Economic Interests

If you owe the bank £100, that's your problem. If you owe the bank £100 million, that's the banks problem.

Archive for the tag “France”

Is the EU being dragged apart?

After a sense of calm had finally emerged in the eurozone since last summer, panic has erupted once again. Cyprus’s long awaited bailout was carried out with little thought of the consequences, both short term and long. The initial decision to place a one off tax on all depositors in Cypriot banks, both over and under €100,000, was always going to lead to public uproar and a bank run. The second bailout decision was slightly better, only affecting those with over €100,000 in their banks accounts and winding down one of Cyprus’s biggest banks, the Laiki bank, while switching accounts to the Bank of Cyprus. But the damage had already been done; the government now has to enforce capital controls to keep money in the country, while the public won’t forget how close it came to them losing chunks of their bank balance. It has almost certainly ruined one of Cyprus’s biggest sources of income as an offshore financial haven, with the conditions of the bailout most likely requiring reforms of the country’s economy. Then there is the tourism sector (another big market) which will be hit, as foreigners won’t want to risk getting caught in the middle of another financial crisis. Worst of all, this will not be the end of it; the economy is set to retract by 5% in the more positive estimates and another bailout will need to be negotiated.

Cyprus’s  Debt-to-GDP ratio could overtake Greece in the future by some estimates. Found at

Yet this is not the biggest worry for the European Union. Cyprus accounts for a tiny 0.2% of Eurozone GDP, its bailout at €10 billion is minuscule compared to the €246 billion needed to bailout Greece. If the economy crashed and defaulted on its debt, it would hardly tear the European Union apart. The bigger repercussions of this debacle are that the EU looks as divided as ever. The capital controls being placed on the Cypriot economy are not supposed to be possible in the EU – they are the first case of it since its creation. They are supposed to be short term, but then the same was said about Iceland 4 years ago.

 Cyprus’s Bailout is tiny compared to the other EU Bailouts. Found at

Even more worrying is that the much heralded banking union that the EU nations announced last year now seems less likely. The European Central Bank was set to bail out troubled banks directly, thereby cutting off the self-defeating link between weak banks and weak governments. But to some member countries that seemed too much like gifting money without conditions that have so far been ever present within bailouts e.g. reforms to the economy. Cyprus was the big test, to see if the ECB would directly fund the failing banks of the island, but disappointingly this was not to be the case. A banking union would have showed a more unified EU, with member countries prepared to provide assistance to troubled states. It could have possibly paved the way for joint government bonds, stopping the inconsistent borrowing costs that have spread throughout the eurozone. In reality the EU members have been diverging for awhile, amplifying the problems of the union.

Looking across the region, this isn’t the only sign of a gap emerging between EU states. Tensions are rising within the union, with the periphery nations growing resentful over the austerity policies being enforced onto their economies, while the central nations are becoming frustrated at having to rescue the weaker nations from their own mistakes. This is showing in the form of protest votes. Greece had a near miss in their latest election, where a party campaigning on leaving the euro ran the victors close. Italy went a step further, with the 5 Star Movement (a protest party lead by an ex-comedian) caused a political gridlock in the March elections which has yet to be resolved. This was helped by the far right being led by Silvio Berlusconi, a controversial billionaire who campaigned on ending the EU austerity in Italy. In Germany, Angela Merkel will soon face her own elections, where her popularity will be tested by opponents who will campaign against the continued funding of the EU by the German tax payers.

Beppe Grillo has captured votes for his 5 star movement party by campaigning for a referendum on EU membership. 

Then there is France, a country somehow caught in the middle. The nation is central to the EU, its partnership with Germany gives the union its clout and its leadership with Angela Merkel helped lead Europe through the financial crisis in 2008/2009. But Francois Hollande won his presidency by promising policies like the 75% tax on millionaires and the lowering of the retirement age, while he has backed the periphery economies in talks against austerity (to the annoyance of Angela Merkel). The French economy is in desperate need of reform and cuts however. The budget deficit is set to go over the set target of 3% of GDP, public spending is the highest in the EU at 57% of GDP and while Germany’s economy has become more competitive over the last decade, France’s has been left unproductive in the global economy. President Hollande is now set to implement the austerity measures he never mentioned during his campaign and has since seen his popularity plunge to the lowest since the firth republic began.

Showing the high public expenditure of France compared with similar sized countries. 

The contradictory aims of the different members are leaving the big decisions unmade. The lessons of the past bailouts are not being learnt; there is still no definite lender of the last resort, no banking union, no talks of the possibility of sharing out some of the debt across the union to help member states recover. Austerity is needed, but so are some pro-growth policies and just demanding more and more cuts from the bailed out countries is not going to get the right results. The EU budget could be restructured to help improve spending on much needed areas like infrastructure and reduce spending on subsidies like French Farming and the rebates that go to countries like Britain.

