Mish's Global Economic Trend Analysis

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Simmering Feud Between France and Germany Erupts Into Verbal Warfare; France Tells Brussels to Shove It Posted: 30 May 2013 11:03 AM PDT The simmering feud between France and Germany erupted into a heated political exchange following Pressure on Hollande to take bold action to revive the French economy, calling for new pension and labour market reforms. "The commission's list of recommendations for Paris, which it expects to be delivered in return for allowing France two extra years to meet its budget deficit targets, covered all the hard issues the socialist government faces: cutting public spending; restoring badly diminished competitiveness, opening up restricted markets, reforming the tax regime and loosening tight labour market regulations." France Tells Brussels to Shove It The exchange got quite interesting when Merkel Allies Bashed Hollande Over Needed Reforms Leading members of Angela Merkel's ruling Christian Democratic Union in Germany have fiercely criticised François Hollande, accusing the French president of "shaking the foundations of the European Union", only hours before the two leaders met in Paris in a bid to repair their troubled relations. Deep German concern about the French government's resistance to economic reform and hostility to EU pressure emerged after Mr Hollande said it was not for the European Commission "to dictate" reforms to Paris. "There is no need for European recommendations; what's needed is obvious. It's not for the commission to dictate what we have to do," Mr Hollande said in response to the commission, whose call was part of its annual assessment of budget plans for all 27 EU members. The French president's "vehement criticism of the European Commission's reform proposals . . . contradicts the spirit and letter of European agreements and treaties", said Andreas Schockenhoff, a deputy chairman and foreign policy spokesman of the CDU in the German parliament. "Someone who talks like that is shaking the foundations of the EU." Norbert Barthle, budget spokesman of the CDU in the Bundestag, said the two-year extension granted to Paris in meeting the 3 per cent deficit target was more than Germany had expected. "France won't be able to bank on such indulgence again," he added, saying that Mr Hollande had misunderstood the nature of European co-operation if he thought he could accept the benefit proposed by the commission but reject the conditions attached. Reflections on the Obvious Somehow it is OK for France to stipulate conditions on Greece, on Ireland, on Cyprus, on Portugal, and on Spain but not be told what to do itself. Yes it is "obvious" what to do. Slash pension benefits Make it easier for companies to fire workers Lower taxes End agricultural subsidies Raise the retirement age Jobless Claims at New Record High The problem is Hollande cannot see the obvious. Meanwhile, inquiring minds note French jobless claims hit new record in April. The number of people out of work in France hit a record high in April, the daily Les Echos said on Thursday, casting more doubt on President Francois Hollande's pledge to reverse a long-running rise in unemployment. The number of registered jobseekers rose by about 40,000 in April from March's previous high, the financial daily reported ahead of the official publication of the figures later on Thursday. It did not quote its sources. The government is holding to its pledge to turn around the trend by year-end despite multiple forecasts to the contrary, hoping that the economy will start to pick up in the second half of 2013 and that subsidised jobs will help keep a lid on unemployment. The European Commission, the OECD and France's own jobless benefit fund all see unemployment continuing to rise through 2014. The EU executive said on Wednesday it expects French unemployment to reach 10.6 percent this year after 10.2 percent last year and keep increasing to 10.9 percent in 2014. "Obviously Obvious" The odds of a major economic recovery in France in 2013 with socialists in control are essentially zero, and subsidizing jobs is the wrong approach in the first place. Both of those statements are "obviously obvious", except to socialist fools and Keynesian clowns. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

EU Requires Spain to Raise Vat Posted: 30 May 2013 02:27 AM PDT The last thing a country in recession should do is raise taxes. Well, Spain is in a depression, not a recession yet the EU requires Spain to raise the VAT and lower pension benefits within a year. One year. That is the time that the government has to undertake major reforms. The European Commission has published today the document with recommendations to the European Council on the National Reform Plan. Includes advice on pensions, taxes, government spending, administrative reform, etc.. There is virtually nothing that Brussels (and the governments of EU members) does not create the need to change, accelerate or deepen. On Wednesday Brussels gave Spain more time to reach a budget deficit of 3%, but warns that to achieve this, it is still necessary to continue with the fiscal effort. Brussels calls for "a systematic review of the tax system by March 2014." Normally, these words have meant raising taxes on consumption (VAT or special) to relax the pressure on other that penalize wealth creation, such as income tax or social contributions. But in the current document there are only requests to raise taxes. The above snip did not do full justice to the idiocy of the latest Brussels demands. The only thing I support is pension reform. Tax hikes will do nothing but cause another plunge in revenues and another rise in unemployment. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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