Uh oh, the EU is forced to low­er its eco­nom­ic fore­casts and France is now pro­ject­ed to fall into a reces­sion. Per­haps “struc­tur­al reforms” (aus­ter­i­ty) isn’t work­ing and some­thing else should tried? Per­haps, but EU Eco­nom­ic and Mon­e­tary Affairs Com­mis­sion­er Olli Rehn has anoth­er bold solu­tion: more “struc­tur­al reforms”:

EU Low­ers Fore­cast as Euro Area Heads For Two-Year Slump
By Rebec­ca Christie — May 3, 2013 6:42 AM CT

The euro-area econ­o­my will shrink more than pre­vi­ous­ly esti­mat­ed in 2013 as part of a two-year slump that has pushed up unem­ploy­ment to a record, accord­ing to the Euro­pean Com­mis­sion.

Gross domes­tic prod­uct in the 17-nation cur­ren­cy bloc will fall 0.4 per­cent this year, com­pared with a Feb­ru­ary pre­dic­tion of 0.3 per­cent, the com­mis­sion said in a report issued in Brus­sels today. This fol­lows a 0.6 per­cent con­trac­tion in 2012 and shows the region head­ed for its first ever back-to-back years of falling out­put.

France, now pro­ject­ed to shrink 0.1 per­cent instead of grow­ing by the same amount, joined sev­en oth­er euro-area economies expect­ed to con­tract this year. Growth across the cur­ren­cy bloc will return too slow­ly to reduce unem­ploy­ment, as the euro area remains depen­dent on exports to off­set the impact of the sov­er­eign debt cri­sis and bank­ing woes, the Euro­pean Union said.

“In view of the pro­tract­ed reces­sion, we must do what­ev­er it takes to over­come the unem­ploy­ment cri­sis in Europe,” said EU Eco­nom­ic and Mon­e­tary Affairs Com­mis­sion­er Olli Rehn. He called for the EU to under­take “struc­tur­al reforms” to bring back jobs and said bud­get con­sol­i­da­tion will con­tin­ue at a slow­er pace.

For France and Spain, that may trans­late into two extra years to meet the EU’s deficit goals, Rehn told reporters in Brus­sels. Oth­er nations, like the Nether­lands, Poland and Slove­nia, may get one addi­tion­al year.

Record Unem­ploy­ment

Five euro-area nations have so far sought inter­na­tion­al aid dur­ing a finan­cial cri­sis that has left 19.2 mil­lion work­ers with­out jobs and required tril­lions of euros in finan­cial-sec­tor assis­tance. The euro area’s response has focused on low­er­ing nation­al debts and strength­en­ing bank­ing reg­u­la­tion, a strat­e­gy endorsed in today’s report.

Unem­ploy­ment in the euro area is expect­ed to climb to 12.2 per­cent in 2013, up from 11.4 per­cent last year. An “increas­ing labor-mar­ket mis­match” will keep the job­less rate high in the medi­um term and bodes poor­ly for those who have been out of work for extend­ed peri­ods, accord­ing to the EU.

...

France joins the Nether­lands, Italy, Spain, Por­tu­gal, Greece, Cyprus and Slove­nia as head­ed for con­trac­tion in the new fore­cast. The Cypri­ot econ­o­my is now expect­ed to shrink 8.7 per­cent, down from a pri­or esti­mate of 3.5 per­cent, in the wake of a euro-area bailout agree­ment that forced heavy loss­es on account-hold­ers at the country’s two largest banks.

Across the 27-nation EU, GDP is now expect­ed to shrink 0.1 per­cent in 2013, com­pared to a Feb­ru­ary fore­cast of 0.1 per­cent growth. In 2014, the EU expects 1.4 per­cent growth, down from a pri­or esti­mate of 1.6 per­cent. EU-wide unem­ploy­ment is pro­ject­ed at 11.1 per­cent this year and next.

‘Over­ly Opti­mistic’

The euro area as a whole is expect­ed to post a bud­get deficit of 2.9 per­cent in 2013, accord­ing to the EU report. France, where Pres­i­dent Fran­cois Hol­lande has tus­sled with EU calls for more aus­ter­i­ty, is pro­ject­ed to post a 3.9 per­cent deficit in 2013 and a 4.2 per­cent gap in 2014, assum­ing no changes from cur­rent poli­cies.

