the fourth quarter. "In 2012, the German economy proved to be resistant in a difficult economic environment and withstood the European recession," the federal statistics office Destatis said. Some analysts believe the German economy will enter recession itself. Destatis said economic activity "slowed down considerably" in the second half of the year, and particularly in the final quarter. "The full-year growth figure [of 0.7%] implies a contraction of around half a percentage point in the fourth quarter," the office's top statistician Norbert Raeth said. Last month, Germany's central bank, the Bundesbank, cut its growth forecast for this year to 0.4% and warned that the economy may have contracted in the final three months of 2012, and may do so again in first quarter of 2013. The eurozone economy as a whole is already in recession, having contracted in both in the third and fourth quarters of last year. For 2012 as a whole, Destatis said foreign trade was "very robust", with exports up 4.1% on 2011. Imports grew by 2.3%. The positive trade balance was "once again the main driving force for economic growth in Germany". Household expenditure increased by 0.8%, while government spending was up 1%. The figures also showed that while the service sector of the economy expanded, industry and construction contracted. Destatis will publish official fourth-quarter growth figures on 14 February.

As eurozone ministers prepare for yet another painful negotiation about how to prevent Greece plunging into its own catastrophic default, the fate of the Libertad – and a controversial US court judgment last week in favour of the vulture funds pursuing Argentina – is a reminder that the world desperately needs a better way of coping with countries that owe more than they could ever repay.

More than a decade after it suspended repayments on more than $90bn (£60bn) of debt, and long after its economy began to emerge from deep financial crisis, Argentina is locked in a seemingly intractable row with the "holdouts", as they are known, about how much is owed to them.  Vulture funds, which specialise in buying up the debts of countries already in distress at a fraction of their face value, when most investors have given up on being repaid, are actively pursuing Buenos Aires through the legal systems of scores of countries.  In a decision that sent shock waves through financial markets, a New York circuit judge ruled last week that even the banks handling Argentina's repayments to other bondholders would be "in active concert" with the country if they fail to co-operate in ensuring that the vultures – in this case, Elliott Capital Management – have their feast.

After years of negotiations, over 90% of creditors signed up to two separate deals, in 2005 and 2010, which wiped out 70% of the value of the unpayable debts but at least meant some repayments would be made.

The groundswell feeling of injustice is heightened because governments have ratcheted up borrowing to fund aid and guarantees worth £3.7 trillion to failing European banks while making deep and painful cuts to social provisions. To add insult to injury, the austerity programmes for the eurozone have been drafted and imposed by the European Commission in Brussels and the EU’s Central Bank in Frankfurt. Debt programmes have been directly imposed by the EU and International Monetary Fund “troika” in Greece, Portugal and Ireland, which have effectively been stripped of their economic sovereignty. It is going to get worse. EU forecasts predict that joblessness rates will climb even further, hitting 11pc in the EU and 12pc in 2013. In Greece, unemployment is 23.6pc, and 54pc among young people. One thousand Greeks are losing their jobs every day. In Spain, once an EU pin-up for growth and a country that was not in debt before the banking crisis, youth unemployment has hit 55pc and the recession is still deepening. Tens of millions of Europeans blame austerity for suppressing demand and acting as a dampener on growth at a time of economic recession triggered by the financial crisis. The deadly combination of slowdown plus austerity, compounded by economic imbalances built into the EU’s single currency, has pushed countries, especially the southern European economies at the heart of the eurozone debt storm, into what looks like a deep and protracted slump.

The chances of Britain leaving the EU rose dramatically last night after it emerged that one of David Cameron’s closest Cabinet allies believes it is time to tell Brussels bluntly: ‘We are ready to quit.’

Education Secretary Michael Gove has told friends that, if there was a referendum today on whether the UK should cut its ties with Brussels, he would vote to leave.

He wants Britain to give other EU nations an ultimatum: ‘Give us back our sovereignty or we will walk out.’ Mr Gove insists the UK could thrive as a free trading nation on its own, like other non-EU nations in Europe such as Norway and Switzerland. He has changed his view partly as a result of his fury at Brussels meddling which has held up his school reforms.  Mr Gove, one of the Prime Minister’s closest confidants, has discussed his views in detail with Mr Cameron. In an anti-EU pincer movement by the two Tory allies, Mr Cameron will formally announce later this month the first major step towards grabbing back powers from Brussels.   He will set out in detail how he plans to withdraw Britain from EU justice ties, but he will then ‘cherry pick’ which aspects of Anglo-EU legal co-operation he believes are in British interests. These could include the European Arrest Warrant (EAW), access to police databases, prisoner transfers and co-operation over drugs trafficking and money laundering.  The disclosures are the latest evidence of a turning point in Britain’s relationship with the EU, which is currently gripped by the euro crisis.

