EU wants Greece to cut wages

 

The FT reports this morning that Greece will be told this week to cut public sector wages and improve tax collection to avoid destabilising the eurozone. The Commission will recommend on Wednesday that Greece’s should “cut average nominal wages, including in central government, local governments, state agencies and other public institutions”, according to a draft proposal. The Commission said that current measures are insufficient, and wants the government also to crack down on tax evasion, and possibly introduce a tax on luxury goods. Ecofin will make the formal recommendation later this month, and Greece will then have four months to comply, or else face sanctions.

 

The Greek timetable

Kathimerini has a useful timetable of further action expected this month. This week, the government will appoint new staff to oversee tax and insurance reforms. The Ecofin on Feb 14 will decide on Greek’s stability programme, and announce a new independent statistical office. On Feb 22, Greece will probably launch the next 10-year bond. Judging by the newspaper reporting, it is evidently crisis time in Greece – in a way that this was not obvious in December.

 

Munchau on the future of the euro area

In his FT column, Wolfgang Munchau said the question about whether the eurozone can survive is unanswerable, but he offers a number of conditions necessary for survival. The first is a crisis management regime, one that is formally approved by national parliament. The second is a policy to address imbalances that would focus on both the c/a deficit and surplus countries. The third is a renewed effort to construct a meaningful financial supervisory regime, after the present decaffeinated proposals are implemented. He also says that the EU needs to maintain the fine political balance in the ECB, and not allow a German power grab.

 

France promises a new deficit cutting agenda

Les Echos has the story that the French government’s stability programme foresees a return to a 3% deficit from 2013 onwards, after reaching 8.2% this year. The path is 6% in 2011, and 4.6% in 2012, but it is all dependent on the assumption of 2.5% growht, (which is a little optimistic). France pledges its structural deficit by an annual amount of 1%, while public sector spending will be limited to between 0.5% and 1%.

 

Spain’s Austerity Programme

Le Monde has a good summary of Spain’s stability programme, consisting of an estimate that the 2009 deficit was 11.4%, 2pp higher than previously envisaged. One of the measures taken to reduce the deficit is an increase in the pensionable age from 65 to 67 from 2013 onwards. The paper says the speculative attacks on Greece seem to have focused minds in Madrid.

 

 

Euro area to be hit hard by bank lending squeeze

The FT reports that the euro area is likely to be significantly worse affected than the US economy  by the drying-up of bank lending, according to an ECB working paper. The paper looks at the links between bank lending and growth.  The latest data showed that bank lending to euro area business contracting are at an ever faster pace.

 

Bank economists disagree on future interest rates

In its regular poll among bank economists FT Deutschland finds a surprisingly large degree of difference of opinion, with one group predicting interest rates to stay at 1% for the rest of the year, while others predict increases to 2 or even 2.25%. There is also disagreement about the outlook of future liquidity policies, with one group predicting an ending to the unlimited tenders in Q2, and another that the ECB would wait much longer until it returns to normal.

---