Rehn said France’s own growth fore­cast is “over­ly opti­mistic” and called for under­ly­ing eco­nom­ic changes to bol­ster growth.

“France bad­ly needs to unblock its growth poten­tial and cre­ate jobs,” Rehn said. The coun­try needs to “put a renewed and strong empha­sis on struc­tur­al reforms in the labor mar­ket, in the pen­sion sys­tems, by open­ing up closed pro­fes­sions and ser­vices mar­kets.”

Spain is fore­cast to show a 6.5 per­cent deficit in 2013. The Span­ish econ­o­my is now pro­ject­ed to shrink 1.5 per­cent in 2013, down from a pre­vi­ous fore­cast of 1.4 per­cent, with unem­ploy­ment ris­ing to 27 per­cent. Greece faces the same expect­ed lev­el of 2013 unem­ploy­ment, accom­pa­nied by a 4.2 per­cent GDP decline that was improved slight­ly from a pri­or fore­cast of a 4.4 per­cent fall.

Uh oh, Moody’s down­grad­ed Slove­ni­a’s bond rat­ing last week and now it looks like Slove­nia is fol­low­ing the expan­sive aus­ter­i­ty guide­book. They’re con­sid­er­ing some pre­emp­tive “reforms” (aus­ter­i­ty) in order to reduce their deficit in order to avoid an EU “bailout” (more aus­ter­i­ty). Slove­nia is about to learn the harsh real­i­ty that shake­down artists can smell fear:

Bloomberg
EU’s Rehn Says Too Soon to Say If Slove­nia to Need Bailout
By Jonathan Stearns — May 7, 2013 3:42 AM CT

Euro­pean Union Eco­nom­ic and Mon­e­tary Affairs Com­mis­sion­er Olli Rehn praised Slove­nia for tak­ing steps to bol­ster the econ­o­my while say­ing it’s too ear­ly to know whether the nation can avoid becom­ing the sixth euro-area mem­ber to need a finan­cial res­cue.

“We first want to ana­lyze the pro­grams before com­ment­ing,” Rehn said in an inter­view today in Brus­sels. “Slove­nia is inten­sive­ly prepar­ing a sta­bil­i­ty and reform pro­gram that will tack­le the prob­lems they are fac­ing and reverse the neg­a­tive trend in the econ­o­my.”

Slove­nia plans to increase tax­es to make up for a swelling bud­get short­fall as the coun­try works to recap­i­tal­ize its banks. The Adri­at­ic nation’s over­haul pro­gram and bank-recap­i­tal­iza­tion plan, which will be pre­sent­ed to the Euro­pean Com­mis­sion, are meant to show Slove­nia can avoid request­ing out­side assis­tance.

“In these days we are expect­ing that they will present the sta­bil­i­ty and reform pro­grams to the com­mis­sion,” Rehn said. “We will then assess them and pro­vide our analy­sis of the sit­u­a­tion short­ly.”

Since the Euro­pean debt cri­sis broke out in 2009, Greece, Ire­land, Por­tu­gal, Spain and Cyprus have sought inter­na­tion­al emer­gency aid. Pledges from the euro area and the Inter­na­tion­al Mon­e­tary Fund have totaled 496 bil­lion euros ($649 bil­lion).

Yes, inter­na­tion­al cred­i­tors can smell fear, and it smells deli­cious. Mmmmmm...privatizations. Slove­nia is notable in Europe for avoid­ing the mass pri­va­ti­za­tions that took place fol­low­ing the col­lapse of com­mu­nism so this could be a par­tic­u­lar­ly tasty treat for inter­na­tion­al investors. The NY Times has a piece on what went wrong in Slove­nia in recent years. It sounds like it was the ol’ cred­it-boom pump-and-dump:

The New York Times
Slove­nia Falls From Eco­nom­ic Grace, Strug­gling to Avert a Bailout

By DAN BILEFSKY
Pub­lished: May 5, 2013
LJUBLJANA, SLOVENIA — Only a few years ago, Bine Kordez was fet­ed as Slovenia’s star entre­pre­neur. After trans­form­ing a home-improve­ment chain, Merkur, into a region­al giant, he drew on easy cred­it from state-run banks to help orches­trate a €400 mil­lion man­age­ment buy­out of the com­pa­ny, the largest in the country’s his­to­ry.