Mr Cameron has struck an increasingly tough stance. He won plaudits for vetoing changes in the EU Treaty, has edged closer to pledging an ‘In or Out’ referendum, and suggested Brussels should have two budgets, one for eurozone nations and another for non-eurozone nations such as the UK....UPDATE - European leaders early Friday agreed to have a new supervisor for euro-zone banks up and running next year, a step that will pave the way for the bloc's bailout fund to pump capital directly into banks throughout the single-currency area......
Friday's announcement is a disappointment for some officials at the European Commission, the EU's executive arm, who had hoped to have the supervisor operational at the start of 2013.
The leaders also discussed plans for a common budget for the 17 euro-zone nations that could be used to absorb economic shocks impacting one part of the euro zone but not others. But José Manuel Barroso, the commission president, said: "This is something for the medium and longer term."

The Euro and the EU itself have never been about what the 'Germany' or 'Spain' or 'The UK' wants, it is only what the leaderships of those countries want, even in the face of popular votes against the EU.

"Germany" ( read Germans ) will not decide anything, the people will never be given a say, much like the rest of the peons across Europe.

Of course Germany wants to save the Euro, but will only do so if they are able to maintain their 'advantage' in the export markets to other Euro and EU states. One disadvantage for Germany would be if the Eurozone countries decided to allow the ECB to start buying the sovereign bonds of the indebted countries. Germany will never allow that to happen as it would mean that they would have to share a much bigger burden of the Eurozone "collaterized" debt than they do at present. It's called German self preservation....Unfortunately, it still appears as though Europe’s top policymakers – that is, the Germans – are trying to “muddle through”, as opposed to coming up with a good, powerful solution. To understand this situation, it is instructive to reflect on Spain’s “problems” in comparison with those of Greece and perhaps Ireland. While Spain’s widely cited problems of high unit labour costs and current account deficit are symptoms of it sitting inside a rigid currency zone, before 2007-08 these problems existed but were not highlighted. They were seen as an understandable consequence of a monetary union such as the euro area.

An interesting point -- Spanish 10 year debt is yielding 7.5pc, half of what it ought to yield but enough to spook markets not yet ready to face the inevitable deflation of what has long been a bond super-bubble. This bubble is particularly evident in France. The debt levels which the country has are as unsustainable as Britain’s, yet its policies are more irresponsible and its remedies more restricted. Although it is considered a core country in the eurozone, France’s economic profile now bears more resemblance to Greece’s the Germany’s. Public debt in France is at 86.1pc of GDP (146pc if ECB liabilities and bank guarantees are included). The projected budget deficit this year is 4.5pc, with France having exempted itself from the EU’s instruction to bring deficits down to 3pct by the end of the year. These numbers are not unusual in the context of eurozone economies in general. What distinguishes France is the lack of political will to address them and, as a consequence, a projected debt to GDP ratio which would place it firmly amongst the PIIGS grouping. A 2010 paper by the Bank of International Settlements – cited by economist John Mauldin in his brilliant recent dispatch on ‘hidden lions’ – sought to model the likely effects of three separate policy paths by European governments. These range in severity from governments essentially carrying on as they are, to the most extreme austerity the authors believe to be politically possible, a gradual downwards movement in government spending while age related entitlements are frozen.

I've been wondering about Norway; for many the model to emulate. Many of the numbers here come from Norsk Industris Konjunkturrapport 2012. It's an employers' association, so expect a center-right bias. I'd be delighted if a Norwegian were to comment.

Norway's Sovereign Wealth Fund means the country has no insolvency problems. Unemployment is a low 3%. One out of three jobs is in the public sector. The Norwegian oil industry is expected to show a revenue growth of 15% next year, and is hiring. But Norway's traditional export sectors - industry and mining - will grow only 0 to 2%, and are firing people. And these traditional sectors employ about five times as many people as the oil sector.

There is a clear dichotomy in Norway's industry: on the one hand a booming oil sector which keeps the currency strong and wages high; and on the other hand an export-oriented industry which are suffering from the combined effect of the high kronor and high wages.  Surprisingly enough, given the strong sense of crisis in Europe, Norwegian companies actually increased their exports to the EU in 2011 by 12%. Exports increased to all EU countries except the PIGS countries in the south. Norway is not whining demand is weak. Exports to the UK increased +6.2%. Exports to the US dropped -4.3%. These are data for the whole of 2011. 80% of Norwegian exports go to the EU, 2% to China. Being outside the EU, Norway is free to make its own free-trade agreements with China, but China is not interested. Negotiations broke off when Norway gave Liu Xiaobo the Nobel Prize back in 2010. Norway had its banking crisis, following a period of financial deregulation. Small banks began to fail in 1988. The crisis peaked in 1991, and ended in 1994, six years after it began. Just imagine the Guardian running a "Norwegian Banking Crisis Live Blog" six years on end.
What's my take on Norway?

