Germans pay a lot of taxes. The value added tax was raised to 19%. The state grabs 42% of any income above €52,882 and 45% above €250,731. There’s the church tax, solidarity tax, gasoline tax…. Not much is left over when a German is done paying taxes. So, during the campaign, Chancellor Merkel and her party pledged categorically not to raise taxes. And voters bought it. But suddenly, a hullaballoo: in record-breaking time, Merkel’s and her party’s categorical promises that resulted in a phenomenal victory in the September 22 election already turned out to be lies.
With five weeks left to go until the German elections on September 22nd, current Chancellor Angela Merkelstruck out at opposition party Social Democrats (SDP) over the weekend saying that they couldn’t be trusted not to form agreements with the Left Party.
Merkel hotly denied that she would form a coalition with SDP and said the party couldn’t be trust to keep its promises, citing two prior moments when SDP leaders back-stepped and made agreements with the Left Party (based on former East German Communist party).
In an interview with German broadcaster ZDF, Merkel insisted that she wanted to continue with her current coalition made up of her own Christian Democratic Union, sister party Christian Social Union and partner Free Democratic Party “because we’ve done a good job”. In the most recent Emnid poll taken from August 8th to 14th and published in Bild am Sonntag, Merkel’s coalition took 46% of the poll. Read More
Following his decision to leave rates unchanged, the investing public can only buy-first and hold their breath for some hint at more fragmentation-beating, collateral-easing, negative-rate hinting ‘promises’ from the most important man in the world for today.
Even as Uttar Pradesh government made hefty provisions in the annual Budget to fulfil promises made by the ruling Samajwadi party in its election manifesto, the state’s debt burden is also estimated to cross Rs 2.3 lakh crore in the financial year 2013-14.
In its annual financial detail and analysis of financial state, the state government has projected a debt burden of Rs 2,39,878.35 crore in 2013-2014, which would be 29.5 per cent of the gross state domestic product (GSDP).
If divided by the total population of the state, which is around 20 crore, the per capita debt burden works out to Rs 11,994 per individual. Read More
German economy minister Philipp Roesler has expressed disappointment at Greece’s efforts to implement the reforms tied to its international aid program, according to a preview of an interview to be published Monday.
“I am disenchanted,” Mr. Roesler, who is also Germany’s vice chancellor, told German news magazine Focus. “The promises from Athens have largely remained unfulfilled.”
The minister complained that while Germany’s government and businesses have offered Greece a “series of support measures…the Greek side has hardly used any of our offers.”
Mr. Roesler also underlined comments by Eurogroup chief Jean-Claude Juncker that a Greek exit from the euro zone “isn’t our aim, but would be manageable,” the newspaper said.
Last month, Mr. Roesler caused a stir by warning he had “great skepticism” about whether Greece would meet its commitments under the memorandum of understanding for its 173 billion euro ($210 billion) international aid program, and said discussing the possibility of a Greek exit was no longer taboo.
Separately, the minister told Handelsblatt that Germany’s economic growth is likely to slow.
While the economy “remains robust”, Mr. Roesler said he expects a “cooling of growth” as leading indicators have shown that businesses are “acting cautiously.”
The euro zone’s debt crisis may have reached a turning point if agreements from last week’s EU summit are implemented correctly and with some help from the European Central Bank, rating agency Standard & Poor’s said.
Euro zone leaders agreed a string of measures designed to finally get on top of the bloc’s debt crisis last week, including using joint funds to support Spain’s banks, removing a clause that which gave the bloc’s bailout fund priority over other bond holders and giving the ECB new supervision powers.
“The tide may be turning for euro zone sovereigns following the June 29 summit,” S&P said in a report. “These agreements could help to stabilise the eurozone and staunch any further weakening of sovereign creditworthiness.” Read More
As expected, Mr Hollande lead in the 1st round of elections. He gained 28.6% of the votes, with Mr Sarkozy on 27.1. The surprise was Ms Le Pen’s 18.1%, a record for her party and above forecasts. The 2nd round is due on 6th May and current polls suggest that Mr Hollande will win by 56% to Sarkozys 44%. Given Mr Hollande’s rhetoric and the favours he owes, for example, to the French Unions, it’s going to be difficult for him to back off completely from his promises. The market reaction to a number of Mr Hollande’s proposals will become particularly important, but it’s going to get even rockier in due course;
It looks as if Holland will have to call another election, probably in September (though a number of parties are suggesting that earlier elections are possible) as Mr Wilder, leader of the ultra right wing Freedom Party withdrew support for the coalition who were trying to agree to further spending cuts to bring the Dutch budget back down to 3.0% in 2013. However, forget all the nonsense about Holland exiting the Euro, as advocated by the Freedom Party. They wont. Indeed, current forecasts suggest that the Freedom Party is likely to lose support next time around and the current PM (Mark Rutte) reelected, having marginally increased his party’s seats in Parliament, resulting in them being the largest party, once again. As to the proposed budget cuts – the Dutch are unlikely to be able to meet their 3.0% budget deficit target for 2013 targets, especially as any election will result in a coalition with more left leaning parties (who are not all that enamoured with further spending cuts) and Holland is in recession at present, with unemployment ever rising and personal debt at record levels. However, the current finance minister Mr De Jager stated that “The Netherlands, in every circumstance, will maintain disciplined budgetary policy”. With Holland unable to take major decisions until after the next elections, a crisis in the EZ (very likely) is going to be even more problematical. In addition, there must be doubt as to whether Holland will be able to retain its AAA rating – personally, I believe it’s unlikely. Having said all that, Holland will get it’s act together in time – it is certainly no Greece, Portugal or Spain; Read More
Spain’s honeymoon with its new government is over.