The rewards of suc­cess includ­ed an impos­ing moun­tain­side retreat and fre­quent men­tion of his name as a pos­si­ble future finance min­is­ter of this small, idyl­lic Alpine coun­try.

Now, though, Mr. Kordez stands con­vict­ed of forgery and abuse of office for finan­cial deal­ings as Merkur strug­gled under a moun­tain of debt.

“My mis­take and the mis­take of the banks was to vast­ly under­es­ti­mate the risk,” Mr. Kordez, 56, said in a recent inter­view at his home near the pic­turesque town of Bled, with a view of Slovenia’s high­est peak. He awaits a deci­sion lat­er this month on an appeal of his con­vic­tion, which could send him to prison for five years.

As fears grow that Slove­nia could fol­low Cyprus and become the sixth euro zone coun­try to seek a bailout, his rise and fall have come to sym­bol­ize the way easy and cheap cred­it, com­bined with Balkan-style crony cap­i­tal­ism and cor­po­rate mis­man­age­ment, fueled a bank­ing cri­sis that has unhinged a coun­try pre­vi­ous­ly praised as a region­al mod­el of peace­ful pros­per­i­ty.

The recent bailout of Cyprus at a cost of €10 bil­lion, or $13 bil­lion, which includ­ed strin­gent con­di­tions forc­ing loss­es on bank depos­i­tors, has focused minds in Ljubl­jana, the Sloven­ian cap­i­tal. Slovenia’s strug­gling bank­ing sec­tor is sad­dled with about €6.8 bil­lion worth of non­per­form­ing loans, about one-fifth of the nation­al econ­o­my. Slove­nia is now in reces­sion, and the gloom across the euro zone shows lit­tle sign of abat­ing. A Euro­pean Com­mis­sion fore­cast released Fri­day said that France, Spain, Italy and the Nether­lands — four of the five largest euro zone economies — will be in reces­sion through 2013.

Last Thurs­day, Slove­nia bought time by bor­row­ing $3.5 bil­lion on inter­na­tion­al mar­kets. That was two days after Moody’s Investors Ser­vice cut the country’s cred­it rat­ing to junk sta­tus, cit­ing the bank­ing tur­moil and a dete­ri­o­rat­ing nation­al bal­ance sheet. Ana­lysts said the bond sale would prob­a­bly enable the gov­ern­ment of the new prime min­is­ter, Alen­ka Bra­tusek, to stay afloat at least through the end of the year.

The Cypri­ot deba­cle has shown how bail­ing out even a small coun­try can dam­age the cred­i­bil­i­ty of the euro cur­ren­cy union. But Slove­nia, with two mil­lion peo­ple, insists that it is not Cyprus and will not seek emer­gency aid.

“For the time being, I have a sound sleep,” Ms. Bra­tusek, the 42-year-old prime min­is­ter, said in a recent inter­view.

This week, on Thurs­day, Ms. Bra­tusek, only a lit­tle more than a month in office, is expect­ed to present a finan­cial turn­around plan to the Euro­pean Com­mis­sion, the exec­u­tive arm of the Euro­pean Union. She said that pri­va­tiz­ing Slovenia’s large­ly state-owned bank­ing sec­tor was a pri­or­i­ty, along with cre­at­ing a “bad bank” to take over non­per­form­ing loans.

Her gov­ern­ment, she said, will also unveil plans by July to sell the country’s sec­ond-largest bank, Nova Kred­it­na Ban­ka Mari­bor, along with two large state com­pa­nies that she declined to spec­i­fy. The sales could raise up to €2 bil­lion, she said.

Ms. Bra­tusek, who once head­ed the state bud­get office at the Finance Min­istry, said Slovenia’s gov­ern­ment debt, which ana­lysts say rose from about 54 per­cent of gross domes­tic prod­uct to around 64 per­cent with last week’s bond sale, still ranked at the low­er end of that scale in the euro area.

But the 6 per­cent inter­est rate Slove­nia offered on the 10-year bonds in last week’s debt sale, at a time when some euro zone coun­tries are enjoy­ing his­tor­i­cal­ly low bor­row­ing costs — Germany’s equiv­a­lent bond is trad­ing below 1.2 per­cent — might only add to the country’s finan­cial prob­lems.

