This article was published in Le Monde on 5 June 2014

There is, between you and us continental Europeans, a disagreement which is turning ugly. Your immense history justifies a limitless admiration for you. You were the inventors of democracy and of human rights, you dominated the world for centuries, first ruling the oceans and after that the world of finance. And when apocalypse threatened, your courage and tenacity – you held on long, American and Russian help arriving late in the day – saved our honour and freedom.

We know this and we have never shied away from saying, including in this commemorative week, that we owe you an immense debt. This should not, however, allow you to treat us with contempt and double-dealing.

You do not like Europe – that is your right and it is understandable. You nevertheless joined 41 years ago, but on a misunderstanding. You never shared the true meaning of the project which Winston Churchill, speaking on your behalf, set out in Zurich in 1946 with his incredible words: "We must build a kind of United States of Europe … Great Britain, the British Commonwealth of Nations, mighty America – and, I trust, Soviet Russia … must be the friends and sponsors of the new Europe and must champion its right to live."

Were you not listening? These were the thoughts of a giant, shared by another giant, Charles de Gaulle.

You wanted trade, and you thought about nothing else. With President de Gaulle gone, you were able to join. But from this point you never, ever allowed even the smallest step towards greater integration, or even the smallest expansion of genuinely joint decisions.

The European community did trade, which suited you, because it defined itself as an economic community, but for those things that should be at the very heart of an economy – taxation, dispute settlement law, social policy – you demanded and imposed the continuation of unanimous decision-making. You wanted paralysis. So many neighbouring countries applauded and envied our achievements and wanted to join. You supported each enlargement; we did too, even though we knew it would dilute the community. But you never allowed the slightest deepening of the union. Europe remained bogged down and badly run, an economic giant, a political dwarf.

Eventually the size and success of the European community meant that it made little sense for it to be involved only in the economic aspects of our shared lives. Diplomacy, defence, justice were all raised. You succeeded in limiting joint political actions to a few narrowly defined circumstances and instances.

Thanks to you, the Maastricht treaty was a failure and only narrowly voted through. You did not have to do much to ensure that the Amsterdam and Nice treaties and the constitutional convention would also be flops because they changed little. Paralysis was guaranteed, because you had already got what you wanted. But you had to make things worse. When you didn't like the agreed rules, you tore them up by seeking derogations, "I want my money back" agreements such as the British budget rebate, and eventually the right to opt out of policies altogether when they did not suit you.

But your demands became even more outrageous. Amid the paralysis and growing anger the continental desire grew for stronger and more powerful leaders.

The nationalities of the Belgian Jean-Luc Dehaene and the Luxembourger Jean-Claude Juncker could not have bothered you, it was enough that they were federalist in outlook, had strong voices and would not be easily pushed around. Two vetoes in 10 years, that takes some nerve. You dared to do it.

Europe is dying from it. The most recent elections have confirmed this. Even the euro, the only policy that you could not block, yet whose rules you were involved in writing, and which therefore bear your influence, remains weak and suffers from the lack of oversight that you were able to make sure would prevail across the EU.

I know, you are not completely alone in this. The refusal to recognise a common European interest, always putting the national interest first – you reintroduced these ideas and made them contagious. Nobody is perfect. Acknowledge at least that you deserve the prize.

Out of this disaster and ahead of the European elections, the tenacious among us managed to inject more democracy into the rules. So it was agreed that the majority in the European parliament would choose the European commission presidency. It hardly changes the essence, but it is a start, a way to begin restoring public interest and engagement. Personally, I voted for Martin Schulz as it would trouble me to see somebody with a monetarist outlook at the head of the commission. But the people have spoken. It may be relative, but there is a majority and its leader is Jean-Claude Juncker, a bold and courageous federalist. Democracy demands that he become the president of the European commission. But you want to prevent this. You want to break the process by which a more democratic Europe could emerge. You are stopping Europe finding the democratic force and legitimacy that it needs. A leader picked in these circumstances will be weakened. But this is what you want. Without internal democracy Europe is unworthy, and is in the process of dying. And you are sending us back to that Europe, you despise us so much. What right do you have? And beware, this contempt will backfire on you. You will eventually be right.

