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Sunday, April 28

28th Apr - Weekender: Europe

Joke of the Week – Olli Rehn

…and it is widely acknowledged, based on serious academic research, that when the public debt rise above 90%, they tend to have a negative impact on economic dynamism, which translates into low growth for many years.
The Commission’s economic policy recommendations are not based on any single piece of research. We design our policies on the basis of a broad-based assessment, drawing on a wealth of studies – and also of course on our own analyses. The precise causal relationship between debt levels and growth is a complex one. There is no hard-and-fast rule; it is affected also by many country-specific factors.

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Brussels blog round-up for 20 – 26 AprilEuropp / LSE
Italy’s new Prime Minister, trust in the EU falls, and should all EU states recognise gay marriage?

Margaret Thatcher: European.A Fistful of Euros
So why isn’t this more obvious? I think the answer is that the European Union has not turned out to be the nice alternative to Thatcherism it was sold as in the 1990s. Ask a Spaniard. No, go ahead.

No Triple Dip does not mean a good recovery for the UKEuropp / LSE

Charlemagne: Amsterdam, Nice, LisbonThe Economist
Treaty change is back to table
Blogs review: Bold ideas for the eurozone from economic historyBruegel
What’s at stake: In this review, I present an eclectic set of proposals and analyses that have been put forward by economic historians to reform the functioning the eurozone in a big way. The first category of proposals discuss ways though which monetary policy could be differentiated across different countries within the monetary union. The second category of analyses challenges the now conventional view that a monetary union necessarily requires some form of fiscal, banking and/or political union.

Should Eurozone current-account surpluses be reduced?
Current-account deficits have caused problems in several Eurozone countries, but surpluses are also an issue. This column argues that surpluses are detrimental to the welfare of the population to the extent they are driven by structural weaknesses affecting demand. Addressing these issues through structural reforms, while letting wages and prices respond flexibly to market signals, would be welfare-enhancing for the surplus countries.

MEPs slam Rehn over economic policyeuobserver
EU economic affairs commissioner Olli Rehn faced a sustained verbal shellacking on Thursday, with MEPs on the left and the right finding fault with his policy-making.

Europe's Fauxterity In Three Simple ChartsZH
Why despite all the bickering and complaints, Europe never actually engaged in austerity, in spending or debt cuts, and that the primary reason the people's plight in the periphery worsened in the past three years is nothing more or less than gross political and governing incompetence?

Europe’s financial-transactions tax: OopsThe Economist

Bellwether signalsButtonwood / The Economist
The Economist organised a conference on Europe yesterday under the Bellwether title and your blogger had the honour of chairing it. There was a very high-powered list of speakers - Jorg Asmussen of the ECB, David Lipton of the IMF, Andrew Haldane of the Bank of England, Sushil Wadhwani (ex-Goldman and monetary policy committee member), Thomas Mayer of Deutsche Bank and so on.

Six ideas to save the EUThe Guardian
The EU is facing greater hostility from within than perhaps at any time since its incarnation. Writers from six leading newspapers in the six largest countries suggest six ideas to help redefine the union. Add your own thoughts below

Pure or wake-up-call contagion? Bank of Italy (pdf)
Another look at the EMU sovereign debt crisis – Bank of Italy Working Papers by Raffaela Giordano, Marcello Pericoli and Pietro Tommasino

Commission to propose measures to facilitate workers' mobilityEuropa

EU Austerity Dispute: How Barroso Let His Opinion SlipSpiegel
European Commission President Barroso has mostly stayed in the background in the euro crisis, but his assertion this week that austerity has "reached its limits" caused quite a stir. It was an unusually opinionated statement -- and one that came after the Portuguese official's national pride was questioned.

Luxembourg Is Not The Next Cyprus, Not Yet, But....Testosterone Pit
“A large part of the clients of the Luxembourgian banks have undeclared money,” Steichen pointed out. They wouldn’t have a lot of options other than closing their accounts in Luxembourg, he said. They might repatriate their funds – and pay fees, taxes, and penalties – or transfer their funds to Singapore, Monaco, or other murky banking centers. Either way, these assets would leave Luxembourg….

German Poll Shows Merkel Losing MajorityZH
Given that the mainstream parties have excluded a coalition with the Left party, such results would allow only coalitions of Merkel's CDU/CSU with the SPD or the Greens. This raises the question of whether Merkel becomes more hard-nosed in her treatment of European bailouts

Germany Can Relax Euro Austerity and Lose NothingBB
Europe needs a new deal that trades less austerity for more structural reform. It can be done without costing Germany a euro cent. The contours of this shift are starting to emerge, with Spain leading the way.

Low pay: the flipside of Germany's low unemploymenteuobserver
Germany has one of the lowest unemployment rates in the EU. But its labour model has sparked a debate on social inequality.