Mujta­ba Rah­man, direc­tor of Europe at Eura­sia Group, a polit­i­cal risk con­sult­ing firm, said the new financ­ing could back­fire if it lulled the gov­ern­ment into lax­i­ty about mak­ing vital struc­tur­al changes.

“The new financ­ing was not a vote of con­fi­dence in the Sloven­ian gov­ern­ment or in the econ­o­my, but rather reflects investors attract­ed by high bond yields,” Mr. Rah­man said. “A bailout could still prove inevitable.”

What went wrong in Slove­nia? The coun­try, wedged between Italy, Aus­tria, Hun­gary and Croa­t­ia, was con­sid­ered the most promis­ing among the 10 new Euro­pean Union entrants when it joined in 2004. That was 13 years after it declared inde­pen­dence from Yugoslavia, avoid­ing a bloody Balkan war that had swept up oth­er coun­tries in the region.

When Slove­nia was admit­ted to the euro club in 2007, the sin­gle cur­ren­cy helped fuel easy cred­it and a con­struc­tion boom. It was the same sort of heady access to cheap mon­ey that led to eco­nom­ic dis­as­ters in Ire­land and Spain. But econ­o­mists say the Sloven­ian vari­ety of euro-eupho­ria hang­over can be traced to a failed tran­si­tion from com­mu­nism to a ful­ly func­tion­al mar­ket econ­o­my.

After gain­ing inde­pen­dence in 1991, Slove­nia — con­di­tioned by cen­turies of for­eign sub­ju­ga­tion — was deter­mined to retain local con­trol of its prized assets. It embarked on a spree of man­age­ment buy­outs of par­tial­ly state-owned com­pa­nies, over­seen by exec­u­tives who in many cas­es were uncom­fort­ably close to peo­ple run­ning the gov­ern­ment and the state banks.

“After the tran­si­tion in Slove­nia, the state retained a stran­gle­hold over the econ­o­my,” Mr. Rah­man said, “and the coun­try today is suf­fer­ing the con­se­quences.”

Bine Kordez at Merkur was not the only head of big Sloven­ian com­pa­ny whose involve­ment in a bank-aid­ed man­age­ment buy­out end­ed bad­ly, or whose access to easy cred­it back­fired. Two of Slovenia’s biggest con­struc­tion com­pa­nies, Veg­rad and SCT, are now in bank­rupt­cy pro­ceed­ings. Istra­benz Hold­ing, a sprawl­ing food, tourism and ener­gy con­glom­er­ate that once owned a vast swath of Slovenia’s econ­o­my, is under­go­ing a court-man­dat­ed debt restruc­tur­ing.

Igor Bav­car, Istrabenz’s for­mer chief exec­u­tive, was charged with mon­ey laun­der­ing, and Bosko Srot, for­mer chief of the big brew­ing com­pa­ny Pivo­var­na Lasko, with abuse of author­i­ty, in con­nec­tion with a 2007 deal. Pros­e­cu­tors say Mr. Bav­car attempt­ed to buy a stake in Istra­benz from Lasko through a series of shady inter­me­di­aries. Both deny any wrong­do­ing.

A big provider of buy­out loans was Slovenia’s largest state-owned finan­cial insti­tu­tion, Nova Ljubl­jan­s­ka Ban­ka, or N.L.B. The gov­ern­ment installed new man­age­ment late last year, as the bank’s lend­ing port­fo­lio turned increas­ing­ly sour.

Janko Med­ja, N.L.B.’s new chief exec­u­tive, said that the rush to pri­va­tize Sloven­ian state-con­trolled com­pa­nies, com­bined with the mon­ey cours­ing through Europe before the 2008 finan­cial col­lapse, had prompt­ed banks like N.L.B. to prac­ti­cal­ly give mon­ey away “for free.”

...

Well this is quite a devel­op­ment: The euro­zone appears to be mov­ing towards shift­ing the IMF out of the euro­zone’s deci­sion-mak­ing process. One pro­posed option involves the IMF being replace be the new Emer­gency Sta­bi­liza­tion Mech­a­nism Fund (ESM).