Now you pretend to want to exit; the majority of your people are in no doubt about it. But you have a banking interest in remaining to capitalise on the disorder that you have helped to create.

So go before you wreck everything.

There was a time when being British was synonymous with elegance. Let us rebuild Europe. Regain your elegance and you will regain our esteem. This article was published in Le Monde on 5 June 2014

The European Central Bank has cut interest rates to record lows in a bid to prevent deflation. The negative interest rate of minus 0.1% - that is, charging commercial banks to park their surplus funds overnight - is perhaps the most striking element in this package.

Negative rates do happen now and then, but they are very rare and often a sign of some sort of financial or economic stress. That certainly applies in this case, where the eurozone economic recovery is unconvincing and risks being undermined by deflation or falling prices. One source of weakness is declining bank loans to the private sector. The negative rate might encourage banks to lend more, because it doesn't apply to the reserves they are required to keep at the ECB. The more they lend, the bigger those requirements - and so the smaller the sum that will be subject to this negative rate. Here's another way of looking at it: if banks want a comfort blanket of extra funds on deposit at the ECB, they will have to pay for it. And that is a potential problem. As it imposes a cost on them it might affect their profitability and they are still not in robust health. In truth the impact of a negative deposit rate is uncertain, so proceeding with this move does underline the fact that the ECB is concerned enough to be ready to take some steps into the unknown. There is another possible benefit from the negative deposit rate - and the other rate cuts. They could weaken the euro. When Denmark did much the same thing in 2012, the aim was to stop the currency rising - it is pegged to the euro, so when investors seeking refuge from the storms in the eurozone bought the Danish krone, it produced upward pressure on the currency that was unwelcome. The negative interest rate seems to have helped stabilise the krone. In the case of the eurozone, a weaker euro would have two advantages. It would help exporters compete. It would also make imports more expensive. Normally that is an unwanted side-effect of a declining currency, but when inflation is too low that really is helpful. It just reminds us that we are (still) living in strange economic times. (BBC)

BRUSSELS, June. (Itar-Tass) - Leaders of the Group of Seven most industrialized countries (G7) decided to abstain for the moment from imposing further sanctions against Russia and intend to discuss situation concerning conflict-hit Ukraine with Russian President Vladimir Putin in France this week, German Chancellor Angela Merkel said.

“At the upcoming meetings in Normandy we intend to send a signal to the Russian president concerning the necessity of de-escalation in Ukraine,” Merkel said following the first day of the G7 summit in Brussels. “If this [the de-escalation] does not take place then in the future we intend to consider again the possibility of imposing the third set of sanctions.”

The European Union jointly with the United States declared two sets of sanctions against Russia earlier in the year, particularly after the republic of Crimea seceded from Ukraine and later merged with Russia.

Speaking at a news conference late on Wednesday night, Merkel said the G7 leaders agreed to discuss three key issues with Ukrainian newly-elect President Pyotr Poroshenko and Russian President Putin in France.

Firstly, she said, the leaders intend to stress the importance that Russia must provide “measures for de-escalation in Ukraine.” Secondly, to call on the Russian authorities to begin joint work with the Ukrainian president. Thirdly, Merkel said, Russia needs to put an end to flow of volunteers and weapons to the east of Ukraine.

Asked whether further sanctions would follow against Russia, Merkel said the issue “requires extra discussions and thorough analysis of the situation.”

“We need to see the results of talks with the Russian president and evaluate the further development of the situation,” Merkel said. “Basing on this, we might gather again to discuss the issue of sanctions.”

“Today’s meeting was devoted not only to relations with Russia, but the situation in Ukraine on the whole, the constitutional reformations and provision of minorities’ rights, and we intend to look for constructive ways to settle the situation in the country,” she said commenting on the first day of the summit.