Britain is another obstacle awaiting the EU in the future. The government is set to hold a referendum after 2015 (if it wins) on its EU membership and if the union is still facing the problems it is today, it is not inconceivable that the nation could leave the club. The public are already frustrated at the European laws they have to abide by and the levels of immigration that arrive to their shores. Losing Britain would be a deep blow to the union, both as the third largest economy and as a good balance to Germany’s motives. But the growing popularity of the UKIP party, again campaigning on an exit from the EU, shows the split that is appearing between member states.

Together the EU is the biggest economic zone in the world, one which can rival the economies of the USA and China. Divided it is a bunch of quarrelling nations that can’t agree on the best policies to move forward. Right now the latter is a more poignant picture of the EU, with GDP retracting by 0.3% in 2012  and unemployment reaching a new high of 12%. Europe needs to integrate further both politically and economically if it’s reverse this slump. A move towards a banking union would be a good start, while sharing the debt burden of its weakest members would go a long way to restoring stability to an economic zone that has struggled with such a concept.

A divided Europe is a weaker Europe, let’s just hope it doesn’t take its members too long to remember this.

A Happy New Year?

As we head towards Christmas and the New Year, now is a good time to evaluate which economies are heading for troubling times in 2013. This isn’t so hard, with the world economy not exactly working in top gear, and the likes of even China appearing to slow down. But I have picked three countries that I believe are facing an especially tough and defining 2013.

First up is a struggling EU economy that could define how the rest of Europe solves the Euro crisis. No, it’s not Greece. It’s not even Spain or Italy. The country I believe is in considerable danger is France. One of the leading economies in the euro, its fate has large repercussions on the rest of the European Union. France has a host of problems; High unemployment at over 10% of the population, miserable GDP growth of just 0.1% this year and just 0.8% forecasted in 2013 (which is in itself seen as optimistic) and a budget deficit of 4.5% of GDP that needs to be brought down. Yet already the 2013 budget target of 3% of GDP seems unlikely. But worse than that is the longer running trend of the French economy.  France has over the last decades lost competitiveness to countries like Germany, with their products now either upmarket or non-existent. Even their food production is only surviving due to large subsidies from the French government and EU budget. Alongside this the French government is one of the biggest spenders in Europe, spending the highest proportion of its GDP  in Europe (57%) and racking up billions of public debt (equivalent to  90% of its GDP). But even these problems could be solved with significant reforms and cost cutting. The fact is however, that the French government doesn’t seem ready for such hardship. President Hollande campaigned on making the rich pay (with his famous 75% top income tax rate), not cutting budgets. While the likes of Italy and Britain employ heavy austerity measures and hard labour reforms to help fix their economies, France seems to be satisfied to keep an inflated government and unproductive economy. For now the nation remains under the radar of the markets, but this could quickly change in 2013, just ask Italy or Spain. President Hollande has only just started a 5 year term, if he doesn’t act now with time on his side, when will he?

Graph found at the Economist: Shows Frances high public spending and low competitiveness. 

Next up on the list is one of the famed BRIC economies that seems to have lost its way. It may seem ridiculous to be picking a country that is set to have grown this year by 5.8% but India are in uncertain times. Inflation has been uncomfortably high for the last few years (currently near 10%) and is hurting the poor population of India. The Indian population relies on high growth of around 6% a year to keep lifting millions out of poverty, so the current slowdown of growth to just under 6% is worrying for the nation. This slowdown has occurred because India’s government is very badly run. It intervenes in the private market far too much, running important industries like the energy sector inefficiently. Corruption is also rife, leading to much of the money meant for those in poverty going into the pockets of local officials. The final nail in the coffin is a complete lack of reform in the last few years, with many markets rigid and inaccessible by foreign firms, leading to poorly run Indian firm producing below average goods and services. India’s growth was started by a series of reforms in the past that lead to greater competition and opportunities for the Indian population. A return to these policies would reignite the economy. But what makes me place India in this list is the complete lack of push for any such policies. Recent movements towards have creating greater competition in the country have lead to large protests and a standstill in the government. Even worse, the election in 2014 isn’t set to change anything, with the opposition just as bad if not worse than the current officials in charge. Change is not wanted, yet is exactly what is needed for the Indian economy to keep progressing forward. Standing still is going backwards.

India has a larger budget deficit and public debt than any other BRIC country in 2012. 