Addi­tion­al­ly, anoth­er insti­tu­tions that has had infor­mal input in the EU’s “cri­sis-response” are­na — the Eurogroup — is also being dis­cussed as a tar­get for insti­tu­tion­al over­haul. They’re talk­ing about switch­ing its deci­sion-mak­ing process away from requir­ing a unan­i­mous vote and into a sim­ple major­i­ty vote. But there are con­cerns that small coun­tries could still gang up to over­rule the larg­er, wealth­i­er coun­tries. So the plan appears to involve using a mod­el like the ESM’s vot­ing sys­tem that fac­tors in both the pop­u­la­tion of the coun­try and the size of the nation­al econ­o­my. More fun changes on the way for the EU:

Cyprus chaos sparks calls for EU over­haul
5:23 a.m. EDT May 18, 2013

BERLIN (AP) — Engi­neer­ing a finan­cial bailout for Cyprus in March was such a chaot­ic process that top Euro­pean offi­cials say it is time to rethink how the region man­ages its cri­sis — and who should be involved.

Offi­cials say the Inter­na­tion­al Mon­e­tary Fund, which has con­tributed finan­cial exper­tise and bil­lions in emer­gency loans, may no longer be need­ed as a key deci­sion-mak­ing part­ner. And they say that the euro­zone would be able to make deci­sions and take action more quick­ly if it was­n’t bound by the need for unan­i­mous agree­ment among its 17 mem­ber coun­tries.

Ana­lysts and law­mak­ers out­side of Europe have voiced these con­cerns before. Now two of the region’s lead­ing finan­cial deci­sion-mak­ers have said pub­licly that some­thing needs to be done. Olli Rehn, the top eco­nom­ic offi­cial at the Euro­pean Com­mis­sion — the Euro­pean Union’s exec­u­tive arm — and Joerg Asmussen, who sits on the Euro­pean Cen­tral Bank’s six-mem­ber exec­u­tive board, said at a hear­ing last week that the eas­ing of the finan­cial cri­sis presents an oppor­tu­ni­ty to fix what is bro­ken.

“If the IMF can take deci­sions with an 85% major­i­ty and not with una­nim­i­ty, why on earth the euro­zone can­not do so?” Rehn asked, refer­ring to the IMF’s exec­u­tive board. “That would make our deci­sion-mak­ing more effec­tive.”

And Asmussen ques­tioned whether help from the IMF — part of the “troi­ka” of deci­sion mak­ers that also includes the ECB and the Euro­pean Com­mis­sion — is even need­ed any­more. In effect, he said it is time for Europe to han­dle its prob­lems with­out out­side help.

Com­merzbank ana­lyst Christoph Weil says Euro­pean lead­ers are slow­ly wak­ing up to what has been evi­dent to finan­cial mar­kets for a long time. “The cur­rent deci­sion struc­ture is dys­func­tion­al,” Weil said. “It was born in the urgency of the cri­sis ... It needs to be over­hauled.”

The 17-coun­try euro­zone has been severe­ly test­ed by a three-year cri­sis over too much gov­ern­ment debt which has neces­si­tat­ed bailouts for five mem­ber nations — Greece, Por­tu­gal, Ire­land, Spain and Cyprus.

The “troi­ka” arrange­ment to mon­i­tor the bailout process has been in place for euro­zone bailouts since Greece’s debt prob­lems began to unfold in 2010. The set­up gives a promi­nent role to the Wash­ing­ton-based IMF — although it con­tributes much less mon­ey to bailouts than the euro­zone nations.

Some euro­zone mem­ber coun­tries insist­ed on hav­ing the IMF on board for its expe­ri­ence in han­dling such crises around the world. Ger­many — Europe’s biggest econ­o­my — also saw the fund’s pres­ence as a cru­cial check against polit­i­cal horse-trad­ing that could have result­ed in watered-down bailout con­di­tions.

How­ev­er, the troika’s inspec­tion teams have been heav­i­ly crit­i­cized for their insis­tence on harsh aus­ter­i­ty mea­sures that have plunged coun­tries like Greece or Por­tu­gal into even deep­er reces­sions and that they’re not account­able to vot­ers.

