Monday 9th November 2015

Updates of news over the weekend, including Greek debt crisis developments, migration causing further issues at the top of the German establishment, further fears thrown about over Brexit & more worries over Eurozone economies

Greek Parliament passes reform bill – The Greek parliament approved reforms on Friday needed to access €2bn of aid from Greece’s Troika of creditors. Despite this, many specifics are yet to be determined before the Monday meeting of Eurozone finance ministers. Despite the passing of the reforms-approval, cross-party support seems to have waned for the tough measures needed to get Greece’s economy out of deep recession; one clause of the bill had to be dropped when Syriza’s coalition partners – the Nationalist Independent Greeks – threatened to vote against the bill, and pro-European Greek parliamentarians accused Syriza of trying to evade measures required to get Greece a third bailout package of up to €86bn. The reforms include pension reforms, reduction of tax-breaks to farmers and improved compliance with EU energy regulation. Less popular reforms include a 23% VAT tax rate on private schools. Even with this package of reforms, there are many more hurdles ahead for the Greek government.

Spanish and French governments expected to miss EU fiscal targets – Decision makers in Brussels sounded alarm on Thursday as both Paris and Madrid were expected to miss their fiscal budgetary targets set by the EU. Spain, though expected to miss its fiscal target, is now expected to miss its target by an even wider margin; a set back for PM Mariano Rajoy’s government in Madrid just a month before the Spanish general elections. Meanwhile in Paris, fiscal targets are also likely to be missed this year, next year and in 2017, the Commission reported. Italy however, the Eurozone’s third largest economy, showed more positive news, with its growth forecasts upgraded for this year and next year. French finance minister Michel Sapin stated France’s commitment to the 3% of GDP deficit limit, and emphasised €15.4bn worth of cuts planned for 2017. Meanwhile Spain is forecast to have a 4.3% budget deficit this year, and 3.6% next year, missing Spain’s target of bringing the deficit below 3% next year. Luis de Guindos brushed this off, stating his confidence that the Spanish government would meet its objectives. This is key to Mr Rajoy’s Partido Popular, as in the December elections he wants to emphasise his party’s sound management of the economy. In French politics, French President François Hollande has pledged only to run for a second term if unemployment significantly decreases by thee end of his 2-year term – something that looks unlikely at best.

Irish-UK relations show potential strain in the outcome of Brexit – An Ireland-based think tank published a report on Thursday outlining the potential impact of Brexit on Ireland – this included among other things a reduction of Anglo-Irish trade by a fifth, a rise in import and energy prices, a fall in foreign direct investment into Ireland, and critically, a complication in relations between the Republic and Northern Ireland. It thus encouraged Britain to remain in the EU. The Irish government is already pressing British audience to vote to remain, and on Monday, Irish Prime Minister Enda Kenny will likely make that case to the CBI. The UK and Ireland are the most entwined nations in the EU, and Dublin fears that a Brexit will have grave political, social and economic consequences. A reinstatement of trade barriers between the two nations could have disastrous effects on Anglo-British trade – the EU’s common external tariff is around 5%. Trade between the UK and Ireland is estimated at €1bn a week; over the course of a year this could be cut by around €10bn. A spokesman for the think tank, ESRI, said that Irish companies find the UK a more attractive export destination, than foreign companies based in Ireland do. The other major worry is the reinstatement of the Anglo-Irish border in Northern Ireland, which has fallen away due to the CTA (Common Travel Area) since the Irish peace process began almost 20 years ago. It is believed to be an integral factor in the peace.

Further splits at the top of the German establishment – German Interior Minister, Thomas de Mazière, has widened the existing split in the German ruling coalition by supporting plans for checks on refugees genuine need for protection and limitations on their ability to reunite with their families, according to the FAZ. Having claimed on Sunday the support of CSU leader Horst Seehofer and CDU Finance Minister Wolfgang Schäuble, this marks a real division from Chancellor Merkel’s own position, her Chancellery Chief of Staff Peter Altmaier and her SPD coalition partners. De Mazière has supported his position by saying that “the number of refugees is so high, that we cannot accept multiple family members on that basis alone”. These statements come despite the Chancellery having said the discussion was over. However more and more CDU & CSU politicians and members have come to the support of de Mazière, supporting his tougher stance on immigration policy. Meanwhile Sigmar Gabriel, SPD leader, has criticised the fact that the Chancellery had no idea of de Mazière’s planned tightening on asylum policy. The SPD has called for Chancellor Merkel to assert her authority over the issue. Gabriel said that “no one can expect the SPD to come up with a decision over supporting or rejecting the plans in 24 hours” and that to the public “it seems in government that the left hand does not know what the right hand is doing”.

Romanian PM resigns over nightclub fire incident – Romania’s PM Victor Ponta resigned on Wednesday after public outcry in the capital over the nightclub fire incident (and the resulting deaths of 32 people) led to demonstrations in the streets of Bucharest, calling for the government’s resignation. During the protests, which started as a march in mourning, around 25,000 people took to the streets to demand the government respond appropriately by stepping down. The government’s resignation will hopefully lead to the return of reason, which is necessary for the solving of Romania’s problems, Ponta announced on Wednesday. The FAZ wrote on Tuesday that the legal responsibility for the fire would have had to be assessed by the courts. Ponta was the first Romanian Prime Minister to have criminal proceedings initiated against him during his tenure. He faces charges of document falsification, money laundering and tax evasion. However these offences supposedly took place before he became PM. Since the prosecution began, it was expected that he would resign before the end of his term, and rumours worsened when he was replaced as leader of his governing Social Democratic party (Partidul Social Democrat), by his former deputy, Liviu Dragnea. This latest tragedy has once more highlighted the corruption in Romanian politics and the authorities for the people, and required swift action by the government.

The EU expects the arrival of 3 million more migrants and refugees by 2017 – France 24 reported on Thursday that the total number of people reaching the EU by the end of next year could reach 3 million. Already this year around 700,000 refugees and migrants have arrived in the EU, looking for a better life. This has already tested the strength of the 28-nation bloc however, with solidarity over the issue weak amongst member-states and border and reception facilities overwhelmed. Despite this, the Commission believes that the migrant influx will be a overall positive for the EU economy. Greek Prime Minister Alexis Tsipras travelled on Thursday to the island of Lesbos – one of the many islands acting as outposts of the EU – and witnessed first hand the arrival of migrants and refugees. However a ferry strike in Greece has led to thousands of people being stranded on those eastern Greek islands – numbers entering neighbouring Macedonia has been reduced from around 4,000 to a mere 850 a day. The Commission reported that the increase in population size would be a negligible 0.4%, and would have no real impact on employment. Pierre Moscovici, the Commission’s top economic official, said “You cannot say that this influx of refugees is likely to have a negative impact, or some kind of a shift of kicking other people out of the labour market”. The impact on national budgets is a different story, and uncertain seeing it is unclear who is arriving in the bloc, where, and where they plan to stay. Sweden will likely feel the strongest impact, according to the Commission, since Sweden is facing the largest inflow in per capita terms. Other transit nations will feel smaller impacts. The Commission suggested it would therefore be more lenient on nations whose deficits rise due to migrant inflows. However the overall message was positive, seeing as the real effects will be felt positively in the long-term, with increased spending and job creation.

Sources: FT, FAZ, France 24, BBC, DPA, AFP, PA, SKU.