Monday, July 9, 2012

France Borrows at Negative Rate

Good news for France, which just borrowed €6 billion in short-term funds at an interest rate of -0.005 to -0.006 %. Not such good news for Europe, since the negative short rates now enjoyed by France, Germany, the Netherlands and a few other countries reflects investors' lack of confidence in Italy and Spain, which desperately need their money to roll over their existing sovereign debt and buy new issues. What's more, the ECB's decision to stop paying interest on deposits has money-market funds so nervous that some are limiting withdrawals. Once again, a European summit has failed to calm the markets for more than a few hours, and the flight to (relative) safety has become a massive transhumance of the investing herds and flocks.

Love Is Never Having to Say You're Sorry

Should Hollande finally apologize to Algeria for France's treatment of the country. Jonathan Laurence considers all the angles. 

With a soupçon of diplomatic courage, Hollande and his team could help turn the remaining two years of the Algerian president's term into something more than the twilight of a lame duck. Bouteflika himself announced in May that the country's political class resembled an "overripe orchard" -- i.e.,time to make room for the next generation to blossom -- and that he would not run again for president. Saying sorry now would provide closure to the Algerian leadership, many of whom personally fought in the war of independence, and help transition the FLN to a post-revolutionary era.
Even if France didn't believe this Algerian regime deserves the honor of a unilateral apology, withholding one strengthens the hand of nationalists who portray a hostile and conspiratorial Western bloc to justify their grip on power. In May, the prime minister drew connections between "the colonization of Iraq, the destruction of Libya, the partition of Sudan and the weakening of Egypt" as all being "the work of Zionism and NATO."
Hollande needs to find a way to issue French regret in a show of respect for the historical parties in power, while addressing the Algerian people's yearning for internal reform as a counterpoint to French contrition. This bilateral relationship is critical in matters of security cooperation -- from counterterrorism to the chaos in Mali -- and it is worth billions in trade and natural gas contracts. Only once France and Algeria look beyond the colonial era can their vital collaboration work on behalf of the shifting regional dynamics -- and not against them.

Financial Management of Sciences Po Questioned

By the Cour des Comptes.

Where Are They Now?

A reader complained to me recently that there hasn't been enough gossip and tittle-tattle on this site since I swore off DSK-blogging. So here's some, and it may also slake the thirst of those who lament the fact that Nicolas Sarkozy, erstwhile czar of France, has disappeared from the national consciousness as swiftly and completely as George W. Bush disappeared from the American. It's an interesting aspect of our lately vituperative and polarized democracies that all-in-all mediocre figures are inflated to rather absurd proportions by the blockages that their terms in office create, only to diminish into mere mediocrity once their terms have ended. In any case, here is the Sarkozy scuttlebutt, straight from that paragon of honest reportage, The Daily Mail:
The book has also made claims about Bruni's present husband, former French Prime Minister Nicolas Sarkozy who refused to buy a luxury Paris apartment with Bruni - because it was next door to her old flame Mick Jagger.

The 'jealous' former President backed out of the purchase after the couple went house-hunting in the French capital three years ago.
Sarkozy is said to have initially fallen in love with the lavish ten million pounds penthouse once owned by fashion designer Yves Saint Laurent.
But he was then informed by his aides that the Rolling Stones rocker that Bruni dated for eight years owned another flat in the same block on Paris' trendy Left Bank.
Anderson writes: 'The president fell under the charm of this apartment in Paris.But as they were preparing to buy it, his security detail informed him that Mick Jagger owned a flat in the same building. Sarkozy then backed out of the deal.
Be sure to check out the article for the views of Donald Trump, Eric Clapton, and Mick Jagger on the former First Lady.

The CGT on the Eve of the Social Conference

The "social conference" promised by François Hollande begins today. Guy Groux looks at one of the major participants, the CGT, one of France's two leading trade unions, now in the throes of a crisis of succession. But even more important than that, Groux argues, is the difficulty the CGT has had in developing a response to the economic crisis:

La crise économique, financière et budgétaire bouleverse une CGT dont la stratégie revendicative demeure souvent très motivée par la défense résolue des acquis. Or la crise économique et budgétaire rend plus précaires et limitées, l’existence de pratiques redistributives ou celle de nouveaux financements publics ; elle renforce des formes de négociations collectives fondées sur des concessions mutuelles comme celles initiées dans l’Europe du Nord, par exemple. Or, si la CGT a récemment admis le principe de la négociation collective pour aboutir à de réels résultats à l’égard des revendications des salariés, est-on sûr qu’elle est aujourd’hui souvent prête à accepter des compromis impliquant de réelles concessions syndicales ? On peut en douter au regard des postures de dénonciation qu’elle adopte sur les accords liant l’emploi et la compétitivité des entreprises, la réforme des retraites, la récente augmentation du SMIC, la baisse envisagée des effectifs de fonctionnaires, les projets gouvernementaux sur la régularisation des travailleurs sans papiers, l’existence d’un pacte budgétaire européen, pour ne citer que ces exemples majeurs. Au fond, la culture historique et revendicative de la CGT se défie profondément des tendances à l’œuvre dans le capitalisme d’aujourd’hui tandis que la crise économique actuelle met en cause, et plus que jamais, l’essentiel des stratégies revendicatives de la centrale fondées sur un fort attachement aux acquis collectifs, statutaires ou juridiques des salariés. D’où un hiatus profond entre l’organisation de Bernard Thibault et le contexte économique où elle agit.