“The Euro­peans want­ed the IMF aboard for its exper­tise, even though many at the IMF thought that Europe is eco­nom­i­cal­ly strong enough to solve its prob­lems on its own,” said ana­lyst Weil.

“Now the Euro­peans feel stronger, and they real­ize that it would have been eas­i­er some­times with­out the IMF, who insist­ed on rad­i­cal up-front mea­sures in Greece or Cyprus before grant­i­ng aid,” he added.

This view was giv­en a boost last week by the ECB’s Asmussen dur­ing a hear­ing at the Euro­pean Par­lia­men­t’s eco­nom­ic com­mit­tee in Brus­sels.

“I would not change the troi­ka sys­tem in the midst of the cri­sis because we have no alter­na­tive avail­able right now but in the longer-term future ... we should return to a ful­ly EU-based sys­tem,” he said.

The IMF rec­og­nizes it’s up to the EU’s exec­u­tive arm, the Com­mis­sion, and the ECB whether it has plays a role in future bailouts, fund spokesman Ger­ry Rice said.

“I under­stand from reports that Mr. Asmussen under­scored that he would not advise to change the troi­ka sys­tem right now,” he said.

In place of the IMF, Asmussen sug­gest­ed the euro­zone could use the body set-up to man­age its per­ma­nent 500 bil­lion-euro res­cue fund, the Euro­pean Sta­bil­i­ty Mech­a­nism. How­ev­er, the ESM’s make­up means it is tech­ni­cal­ly out­side the EU’s sys­tem of insti­tu­tions‘.

“The set­up is a bit of a stranger decid­ed in a cri­sis mood,” Asmussen said. “We had noth­ing else avail­able and it had to be done quick­ly,” he added.

The end of the troi­ka arrange­ment would come once the ESM will be ful­ly turned into an insti­tu­tion of the 27-nation EU, he added. The ESM could then play its role as Europe’s IMF.

As well as the IMF’s role in inter­na­tion­al res­cues, the Eurogroup — finance min­is­ters of 17 mem­ber nations, the IMF and the ECB — is com­ing under scruti­ny.

The Eurogroup was ini­tial­ly planned most­ly as a forum to exchange views on eco­nom­ic and finan­cial poli­cies — but the cri­sis has turned it into a major deci­sion-mak­ing body. At the moment, una­nim­i­ty is required on deci­sions, a daunt­ing task.

The cum­ber­some deci­sion-mak­ing process reached its cli­max when the bloc fought bit­ter­ly over a 10 bil­lion-euro bailout for Cyprus.

After marathon nego­ti­a­tions in March, the Eurogroup and Cyprus patched togeth­er a bailout agree­ment that shocked mar­kets and Cypri­ots. Cyprus’s banks had their assets frozen and a one-time levy on all bank deposits was imposed to help pay for the res­cue — a mea­sure that vio­lat­ed EU deposit-insur­ance rules that backed all sav­ings accounts with few­er than 100,000 euros. With­in 48 hours, that plan was scrapped.

Mean­while, the ECB, seem­ing­ly fed up with the pol­i­tick­ing, set a dead­line for a deal after which it would cut off emer­gency fund­ing for Cyprus’ banks— a move that would have plunged the coun­try into chaos and out of the euro­zone.

In real­i­ty, finance min­is­ters descend­ed again on Brus­sels a week lat­er. The sec­ond agree­ment saw Cyprus’ insured depos­i­tors pro­tect­ed, but enforced a harsh restruc­tur­ing of the coun­try’s out­sized-bank­ing sec­tor and heavy loss­es for those hold­ing deposits worth more than 100,000 euros.

Anoth­er exam­ple of the Eurogroup’s cum­ber­some deci­sion-mak­ing was seen this week at a meet­ing at which there was lit­tle head­way made thrash­ing out cru­cial details of the bloc’s bank­ing union — a com­plex project that’s seen as vital to help sta­bi­lize the EU’s finan­cial sec­tor and turn the tide on its cri­sis. At the moment, they can nei­ther agree how far-reach­ing the bank­ing union ought to be nor how fast they want to move to set it up.

Ana­lysts main­tain a reform of the Eurogroup is long over­due, but it’s fraught with dif­fi­cul­ty: A sim­ple major­i­ty vote could mean small coun­tries gang­ing up and over­rul­ing the few big ones while a sys­tem based on eco­nom­ic strength would mean Ger­many and France alone would hold almost 50 per­cent of the vot­ing rights.

