Bershidsky on Europe: Ireland Exiting Bailout
They now face an ugly trilemma between entering a “grand coalition” under Merkel on unequal terms, staying out and seeing her possibly team up with the Greens, the SPD’s natural partner, or being punished by voters at a rerun election. Socialists or social democrats still head 13 of the 28 EU governments and are in coalition in five others, but they are often driven to pursue unpopular policies that hit the interests of their own electorate. “It is an extremely difficult balance,” Social Democratic Danish Prime Minister Helle Thorning-Schmidt told Reuters in an interview. “We had some reforms that have been seen as quite harsh, but they have also been necessary. “I think we have found the right formula, not to be popular because we have not actually reached that yet, but to do the right thing for the country,” she said. Austria’s Socialists lost votes last month, though they remain the largest party. Italy’s center-left Democratic Party, which now heads a shaky left-right coalition, bled votes to the anti-establishment 5-Star protest movement in a February election and is driven by factional squabbling. In Greece, Ireland and Spain, center-left parties are paying a high electoral price for having supported public pay and pension cuts required by international creditors. FEWER MEMBERS, LESS MONEY In Britain, the opposition Labour party is still distrusted because it presided over a deregulated financial market bonanza that ended in the crash of 2008, wrecking the reputation for economic competence once built by Tony Blair and Gordon Brown. In France, one of the few countries with an absolute center-left parliamentary majority, Socialist President Francois Hollande is deeply unpopular as his government dithers between old-style tax-and-spend policies and half-hearted welfare and labor market reforms, satisfying no one. With the membership and funding of mainstream parties dwindling in many countries, the center-left has rarely kept pace with new vectors of political action via social media and grassroots initiatives. Some of the center-left’s woes may be temporary. When voters tire of center-right governments implementing austerity policies and scandal and attrition in office take their toll, the pendulum may swing back to the mainstream opposition. But the center-left can no longer offer much prospect of a rosier future through state intervention. There are fewer fruits of economic growth to redistribute, globalization continues to exert downward pressure on wages and working conditions in developed countries, and the demographics of ageing societies with shrinking workforces make welfare benefits and pensions ever harder to sustain.
Analysis: Not much left for Europe’s left
Though a more open immigration policy could save lives, it is politically unpopular. Banks’ exposure to sovereign debt grows According to the European Central Bank, government bonds account for 10 percent of banks’ assets in Italy and 9.5 percent in Spain, up from 6.8 percent and 6.3 percent respectively in early 2012. In Portugal, banks have increased sovereign debt holdings, too. Banks mainly hold their own governments’ high-yielding paper. Despite recent developments in the sovereign debt markets, government bonds are still considered risk-free and banks are not required to build up reserves against them, so much of the extra liquidity provided by the ECB ends up invested in these securities. The practice, while logical as a series of day-to-day business decisions, is fraught with danger for the euro area’s banking system: Banks in a number of countries have already required bailouts because they held too much overvalued government debt. Richard Branson accused of leaving U.K. for tax reasons A story in the Sunday Times titled “Goodbye Britain, I am a tax exile,” accused billionaire Sir Richard Branson of not paying any U.K. taxes on non-British business operations since moving to his private Caribbean island, Necker, despite Branson’s avowed patriotism and disapproval of tax emigration. Branson responded in his blog that he lived on Necker simply because he enjoyed the Caribbean, not for tax reasons. Besides, he said, he mainly works on not-for-profit ventures now and gives all the proceeds from his speech tours to charity. Tax benefits, then, are just a pleasant side effect, especially since Branson has not given up completely on his business ventures: recently, he appeared in Paris dressed as Che Guevara for a Virgin Mobile product launch. Greek bureaucrat who shot a mayor still on payroll Three years ago, Savvas Saltouridis, a treasury employee in Pangaio, Greece, shot the mayor with an Uzi submachine gun to cover up an embezzlement scheme and was sentenced to life in prison. Saltouridis still remains on the municipal payroll, though, and so does his accomplice Ioakeim Monos, sentenced to 16 years. In Greece, government employees are extremely hard to fire, even if they have been accused of crimes or disciplinary violations.
Yet five years after the United States demanded its big banks take on new capital to reassure investors, Europe is still struggling to impose order on its financial system, having given emergency aid to five countries. Finance ministers from the 17-nation currency area meeting in Luxembourg will tackle the issue of plugging holes expected to be revealed by the European Central Bank’s health checks next year. The president of the European Central Bank underscored the need for action in Washington at the meetings of the International Monetary Fund and the World Bank. “The effectiveness of this exercise will depend on the availability of necessary arrangements for recapitalizing banks … including through the provision of a public backstop,” Mario Draghi said on Friday. “These arrangements must be in place before we conclude our assessment,” he said. But the ministers’ talks face an additional hindrance because Germany’s finance minister, Wolfgang Schaeuble, is not expected to attend the two-day Luxembourg meeting. Germany, Europe’s biggest economy, in talks to form a new government. During the region’s debt turmoil, the European Union conducted two bank stress tests, considered flops for blunders such as giving a clean bill of health to Irish banks months before they pushed the country to the brink of bankruptcy. The ECB’s new checks are seen as the last chance to come clean for the euro zone as the bloc tries to set up a single banking framework, known as banking union. The debate opens amid ebbing political enthusiasm for banking union – originally planned as a three-stage process involving ECB bank supervision, alongside an agency to shut failing banks and a system of deposit guarantees. It would be the boldest step in European integration since the crisis. “We have to find a solution now,” said Michel Barnier, the EU Commissioner in charge of financial regulation, urging faster progress in the slow talks.