Finally, to complete my list, I end with South Africa. For so long the kings of Africa, their dominance is slowly fading. Growth of just 2.4%, high unemployment at 25% and a current account deficit (imports minus exports) of over 6% shows a leading country underperforming. Its crown is challenged by an oil backed Nigeria and a resurgent Egypt, while the smaller nations like Rwanda and Botswana are showing the larger nations how to successfully run an economy. Even its reputation as one of the most sophisticated nations in Africa is losing its shine, as the recent mining strikes show a deep unrest within the country. South Africa remains highly unequal, with a white South African (accounting for only 9% of the population) on average earning eight times more than a black South African. Its Gini coefficient (measuring inequality) has incredibly risen in the last decades from 0.59 to 0.63 (0=Perfect Equality, 1= Perfect Inequality). Education also remains a tragic failure, where the government has somehow managed to outspend every other African country yet still have one of the worst educational systems. Corruption has infested the current government, and with the next general election not till 2014, it seems unlikely anything will change in the next year for the good. Unemployment and poverty remain the big problem (with half the country still under the poverty line), but the problems are all interlinked. A poor educational systems produces unskilled labour, while high inequality keeps millions in poverty. If South Africa doesn’t start investing wisely into education, job creation and equality it is certainly set for a poor future. Don’t look now but South Africa’s crown may be slipping.

Unemployment in South Africa has been incredibly high for the last decade, one of many problems the country faces in 2013. 

There were a few more obvious candidates; Greece and the USA. But I decided against them for a few key reasons. Greece are forecasted to suffer another year of serious decline, but the IMF and the EU seem set on keeping Greece running, which in my view could help keep the economy progressing towards a better run state (with them already running a primary surplus). The USA could face a sudden recession with the fiscal cliff, but the problems are clear and I just can’t see America letting themselves go over the figurative cliff (even if that means kicking the can down the road).

The warnings of the fiscal cliff have been clear enough for America to avoid it. 

Even with my choices there are signs of progress. In France recently a report on the poor competitiveness of the country seems to have hit home, with President Hollande perhaps realising the true extent of problems he needs to overcome. While a crucial vote was won in the Indian Parliament that will open the retail sector to foreign competition.

Important steps maybe, but more is needed to avoid a year to forget.

Does money buy success? « Back Page Football

Does money buy success? « Back Page Football.


Article I wrote on whether money has bought success in the 5 big European leagues this past season. Have a read, its very interesting 🙂

The Euro’s trapdoor: Elections

Europe is once again in disarray this year as Spain announce they will miss their budget targets, the effects of the ECB’s one trillion euro injection ware off and a year of elections see the public strike back at current governments. This last point is arguably the most important as elections around Europe have changed the balance of the EU and caused panic in the markets.

First up is France, who recently elected Francois Hollande as their new president. He is expected to cause a shake up within the EU as he calls for growth over austerity, rebels against Germany’s hold over Europe and expects to tax the French people more rather than cut spending (going against the current trend). Mr Hollande was also clearly not the candidate the rest of Europe favoured as Angela Merkel publicly backed Nicolas Sarkozy in the election and both David Cameron and Mario Monti refused to make time to meet him when he was a candidate, showing a general worry around Europe that Hollande could push the EU off course. But then his ideas aren’t that radical; he is arguing for a Growth Compact alongside the Fiscal Compact that will probably include policies already in place, he talks of austerity going too far but still agrees with reducing France’s budget deficit to 3% of GDP and while many are making a fuss over the French-German alliance breaking up, Francois Hollande’s contrasts with Angela Merkel might keep the EU more in check than the similar minded Sarkozy did. Even so, the elections show that it is clear France have chosen to change the direction that their country is heading in; from a globalised leader of the euro to a country that is looking at creating more trade barriers and reducing the power of the EU.

Hollande will have to learn to like austerity if he is to cut the French budget deficit.

Next up is Greece, where no party could gain enough votes to create a government, leaving many worried about the future of the country. The two biggest parties: the New Democracy party (Conservative) and Pasok party (Socialist) both experienced shocking results as their share of the vote fell from around 80% to lower than 30%. The Greek people instead voted for a range of anti-austerity parties, leaving no chance for a government to be elected as parties with contrasting policies refused to join in any coalition. The only hope is that a second round of elections will see the vote concentrated more on one or two parties as another scattered approach will cause many problems. But more important than the results of the next election is the message behind it, that the Greek people are heavily against the current bail-out scheme being forced onto their country. The problem is that there is no conceivable way around it, the EU will loath to re-negotiate the bail-out measures once again after writing off half of Greece’s debt at the start of the year. A real possibility now is that Greece will leave the euro, a frightening thought as the rest of the EU is still not ready for such an event despite it being the topic of discussion for over two years now.  This election has thrown a spanner in the works of Greece’s debt reduction plan and if radical parties can get into power in the next election, then Greece could refuse to pay back its debts, a move that could have far reaching effects around the Globe.

Greek election results.