Russia is currently holding the rotating chair in the Group of Eight (G8) most industrialized countries, which besides Russia include France, the United States, Britain, Germany, Japan, Italy and Canada. However, on March 24, 2014, G7 leaders announced they would not attend the Sochi Summit in Russia and would instead hold a G7 meeting in Brussels on June 4-5, 2014.

The announcement came after Putin signed on March 21 the federal constitutional law on accession of two new constituent members to the Russian Federation - the Republic of Crimea and the federal city of Sevastopol.

The Russian president arrives in France on Thursday and will attend celebrations on the occasion of the 70th anniversary of the D-Day Landings of Allied forces on the Normandy coast on June 6. This will be Putin’s first visit to Western Europe after the start of the crisis in Ukraine.

Putin has repeatedly dismissed Western claims that Russia could in any way be involved in protests in Ukraine's Southeast.

Massive protests against the new Kiev authorities, propelled to power during a coup in Ukraine in February, erupted in Ukraine’s southeastern territories, mainly the Donetsk and Lugansk regions, after Crimea’s reunification with Russia following a referendum in March.

Demonstrators in the Southeast, who have been demanding Ukraine’s federalization, seized some government buildings. A punitive operation by Kiev against federalization supporters has already claimed dozens of lives, including civilian.

This idea that deflation = prices coming down is a "threat" is inherently nonsensical and it would be surprising that the idea gets such little examination here, if it weren't for the fact that the belief is so wide-spread. The only one inflation benefits is debtors, i.e. the government, which is the biggest debtor of them all. For everyone else inflation is a bad thing and deflation is good.  The European Central Bank has cut borrowing costs across the eurozone, a historic move which means commercial banks will have to pay it to deposit funds at the ECB.

The ECB acted this afternoon after seeing inflation fall to just 0.5% in May, further from its target of close to 2%.

The move cuts the main refinancing rate in the euro area to just 0.15% - a fresh record low.
And commercial banks will face a negative interest rate of -.10% on their deposits (see our Q&A to learn more about negative rates)

The ECB has promised to announce " Further monetary policy measures" at 2.30pm BST /3.30pm Frankfurt time.

That has sent the euro falling against the US dollar to $1.357, down 0.2% today.

There is speculation that those measures could include a new programme to help banks lend to small businesses. I was pondering on what negative interest rates really mean.

In standard economic theory, having a pound to spend now is better than having a pound to spend tomorrow. The rate of interest is used to define the difference in value.

What happens though, if a pound today is seen as less valuable than a pound tomorrow? Can this happen?

I guess it is possible. If you expected a credit deflation then this would be exactly what you would expect. Credit deflation should happen when the number of young people contracts, as there are less people to borrow money for mortgages say, reducing demand to borrow money. If there are lots of older people for example, retired, they want to put off their expenditure until tomorrow, and therefore want to lend in order to be able to achieve this. If there are fewer borrowers and more lenders, you may reach a point where you actually get negative interest rates, no matter how crazy this might seem.

Of course this also presents a massive arbitrage possibility, which should call a halt to interest rate falls at zero percent. I dont know where we go with negative interest rates from here, certainly we would be going through the looking glass.

Over one million people in Spain - the eurozone's fourth largest economy - haven't had a job since 2010, according to a report by Spain's National Statistics Institute. Although this number continues to rise, the government says it's witnessing recovery.

The numbers, published on May 23, show that “very long-term unemployment” in the country has risen by more than 500 percent since 2007. That year, about 250,000 Spaniards were unemployed after losing their job at least three years prior. That number drastically rose to 1.27 million in 2013 - 234,000 more than in 2012.

Generally, long-term unemployment includes jobless workers who have not been employed for more than 27 weeks. The recent study shows that this category in Spain has transformed to very long-term unemployment, with hundreds of thousands people without a job for at least three years, and is now represented by over 23 percent of the total jobless population in Spain.

The number is much higher than in other countries in the region at the same economic level, with another recent study showing that 26 percent of the country's population is on government benefits in Spain - the second highest total in the EU after Greece. Older jobless Spaniards are in a worse position than younger ones, who are more flexible and can emigrate and try to find work in other countries. But those with families and financial commitments are in danger of never finding work again. Edward Hugh, a British economist based in Spain, told the Spain Report that the situation is disastrous: "Many of these people are now 'structurally unemployed,' and many of those over 50 may never work again. It’s a national disaster,” he said.

