Monday 2nd November 2015

Updates of news over the weekend, including development of British negotiations, national politics, news from the Greek debt crisis and the migration crisis. 

• Osborne’s ‘Emergency-brake’ Clause – the UK announced on Friday one of it’s ideas to protect the periphery economies from further Eurozone integration – one of British Prime Minister’s David Cameron’s stated objectives in the renegotiations of Britain’s membership of the EU. George Osborne, Chancellor of the Exchequer, is a major backer of the ’emergency brake’ clause; a protocol to ensure countries get to opt-out of euro proceedings. He sees this and the protection of the City of London (financial heart of the UK) as the highest priorities of the renegotiation. The clause would work by allowing non-euro countries the right to postpone a vote on issues they are going to be overruled on, in order to buy time for further negotiation and protect the integrity of the single market. Osborne has made it clear this is not a veto, or a carved out area where the City cannot be touched – a worry in Berlin, Paris and Brussels. Other demands include recognition of the EU as a multi-currency union, the opening up of Eurozone policy-making, a guarantee that non-Eurozone countries will not have to take part in Eurozone bailouts, and establishing the principle that non-Eurozone countries do not have to take part in integration initiatives designed to perfect the running of the Eurozone – such as a banking union. Despite these demands potentially winning support separately, together they may seem as if Britain is getting special treatment, and as such may fail to gain support.
• Spanish Elections loom every closer as growth slows – Despite a 9th consecutive quarter of positive growth in the Spanish economy, GDP grew at a slower rate than previous quarters, suggesting a peak in the recovery. Over the past year, the Spanish economy has grown by 3.4%, seen as boost for Spanish Prime Minister Mariano Rajoy, and the IMF predicts 3.1% growth overall in 2015. The growth in jobs has increased household spending, and growth has also been driven by increased tourism to Spain. Unemployment fell from 23.7% to 21.2% in the third quarter. The Spanish recovery is expected to play a large role in the coming elections in December, and Rajoy has claimed his party – the Partido Popular – is responsible for Spain’s turnaround. His campaign will focus on this recovery, and only a quarter of Spaniards believe the Spanish economy is in a bad way, according to national CIS polling, down from 45% two years ago. Some believe however that growth will be seen as too uneven to truly clinch it for Rajoy, and they have so far failed to convince the sceptics that the recovery will be an inclusive one in the coming years. The brewing conflict between the regional parliament in Catalonia, where the ruling party want to initiate a succession from the Spanish state, may also cause problems for the Spanish Prime Minister.
• Split at the top of the German establishment: CDU & CSU come to blows over refugees – The CSU – sister to the governing party, Merkel’s CDU, has taken a hard line on the Chancellor’s immigration policy this past week, despite the political marriage being the oldest in German politics. Horst Seehofer – Bavarian Premier – had done little to quell rumours that the CSU will pull ministers from the Chancellor’s cabinet, having said “anything is possible”. However on Saturday, Merkel & Seehofer met. On Sunday the FAZ published an article stating that the two had settled their dispute for the moment, issuing a joint statement demanding transit zones on the German border and a uniform refugee card. Bavaria has been the main area where most of Germany’s migrants have been entering the country; 10,000 have been arriving daily, and the local authorities have struggled to cope with the wave of human beings. Despite fears of a political dispute, Seehofer and Merkel agreed on a stricter and more controlled stance on migration into Germany. The leaders agreed to setting up a joint police office for both Austrian and German police on the border to better manage incoming refugees, as well as joint patrols along the “Green Border”, facilitating a more ordered management of the border. Further, they agreed on a uniform ID for refugees to better manage and organise them once they arrive in Germany. These tighter controls on the border have been made without their coalition partner, Gabriel Sigmar, leader of the SPD.
