Tuesday, August 16, 2011

Sarkozy-Merkel Meeting

Sarkozy and Merkel have met. They propose a financial transactions tax (good). They also propose a new council to govern eurozone economics, possibly to be headed by von Rompuy. I won't say this is a bad idea, rather an indifferent one. Clearly it's a response to the obvious need for greater economic coordination if the euro is to survive, but everything will depend on the powers of the new council and the degree of sovereignty that member states are required to give up. This could be mere eyewash, or it could be the start of something big, and necessary.

Then they go on to recommend the "golden rule" (balanced budget constitutionally mandated, albeit with escape clauses), which to my mind stands La Rochefoucauld's maxim on its head: "L'hypocrisie est un hommage que le vice rend à la vertu," La Rochefoucauld said, whereas la règle d'or est un hommage que la vertu rend au vice: it makes lawmakers feel virtuous but compels them to vicious misbehavior (in the form of procyclical budget-cutting) in a crisis. If they're seeking an exit from overindebtedness, they would do better to follow the advice of Augustine in the fleshpots of Alexandria before his conversion: "Make me stop sinning, O Lord! but not just yet!"

They also--new proposal--will consider a common corporate tax for France and Germany, a good idea and a step toward better coordination. Finally, they rule out Eurobonds for now but not forever: this can come, they agree, but only after fuller integration has been achieved. In the meantime they promise to defend the euro to the hilt. Let's hope this will be enough.

On the whole, this appears to have been a constructive meeting and more substantive than I had feared. I am told on good authority that there was also more substance to Mme Lagarde's statement than I indicated yesterday. So let's say I'm feeling a wee bit more optimistic. But then of course there's the US to bring me down again. Here at home, our newest presidential candidate, Rick Perry, has said that Ben Bernanke's quantitative easing is "almost treasonous." Bismarck is supposed to have said (apocryphally, alas) that "there is a special providence for children, drunkards, and the United States of America." I certainly hope so.

UPDATE: The Times and the markets are more downbeat about the agreement.


Cincinna said...

  From deep in the Lone Star State:
 I wouldn't get too upset about Rick Perry's "Texas Talk". NYers and Texans are very similar: everything is bigger than life, exaggerated, and of course, the best. Style-wise, it plays well in Texas, but on the national scene, not so much. People are responding positively to his message and to hus record. Of course, Perry has lots if skeletons in the closet, and that could hurt him as well. 
 Can Rick Perry become more than a regional candidate? Remains to be seen. 
 Rick Perry is an exceptionally bright, creative, and capable politician, with incredible organizational and fundraising ability and campaigning skills.  People  are constantly underestimating him, which has akways had a way of working in his favor. Consider his massive victory in the Primary for Governor against Kay Bailey. She is a beloved Senator and everyone expected her to win, or lose in an extremely close race. Final results- 53/31, a blowout  a landslide for Perry. 
  Surprising to read the many comments @ le Figaro-almost all positive reactions to the video & text of his speech. All written in excellent French, many by French people living & working in Texas. There is a very high level of interest in the GOP field. 
  Perry has already succeeded in outpolling the top candidate,  Mitt Romney, and is closing in on Michele Bachmann. Two strong candidates, one very likable, the other, not so much. 
  The Primaries are very far away, and IMO the field will shift a lot by then. There are still other candidates getting ready to enter the race. 
  Obama is polling in the 30's, like Sarko, who has a diffucult road ahead. The difference us that Sarko's approval is on the rise, Obama's in free fall. 
 With Obama's approval below 40% in Gallup & other polls, and the economy in such bad shape, with high unemployment & underemployment, many see an opportunity to test the waters.  
  Sarah Palin? Chris Christie? Rudy Giuiliani? The more the merrier!

FrédéricLN said...

"“The longer the sovereign debt market remains stressed, the greater will be the damage to the wider economy,” so the NY Times.

Indeed, the (financial) markets are worried by uncertainty, *as well as* by the risk that the capital prices bubble (debt bubble, real estate bubble, and so on) bursts, making the investors and the wealthy ones, less wealthy (on the paper accounts) than before.

They are understanding, step-by-step, that the remedies that might extend the disease some more time, would not cure the patient. The remedies that might allow them to receive one more year of crazy dividends, would also definitely close our shops.

Even the ultra-sarkozyst head of French big business CEOs, Maurice Levy, just asked for an "exceptional" tax on high incomes. A sign that their milieu clearly understands the risk of being themselves burst ith the bubble, and the need to look like concerned by the general interest / common good.

So, the markets should anticipate that, is the crisis is managed properly, their earnings should be reduced. And the stock markets values should, therefore, too.

The alternative is between "back to reality" at reasonable values, and the crash. No broad way for rises.

BUT the good thing is that, if the financial bubble bursts, the "real economy", as we say in France (main street businesses???) will be strongly encouraged to invest and thing "medium and long-term". I head on TV 3-4 days ago that Apple was the new "valeur refuge" — as gold or governments bonds have been before. I found it very true. Said otherwise, Warren-Buffet-style stock options could be oriented upwards.