Spain's new, smaller parties earned a relatively high number of votes in the recent EU elections. One of the newcomers, the Podemos (We Can) party, received almost eight percent of the votes, enough for five seats in the European Parliament. One of the political movement's MPs told The Spain Report that "a howl of protest against the unfairness, crushed dreams and hopeless futures caused by the existing economic system” is at the heart of the new party's support base.

France's foreign minister has hit out against a possible $10bn (£5.9bn) plus fine for the country's biggest bank, BNP Paribas, for alleged violation of US sanctions.

Laurent Fabius told France 2 television: "If there is an error or violation then it's normal that there is a fine, but the fine has to be proportionate and reasonable. These figures are not reasonable."

US authorities are investigating whether BNP Paribas flouted American sanctions against Sudan, Iran and Syria between 2002 and 2009. Sources have said a settlement could include a fine of more than $10bn, although a final judgment has not been made.

The remarks come just two days before France's president, François Hollande, sits down to dinner with Barack Obama, who is visiting France to commemorate the 70th anniversary of the D-day landings.

The French government is pulling out all the stops to defend BNP Paribas, a bank deemed 'too big to fail' and that received a €5.1bn (£4.1bn) bailout at the height of the financial crisis.

Hollande has raised concerns about a BNP Paribas plea deal with the White House, while French officials have also contacted the US state and treasury departments, according to sources quoted in the New York Times. According to the paper, the French are concerned that a guilty plea would force the bank to suspend part of its business operations in New York. As well as a fine, BNP Paribas faces a temporary suspension of its authority to clear US dollar transactions.  A $10bn fine would be more than five times the amount of the largest penalty so far levied by US authorities against banks: HSBC paid $1.97bn in 2012 for offences including alleged money laundering for Mexican drug cartels, and admitted it had helped clients evade US sanctions against Iran, Cuba and Libya. Standard Chartered, the next biggest offender, paid $667m, mainly for breaking sanctions against Iran.

BRUSSELS - Failure to appreciate the scale of Europe's banking crisis led to the most significant economic forecasting errors since the oil crisis in the 1970s, the Organisation for Economic Co-operation and Development has said.

The admissions were contained in a 'post-mortem' report on the eurozone crisis published by the Paris-based think tank on Tuesday (11 February),

“The repeated deepening of the euro area sovereign debt crisis took us by surprise, because of the stronger-than-expected feedback between banking and sovereign weaknesses," OECD Chief Economist Pier Carlo Padoan said at an event launching the paper in London.

“We have learned a lot from the crisis,” he added.

The organisation’s economic projections repeatedly under-predicted the extent of the collapse in activity during the 2008-09 financial crisis and then over-estimated the pace of recovery in the following years. The eurozone fell into a double-dip recession in 2011-12 before returning to anaemic growth of 0.2 percent in 2013.

”We have taken steps to improve short-term forecasting models, construct better indicators of financial conditions and explore the risks around our forecasts more systematically,” Padoan said.

He added that the belief that the eurozone's debt crisis would gradually play itself out was the biggest mistake made by analysts.

“It was the repeated assumption that the euro crisis would dissipate over time, and that sovereign bond yield differentials would narrow, that turned out to have been the most important source of error.”

But the OECD is not the first to face the charge that it underestimated the scale of the crisis.

Accusations of poor and over-optimistic forecasting have also been laid at the door of the European Commission and the International Monetary Fund, particularly in respect of Greece's bailout.

Greece has experienced one of the deepest peacetime recessions to hit an advanced economy. The country's output has reduced by more than 25 percent in the past six years. Meanwhile, unemployment has soared to 27 percent with youth joblessness hovering over 60 percent. But the OECD report says that although it failed to forecast the scale of the downward impact austerity policies would have on economic growth in Greece, this was less of a factor in the rest of the eurozone.