But the EU already has the answer. The ESM boasts a vot­ing sys­tem that com­bines both, the num­ber of coun­tries and their eco­nom­ic weight. That makes it dif­fi­cult to over­rule coun­tries but it is still pos­si­ble to reach a deci­sion if there are only few and small hold­outs.

Europe’s cur­ren­cy — used by more than 330 mil­lion peo­ple — is still a rel­a­tive teenag­er, it was launched in 1999, “but it has grown up rapid­ly amid the cri­sis,” Ger­man Finance Min­is­ter Wolf­gang Schaeu­ble said.

...

“the French right wing has main­tained pro­found links to Ger­man indus­try, as well as the Third Reich in its above-ground and under­ground phas­es.

That cen­ter-right solid­i­fied as the Vichy after the fall of France, and con­tin­ued to dance to the Ger­man tune after the war.”

A cou­ple of com­ments. The blame is to be shared equal­ly between left and right in the deba­cle of France. It was a left-wing cham­ber who vot­ed Pétain in. François Mit­ter­rand, François Hol­lan­de’s mod­el, was a Vichy offi­cial and a late defec­tor. Hol­lan­de’s father is sus­pect­ed to have been a col­lab­o­ra­tionist, same as for­mer social­ist PM Jospin. The elders in my fam­i­ly, his­tor­i­cal Gaullists — more about them below — had an unimag­in­able con­tempt for Mit­ter­rand and his ilk. And Hol­lande may talk but is doing noth­ing, doing noth­ing more than Merkel’s bid­ding. The role assigned to France by Ger­many is that of poster child for aus­ter­i­ty vis-a-vis the South­ern coun­tries.

As to the right, I know you would­n’t make such an assess­ment light­ly and I don’t ques­tion it upfront — I will look into your linked mate­r­i­al right after I’m done with this mes­sage ; I want to find out more also about the report­ed murky record of Jean Mon­net, one of the “fathers of Europe” who has been all but can­on­ized, dur­ing WWII.

BUT I know of at least 4 con­ser­v­a­tive-lean­ing gen­tle­men who hap­pened to be indus­tri­al­ists and hap­pened to be patri­ots and joined the Resis­tance instant­ly — unlike Mon­sieur Mit­ter­rand and the com­mu­nists. They were my grand­fa­ther and his three broth­ers-in-law. My grand­fa­ther was killed after four years com­bat­ting in var­i­ous net­works and lat­er on in the 2nd Armoured Divi­sion, and his broth­ers-in-law stopped fight­ing ear­li­er only because of grave injuries that left them invalids. They went on to live excep­tion­al lives. I’ve been think­ing about my grand­fa­ther every day those past two years; I’m sure he’d have a whole lot to tell in rela­tion to the sub­jects you cov­er. Did the Allies ever real­ly win the war? I view this state of things as some­thing of a night­mare and feel total­ly pow­er­less. I miss his coun­sel. This is one thing wars do, break­ing con­ti­nu­ities in fam­i­lies.

More about the right. The French right as well as the French peas­antry were dec­i­mat­ed in the pre­vi­ous Ger­man aggres­sion of WWI. A con­tribut­ing fac­tor to the dis­cred­it of the right which has been used ad nau­se­am by the left to this day was the sup­port of Charles Mau­r­ras, the old chief of Action française, not­ed French monar­chist intel­lec­tu­al and poet, to Philippe Pétain. A per­plex­ing turn­aroud except that Action française was a shad­ow of its past self after the huge loss­es among its ranks in WWI and for the fact that Mau­r­ras was senile. Still, fig­ures such as Leclerc and De Gaulle clear­ly came from that same “milieu” of the old right. This was old France, a coun­try of old chival­ry, the coun­try of Jeanne d’Arc.

The French knight is not a mur­der­er. Con­trast this with the mur­der-lust of, say, the Niet­zschean “aris­to­crat” (I men­tion that because of the rev­er­ence for Niet­zsche in some quar­ters of the French intel­li­gentsia which is anoth­er thing that makes me sick to my stom­ach, and I won­der where that came from; old Friedrich is nonex­is­tent in the works of pre-1930 writ­ers and thinkers such as Proust, Alain and Berg­son).