The French and Greek elections have been the biggest elections in Europe so far, but both Britain and Italy have experienced damaging results in local elections. In Britain, the Conservatives lost 404 seats and the Liberal Democrats lost 330 seats, allowing Labour to gain 823 seats in total. This was a crushing result for the Coalition government and showed the public disapproval in the government’s performance, in fact if this was a parliamentary election then Labour would have won a majority government comfortably. In Italy, voters showed their disapproval by either voting for protest parties or by not voting at all (with the turnout at just 67%, compared with the French elections which had an impressive 80% turnout). One of Italy’s biggest losers was Berlusconi’s People of Freedom party, going from 37.6% to just 11.6% of the vote, as disapproval with the former prime minister has fallen onto his party. The problem with Italy is that while Mario Monti has done a respectable job at reforming the country, he is only a short term occupant, appointed as a technocrat leader by the coalition government to help sort out the nation’s economy. When he leaves next spring, Italy will face a hard job replacing someone who has united the different factions of the government superbly as a neutral.

This is not to mention the recent breakup of the Dutch government over budget cuts, with elections to be held soon to create a new coalition. While Angela Merkel’s party lost a local election in a key German state to their socialist rivals. Overall, this year follows a trend of countries chucking out their governments since the financial/euro crisis started. The UK voted in the Conservatives/Liberal Democrats in 2010 and chucked out Labour, while last year Italy voted out Berlusconi and Spain voted in Mariano Rajoy. The austerity measures currently being employed in Europe have left the public angry at the job cuts and new taxes that are popping up, but any possible new governments won’t have much choice to deviate from this plan. Any that does will be punished by the markets and perhaps shunned by the rest of Europe.

Austerity is a tough pill to swallow, but voting out the current governments will only lead to the same result at the end of the day.

French Fancy?

Who will the French fancy in this presidential election?

With the first round of the elections for the new French President done and dusted, now seems a good time to look at the two main contestants; Nicolas Sarkozy and François Hollande. Sarkozy is the current president and has received his fair share of blame for France’s troubles in the market. The French economy has stumbled and their downgrading by Standard & Poor in January summed up the lack of confidence from outside investors. But more than that, there is a feeling Sarkozy is just not well liked by the French people, he comes off as arrogant and out of touch, with his private life counting against him. This can be unfair on a president that has actually fared okay in tough times; he steered France through a difficult period during the euro crisis, pushed through an unpopular rise in the retirement age and has been active in important international conflicts – jointly leading the intervention in Libya. But his campaign has been poorly executed, he has tried to be perceived as the underdog (when already holding the presidential position) has ignored any talk of economic reforms (a trending policy in the rest of Europe) and has failed to trap Hollande (his biggest opponent) into discussing any policies of his own. He has focused too much on protectionism and immigration, where he has threatened to battle globalisation (surely too late) and to leave Europe’s passport free zone.


Hollande is the Socialist candidate and current favourite, whose campaign consists of two main ideas; a tax increase on the rich to 75% of their income and an anti-Sarkozy message. The first idea might grab the general public, where the rich and bankers have become scapegoats for their current troubles (justifiably or not), but the practical implications will leave France worse off. Any individual or company that falls into this tax will simply move across the border to other countries where the tax rate is considerably less – the UK top income-tax rate will be 45%. The second idea is smart and focuses on the idea that the French people want Sarkozy out more that they want him in power. Hollande has ignored talks of true economic reform too, but by trashing Sarkozy’s past economic performance he can quietly push those concerns under the rug.


The first round saw Hollande win with 28.4% and Sarkozy finish second with 25.5%, though the second round will be the most important and could go either way still. If Sarkozy doesn’t win this election, he will be only the second president in the fifth republic to not win re-election. Holland leads the polls for the second round, but the live debates could tip in Sarkozy’s favour as he has previous experience on TV and a willingness to expose Hollande on his policies without distractions.

First round results

The main issue to be discussed in these debates will be the economy. The French economy still remains strong; with an educated workforce, strong manufacturing in high end products and excellent private companies (with more firms in the Fortune 500 than any other European nation). But the country faces big problems; with unemployment high at around 10%, exports struggling against neighbour and rival Germany, public debt to GDP ratio at 90%, public spending at 56% of GDP (highest in eurozone) and undercapitalised banks. These issues need major reforms and France sticks out like a sore thumb in Europe as the only nation not taking drastic changes.  France also has important sway in the EU and if they were to crash, it would have a much bigger effect on the euro than Greece’s recent crisis.

Unemployment uncomfortably high 

Whichever president wins the elections will face big changes, even if neither is willing to admit it, and France will have to endure some tough times before the going can get good again. Is it what the French Fancy? Probably not, but it is what they need.

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