Economists' Petition

From Mark Thoma comes word of a sensible petition on the euro crisis by German, Austrian, and Swiss economists:

In support of a European banking union, done properly: A manifesto by economists in Germany, Austria and Switzerland, by Michael Burda, Hans Peter Grüner, Martin Hellwig, Mathias Hoffmann, Gerhard Illing, Hans‐Helmut Kotz, Tom Krebs, Jan Pieter Krahnen, Gernot Müller , Isabel Schnabel, Andreas Schabert, Moritz Schularick, Dennis J Snower, Uwe Sunde , Beatrice Weder di Mauro, 9 Jul 2012: The EU Summit decision on banking union is being questioned by some economists in Germany. This column argues that a banking union is a critical step in ending the EZ crisis and building a more stable EZ financial architecture. It is a translation by Michael Burda of the German-language manifesto drafted by the First Signatories listed below and signed by over 100 economists.
The financial crisis has exposed a fatal flaw in the design of European monetary union which can be removed only by decisive policy action. Policymakers in Europe now have an opportunity to change the game. A central aspect of this problem is the conflation between debt of the private sector and that of European national governments.
In the course of the crisis, fiscal budgets are being tapped to refinance systemically relevant financial institutions. At the same time, financial institutions continue to play a central role in financing national governments, lending money to them and holding their debt. An unavoidable consequence is that bank failures have led to sovereign debt crises and sovereign debt crises have led to banking crises, leading to growing mistrust of both national banking systems and government finance. The situation is aggravated by the fact that international investors, driven by fear of total collapse, have withdrawn funding to struggling countries, both for governments and for banks.
This has in turn led to a balkanisation of national financial markets and threatens not only the European monetary union but the European integration project as a whole. Only by breaking the link between the refinancing of banks and the solvency of national governments will it be possible to stabilise the supply of credit in crisis countries. If the refinancing of banks – and the insurance of bank deposits – can be made independent of the financial state of the respective domiciling country, national sovereign crises can be decoupled from the private sector financing. In this way, contractionary demand shocks induced by corrective national fiscal policy can be softened by a broadening of the supply of credit. A European backbone to the refinancing of banks will dampen the impact of the coming fiscal consolidation. An indispensable requirement for this is a set of uniform regulatory banking standards which are implemented by a single European authority.
Deeper financial integration and a de-coupling of government and banking finance are essential elements for a more stable financial architecture in Europe. These steps are important for breaking the vicious circle between sovereign debt and banking crises. A monetary union with free capital flows cannot work reasonably without a unified banking framework. For this reason, the decisions of the last EU summit represent a move in the right direction. Now it is crucial to implement these decisions, in order to create a durable solution with uniform European structures. In no way does this endorse a collectivisation of bank liabilities. Rather it is essential to cede key powers of regulatory intervention in member countries to a banking supervision authority at the European level. This European banking supervision authority should have the ability to authorise rapid recapitalisation of troubled banks. In extreme cases, this may mean the expropriation of previous equity holders and the partial conversion of bank debt into equity. A unified resolution procedure must be capable of recapitalising, unwinding, or liquidating insolvent financial institutions in an impartial manner.
At the same time, creditors must be made liable for risky investments, so that the resolution of troubled financial institutions can be executed without taxpayer money. In order to secure the financial stability of a banking union, a common restructuring fund that can intervene and impose binding conditionality on reorganisation plans is needed. The ESM can play this role. A stronger Europe-wide deposit insurance system can also contribute to the long run stability of the banking system.
Only a European banking supervisory authority with sweeping intervention powers can break the linkage between the financing of governments and of banks. It would represent an important step towards solving the problems presently faced by the Eurozone. In contrast, it is much more difficult to intervene directly in the fiscal affairs of Eurozone states – this would require a process with democratic legitimacy, which remains a very remote option at the present. A banking union is thus only part of a complete solution. The mechanisms and budgetary controls that would be implemented in the framework of a European Fiscal Pact are also needed to restore public budgets to sustainable paths.
A banking union can help decisively to secure the financial integrity and stability of the European monetary union. For this reason, the signatories of this manifesto support the creation of a durable, unified framework at the European level which can serve to break the link between the funding of private banks and the public purse.
Editor’s note: This is the English translation of the manifesto that has more than 100 signatories; The original, German-language version can be found here.


Angela Merkel and François Hollande managed to project a little actual or simulated warmth yesterday as they celebrated 50 years of Franco-German entente. It's nice to see them thinking about something other than the euro for a change. The economic imbroglio, which has pushed all other aspects of the European project into the shadows for the past two years, was not allowed to obscure the importance of a partnership built on the ruins of three disastrous wars. The importance, and even the sacred memory: the two leaders joined in a service at the cathedral of Reims, and thus far I haven't heard any snippy remarks about violations of republican laïcité. For after all the cathedral itself, though a potent symbol of the French monarchy, was also a victim of one of those wars and therefore quite a suitable lieu de mémoire for a republican Catholic to meet with a German Protestant.

Now back to the euro. Because peace is not enough to ensure stability, as both leaders know well.