Here’s a pre­view of the kind of business/economic news we’re going to be hear­ing from the euro­zone for years to come:
Boy, it sure is unfor­tu­nate that all those pro-aus­ter­i­ty treaties were signed and the euro­zone lead­ers philo­soph­i­cal­ly reject­ed the valid­i­ty of non-export-ori­ent­ed eco­nom­ic activ­i­ty because oth­er­wise there might be a real chance at a sus­tain­able recov­ery:

The Wall Street Jour­nal
Sep 23, 2013
Cap­i­tal Mar­kets
Wrong Kind of Growth for Euro Zone?
By Alen Mat­tich

The euro-zone econ­o­my is pick­ing up. How long this lasts, how­ev­er, prob­a­bly depends on the degree to which coun­tries like Italy and Spain will be allowed to keep water­ing down aus­ter­i­ty.

The com­pos­ite euro-zone pur­chas­ing man­agers’ index post­ed a 27-month high in Sep­tem­ber, com­ing in at 52.1 from 51.5 in August.

But this strength most­ly came down to ser­vices. The ser­vices index was 52.1 against expec­ta­tions of 51.1 and from 50.7 in August. By con­trast, the man­u­fac­tur­ing num­bers were less bull­ish, reg­is­ter­ing 51.1 in Sep­tem­ber, a bit below both the fore­cast 51.8 and August’s strong 51.4. Man­u­fac­tur­ing out­put, mean­while, was 52.1 from 53.4 in August.

On the face of it, this PMI sur­vey is heart­en­ing. But the detail is a bit wor­ry­ing. The euro zone’s belea­guered economies are expect­ed to grow through exports–a rebal­anc­ing away from the domes­tic con­sump­tion and debt-dri­ven growth of the pre-cri­sis years.

But the man­u­fac­tur­ing num­bers sug­gest the export trend is flag­ging. The summer’s emerg­ing mar­kets cur­ren­cy cri­sis no doubt had a role to play. Coun­tries like Brazil, Turkey, South Africa and India have been run­ning sub­stan­tial cur­rent account deficits, mean­ing they’ve been suck­ing in exports from abroad. As their cur­ren­cies col­lapsed, so too have demand for for­eign goods, includ­ing those pro­duced by euro-zone coun­tries.

But the slack here has been tak­en up by stronger ser­vices, which tend to be more domes­ti­cal­ly ori­ent­ed. Inso­far as this sug­gests domes­tic demand is pick­ing up in these strug­gling coun­tries, that’s good. Though here too the detail is less than bull­ish.

So why’s domes­tic demand pick­ing up?

In part it’s because some euro-zone coun­tries are back­slid­ing on aus­ter­i­ty. Italy’s gov­ern­ment had a deficit tar­get of 2.6% of GDP last year. The actu­al num­ber came in clos­er to 3%. Now it’s look­ing like this year’s 3% deficit ceil­ing could well be breached. Unless the gov­ern­ment insti­tutes some unpop­u­lar tax­es, the debt to GDP ratio could well reach 3.1%, accord­ing to recent esti­mates.

Spain, mean­while, was run­ning a cen­tral gov­ern­ment deficit of 4.4% of GDP dur­ing the first sev­en months of the year, against a goal of 3.8%. That’s not quite as bad as it looks–regional gov­ern­ment short­falls have been below tar­get. But Spain has yet to meet its deficit tar­get in five years and looks unlike­ly to do so in 2013 either.

Now, as far as Key­ne­sian econ­o­mists are con­cerned, that’s just what the doc­tor ordered (only not enough of it). When there’s a short­fall of domes­tic demand, the gov­ern­ment has to make up for it with deficit spend­ing.

But in the euro zone, this type of pol­i­cy is com­pli­cat­ed by region-wide pol­i­tics. Italy, Spain and oth­er strug­gling coun­tries have agree­ments with euro-zone bodies–and thus oth­er governments–about how and when they’ll achieve fis­cal pro­bity.

The degree to which they’ll be allowed to stim­u­late their domes­tic economies depends on the degree to which they’ll be allowed to ignore or fudge past agree­ments.

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