There are two Norways. The oil industry is booming; the export-oriented industry is suffering. The kronor-euro exchange rate is causing discomfort for Norway's export industry.  When a overvaluation of the Swiss franc threatened Swiss exports the Swiss National Bank intervened, and the Swiss franc has been at exactly 1.20 euro since. Of course, this means a large part of Swiss monetary policy is no longer determined in Bern, Switzerland but rather in Frankfurt, Germany. Nevertheless, pegging the franc to the euro is seen by many Swiss as a pragmatic solution.  Norway's future may be Switzerland's past. We may see the Norwegian kronor pegged to the euro sooner than we think. Yes, such a move would be political suicide in the UK. So what?

Over in Germany, cracks are starting to widen in the Angela Merkel's government. In the magazine Stern (in German), Horst Seehofer – who is head of the CSU, the Bavarian partner of Merkel's CDU party – sharply criticized decisions taken at the recent eurozone summit and threatened to break the coalition if further financial commitments were made to crisis-hit countries. Greek Socialist Pasok leader Evangelos Venizelos said today that he hoped Greece would be able to benefit from a European Union concession – already extended to Spain, Ireland and possibly Italy – allowing the use of EU rescue funding for the direct recapitalization of banks.---- Venizelos said:....I would like to hope that this will apply to Cyprus, Portugal and Greece. This would help reduce (Greek) debt. If it were to apply to Greece, it would reduce the country's debt, now somewhere above €330bn, by as much as €50bn, which has been earmarked for the country's banks as part of an earlier debt restructuring deal. The Pasok chief also presented a 10-point plan for Greece, which includes honouring the country's commitment to the country's creditors but extending the adjustment period by three years.,,,,Over to Athens, where Horst Reichenbach, the head of the EU taskforce created to speed up Greece's recovery using EU support funds, said Greece must prioritize paying out arrears it has racked up with suppliers to get funds flowing again to cash-strapped businesses. The EU task force, which is working to help Greece reform its bloated public sector, said the lack of financing risked undermining any progress achieved through reforms. Elsewhere ekathimerini.com reports that the government is ready to negotiate with the troika of the ECB, the EU and the IMF. It cites a government spokesman who said:We will present data that cannot be doubted, which will prove the dead-end we have been led to by the current policies, especially with regard to the recession and unemployment. Using this data as our weapon and presenting our alternative proposals, we believe that we will succeed in a new path being approved.We are making every effort to ensure there won't be any more sacrifices or job losses. The Greek government is expected to present its policy program in parliament on Thursday or Friday. Separately, the labor institute has warned that the actual number of unemployed Greeks, including the long-term jobless, will reach 1.6m, or close to 30% by the end of the year, rather than the 1.48m originally expected. The gloomy forecast comes a day after eurozone data showed that more than one in two Greek young people are already out of work.

German politicians have reached an agreement that will allow parliament to approve the setting up of a permanent eurozone bailout fund and the fiscal pact which eurozone leaders agreed to last year.  Angela Merkel's government and the opposition Social Democrats said they had agreed on the measures, which will give the Chancellor the two-thirds majority in parliament she needs when it goes to a vote next week.  There's a bit BUT though - Volker Kauder, the parliamentary leader of Mrs Merkel's party said again there would ne debt mutualisation in Europe, aka no eurobonds ... The head of the International Monetary Fund has piled pressure on Germany by recommending a series of crisis-fighting measures that chancellor Angela Merkel has resisted.  IMF managing director Christine Lagarde warned that the euro is under "acute stress" and urged eurozone leaders to channel aid directly to struggling banks rather than via governments. She also called on the European Central Bank to cut interest rates.  The comments came as Italy's prime minister Mario Monti, warned of the apocalyptic consequences if next week's summit of EU leaders were to fail.  The stark message from Lagarde, delivered to eurozone finance ministers who met in Luxembourg, will increase pressure to come up with a unified approach to tackle problems including Spain's struggling banks. She urged the 17 eurozone countries to consider jointly issuing debt, helping troubled banks directly, and suggested relaxing the strict austerity conditions imposed on countries that have received bailouts.....

Luxembourg's Jean-Claude Juncker has said he'll step down as chairman of the forum of the eurozone finance ministers this year, citing the heavy workload and his health.  Schaeuble has said he wants the job but Hollande is thought to be anxious about appointing a champion of austerity to such a key role.   If Germany gets the Eurogroup job, France gets to appoint their man as head of the bailout fund the European Stability Mechanism and vice versa.  Hollande is expected to put his petitions to Angela Merkel, Italy's Mario Monti and Spain's Mariano Rajoy at their talks in Rome on Friday.