Following months of hope that Spain will somehow tiptoe around the sensitive topic of austerity, despite promises of such and slow leaking of bond yields wider, yesterday the government promised to generate savings of €27 billion of about $36 billion (Spanish GDP is less than one tenth of America’s, so an equivalent US cut would be about $400 billion), as demanded by Europe, but which will leave a harsh aftertaste with the general population. As Reuters notes: “The central government could meet its target but there’s still a risk from the regions and the social security budget,” economist at Madrid-based think tank Funcas Angel Laborda said. “I get the impression the central government has created a budget it can meet but has left everyone else in a rather difficult situation.” Well, technically no. After all what Spain is doing is following the Greek playbook page by page, as expected back in October 2011 – first Spain sabotages its economy, then it demands more money, then it promises austerity, then it never keeps its promises but in the meantime, Germans are on the hook for hundreds of billions in more bailout cash. At the end of the day (for the euro), it will be they who are in the worst position, but since they get to retain their export partners (whose current account deficits the Bundesbank funds), all is well. That is, at least, until this latest unsustainable bubble pops.
Furthermore, as noted yesterday, it will be Spain’s regions that are about to become front and center for the bond vigilantes:
The regional authorities, which account for around half of the total spending budget and were responsible for a large part of the fiscal deviation last year, must slash their own deficits in half this year.
But, with few details on Friday of how the central government cuts will affect the regions – a full breakdown will be published on Tuesday – it is still unclear if Madrid’s austerity comes at the cost of the 17 autonomous communities. Read More
Mulayam Singh Yadav, whose party SP rescued the UPA government in Parliament during crucial votes this week, today spoke of the possibility of early Lok Sabha polls.
“There is no guarantee when the Lok Sabha elections may take place” he said at a party function here asking his son and Uttar Pradesh Chief Minister Akhilesh Yadav to implement the party manifesto and bring “visible changes” within six months.
Samajwadi Party, which Mulayam Singh heads, won a spectacular majority in the Assembly elections earlier this month.
The party, which provides outside support to the UPA coalition at the Centre, helped the government by voting with it during voting on Opposition amendments to the President’s Address in the Lok Sabha and in Rajya Sabha. Read More
With nothing but mute silence out of Germany in the aftermath of last night’s “historic” Greek vote, the EURUSD is getting nervous trading down to just above 1.3200 minutes ago, well below the level reached last night following the passage in the Greek parliament of the vote with 199 out of 300 votes. As such, everyone is starved for some clues of what Merkel and Germany thinks at this point – will they simply leave Greece to flounder by demanding even more “reality” and implementation of measures from the first bailout – something Greece obviously can not do? Or will Germany relent for at least one more payment (of €210 billion). We don’t know, at least not yet. But the following Spiegel interview with German Foreign Minister Guido Westerwelle may provide some insight. The key part: “Q. The second aid package will presumably be more expensive than anticipated, partly because the Greeks haven’t kept their promises. How much longer will the German public put up with this?…Westerwelle: It’s undoubtedly a moment of truth for Greece. If a sustainable and correct course is set in Athens now, Greece can expect our support — but only then. There will be no more advance payments. Only actions count now.” Like we said, hardly the ringing endorsement people expect. Then there’s this: ” I am more than dissatisfied with the political impasse in Greece in recent weeks. I’m also addressing the German opposition when I say this: You can’t solve a debt crisis by constantly incurring new debts.” And yet that is precisely what Bailout 2 is doing as we have patiently explained over and over.
Yet Guido said something else which may be of interest to everyone else in Europe: “I don’t want a German Europe. Q. What do you want? A. A European Germany.” Aaaand, enter lost in translation interpretations.
What, however, certainly can not be misinterpreted is the following: “There is a tendency toward re-nationalization throughout Europe, which I oppose. Germany occasionally shows a tendency to boast, which concerns me. I don’t think it’s smart for us to shift the differences among German parties to the French election campaign.” Did Guido just slap down Angela Merkel for her decision to be Sarkozy’s running mate in the French presidential elections in April? Because, as we asked before, what happens to Die Frau’s credibility if the current polls leader – Hollande – who has promised to undo all European contracts and agreements, ends up winning?
Key selection from Spiegel interview (in English, so Google Translate can not be blamed for translation losses)
Westerwelle: You know, I wonder why my predecessor Joschka Fischer, who doesn’t exactly have a small ego, agreed to that curtailment of his authority at the time. I’ll ask him about it the next time I see him. Read More