German 'Alternative': Parallel Currency Idea Carries Great RisksSpiegel
A new German protest party is proposing the gradual re-introduction of the national currencies of highly indebted euro-zone countries. While the party's spokesman insists the idea solves everyone's problems, it has one major drawback: Economists agree it won't work.

German firms eye investment in crisis-battered euro statesReuters
German companies are setting their sights on southern Europe as fears of a euro zone breakup fade and economic reforms transform the crisis-battered region into an attractive place to invest once again (also ZeroHedge).

The Poverty Lie: How Europe's Crisis Countries Hide their WealthSpiegel
How fair is the effort to save the euro if the people living in the countries that receive aid are wealthier than the citizens of donor countries like Germany? A debate over a redistribution of the burdens is long overdue.

Yanis Varoufakis: Intransigent Bundesbanknaked capitalism
Mr. Jens Weidmann’s surreptitious campaign to bring back the (Greater) Deutsche Mark

This chart shows how difficult Mario Draghi’s job isWonkblog / WP
Different countries within the euro zone are in vastly different economic situations, and ECB head Mario Draghi will have a hard time satisfying everyone:

Europe's Fragmentation Offers Little Hope For Rate Cut "Real" GainsZH
Not only did M3 come out well below expectations at 2.6% YoY (vs 3% Exp.) but loans to the private sector remain drastically in the red. The fragmentation across the individual nations is dramatic…

Calling on the ECB to ActEsoltas
I did a series of three posts making the case for the European Central Bank to ease monetary policy. I figured I would post them all together on my personal blog rather than separately.

Conflict of interest (rates): clamour for ECB rate cut grows but Germany remains waryOpen Europe
The wave of voices calling for some ECB action is growing, particularly given the wider debate on austerity. It will be tricky to balance this with the demands of the northern countries.

Europe In One ChartZH
Draghi's 'whatever it takes' promise is maintaining a 30% illusion of wealth in European equities over their macro reality.

March 2013: Monetary developments in the euro areaECB (pdf)

Quarterly Bank Lending SurveyECB (pdf)

Mmm Mmm Mmm Mmmalphaville / FT
The annual growth rate of the euro-zone broad money supply (M3) falling from 3.1 per cent to a well below expectations 2.6 per cent in March and allowing a quick segue into a good news/ bad news post ahead of next week’s ECB meeting and increasingly probable cut.

Ray of light in Euro-zone credit numbersNordea
If you torture the data long enough, it will confess. One can find hope in today’s Euro-zone credit numbers for March, though if you are pessimistic, the data offers a lot for you as well.
[audio] ITB: The price of austerityBBC (mp3)
As Spain's unemployment figures reveal that 1 in 4 people is out of work there, In the Balance attempts to inject humanity into the dry economic statistics. We're looking at the human cost of taking the axe to public spending and asking if the cuts are actually working. Are they eating away at the mountains of debt? And if not, what's the point of all those people losing their jobs, homes and livelihoods? Manuela Saragosa debates austerity with Anders Aslund from the Petersen Institute in Washington DC; Irish economist, David McWilliams; and Yiorgos Mylonadis of the London Business School

The great Spanish nation can end its crucifixion at will by leaving EMUThe Telegraph
The course of events demands a lifting of the taboo surrounding the dissolution of the euro zone. If solidarity cannot be achieved through a progressive reform of Europe’s economic institutions, then perhaps it is time to consider taking them apart. Perhaps the only way to save the Union is to ditch the euro.

IMF Statement on SpainIMF
Lagarde supports Spain’s moderation of austerity.

Spain Update: Running from the Bulls?Marc to Market
There have been three recent developments in Spain: the new record high unemployment, the earnings reports of several large banks, and the government's new fiscal forecasts and strategy. 

Spain Slashes "Growth" Outlook, Projects Higher Deficit, Delays Deficit ReductionZH
It took about one week from R&R's excel error until the first European country rebelled against "austerity".

Housing in Spain: Mortgaged to the hiltThe Economist
After house price crash come repossessions and angry response.

Anti-EU parties poised to win power in Icelandeuobserver
Iceland's EU-sceptic opposition parties are poised to unseat the government in elections this weekend, posing questions over its EU entry bid.

Who got their money out of Cyprus?Bruegel
Erkki Vihriälä: Firstly, deposits of domestic residents decreased 3.1 %, those of other euro area residents 12.8 % and those from the rest of the world 9.3 %. Foreigners therefore seemed more eager or more able to withdraw deposits from Cypriot banks.

The Cypriot economy: Through a glass, darkly The Economist

The outlook is even grimmer than it was before the bailout.

Lithuanian President: 'Brussels Was Target Before, Now It's Merkel'Spiegel
The Baltic countries have already moved on from their debt crisis, and are exhibiting healthy growth. In an interview with SPIEGEL ONLINE, Lithuania's President Dalia Grybauskaite explains that austerity is merely a question of political will -- and why her country wants to join the euro zone despite the crisis.