• French help finally comes to migrant shanty-town in Calais – Numbers in the Calais migrant camp have sprawled to more than 6,000 in the past 3 months, and as autumn turns to winter, there are fears that conditions in the camp could become markedly worse. However this month the French government promised to improve conditions for the stranded migrants and refugees, announcing plans to build a centre to house around 1,500 people – the first since Sangatte Refugee Camp was closed in 2003. They also said they would double the number of heated tents to 400 for women and children. However this doesn’t come nearly close enough as winter approaches. Calais’ Deputy Mayor, Emmanuel Agius, has said that the developments were “positive, but it’s never enough”. The army has been called in the manage the situation at Calais, which is seen as a necessary move by many. As countries across the EU have agreed to take in migrants, Britain’s contribution has been 20,000 over the next 5 years – and none of those currently in the EU. British politicians have stated that they hope this is a starting measure to be increased. France announced in September that it would take 24,000 migrants from Germany in order to ease the burden and take part in the Commission’s plan to distribute 160,000 migrants across the continent. So far around 20 people have died trying to make it to Britain.
• Italian Prime Minister loses control of Roman politics – Having announced his resignation 3 weeks ago, drawing a line under the corruption and mismanagement in Roman government, Ignazio Marino announced he would in fact not be leaving on Thursday. In the wake of an expenses scandal 3 weeks ago, the Roman Mayor announced his resignation, only now deciding to reverse that decision, throwing the capital’s politics into chaos and irritating Italian Prime Minister Matteo Renzi. Renzi, leader of the ruling Partito Democratico, had encouraged the Mayor to leave, seeing him as a political liability locally and nationally, and the party thus called on its members in the city council to resign en masse in order to persuade Marino to stay away. Marino, having promised 2 years ago when he was elected to enact sweeping change, did not explain his decision. The Mayor suffered from allegations of being involved in the corruption, being accused to spending public money on dinners, and was widely seen – including by Pope Francis – as an incompetent administrator. Marino could well be trying to regain the confidence of his party in this move, or he may be trying to waste time, and make a more interesting departure, however Prime Minister Renzi’s concern is that the city may swing towards the 5 Star Movement (Movimento 5 Stelle), who are members of the eurosceptic EFDD in the European Parliament and have a chance to take control of Italy’s largest city in the local elections next year, and who are already polling 30% amongst Roman citizens.
• Greek Banks require capital injection of over €14bn, says ECB – Recent analysis led to the ECB announcing on Saturday that Greek Banks will need more than €14bn to survive, according to an exclusive report from the FT. According to the ECB’s report, the top 4 banks increase are short of €14.4bn of capital, and that is the best case scenario assuming that the banks are able to withstand the likely worsening of economic conditions. This worsening has been predicted to be a 6% shrinkage of the Greek economy by 2017. An investment banker advising Greek banks said that it would be difficult for Greek banks to raise that kind of capital by the end of the year, suggesting increased bailout funding from the ECB. Shares in Greek banks have fallen by about 95% of their values in the past 5 years, and are now worth collectively below €5bn on the stock markets. The Greek Deputy Prime Minister, Yiannis Dragasakis, said that the Greek government was willing to accept some restructuring of loans, but refused to allow the sale of loans, saying the government “rejects the notion”.
• China aids Eurozone recovery through sale of German bonds – The People’s Bank of China it was revealed on Sunday has supported the ECB’s €1.1tn Quantitative Easing (QE) programme, through selling German Government debt to the ECB. The ECB has been buying Eurozone government debt since March in its QE plan, which includes purchasing €60bn of mainly government debt per month. Concerns the German Bundesbank would find it difficult to find stray German debt have been helped through the PBoC’s sale of German bonds. Buying debt encourages banks to lend to firms and thus kick-start an economy. However all QE programmes have been likened to printing money, simply in a complicated way. Despite this, increasing liquidity in the capital markets has boosted demand in Britain and the US when they executed their QE programmes in the aftermath of the financial crisis in 2008.

FT, BBC, France 24, FAZ.