Gonzi's dilemma for the New Year

There are two good reasons why the Prime Minister should consider early elections.   There is one strong reason why he should not.

The elections have to be held, if in practical terms of the months of July and August are excluded, by June 2013 in 18 months time.
The PN is not new to holding early elections.  In 1992 they were  held in February whilst government could have lasted till October.  In 1996  in October when the latest permitted date was July of the following year.   In 2003 elections were held in April when they could have waited till January of 2004.   And in 2008 they went for it in March when they could have waited till August.   Always a few months early, maximum 9 months, but never as early as 15 months, if as rumoured the election will be held in March alongside the local councils' election.

Franco Debono threat to vote against government and wipe away the government's mandate through parliament is not the only reason why Gonzi may be forced, against his will, to go for elections earlier than planned.   The other reason is the complicating situation in Europe's economy which could darken the economic environment to make it unappetising to consider elections being held when due, i.e. in spring of 2013

My best bet before the Franco Debono debacle was that the Prime Minister was keeping his options open to hold the elections next Autumn without having to present the Budget for 2013.    If the economic situation worsens the over-optimism inbuilt in the 2012 Budget would be exposed and the Budget for 2013 would form an unsuitable platform for re-election.

The Franco Debono disloyalty to the party whip could now force the Prime Minister's hand.

Yet there is one extremely valid reason why Dr Gonzi should hold out and muddle through to stick to his plans without putting Franco Debono in the equation.   It is that there is greater chance of losing the elections if held early because of Franco Debono than if he holds out for elections when due trusting his luck that the Euro crisis will blow over and the economy will permit a further gold tinted budget before going for elections in 2013.

My best bet is that the Prime Minister and the PN will now use a mixture of charm and threats to contain Franco Debono's misdemeanours.  

Who knows may be Franco Debono may even find himself a place at the Cabinet table next to Minister Mifsud Bonnici.  Or may be the government may freeze its legislative programme and continue governing with minimal parliamentary involvement till next Autumn.

Outgoing ECB executive calls on the ECB to wake up to its responsibilities

Bini Smaghi is no Grinch

I thought it would never happen.   I thought that at the ECB they were all Grinch interpreting monetary policy in the narrow German point of view irrespective of the economic scenario around them.

I have been arguing for months in favour of the ECB using its resources to put out the fire burning in peripheral economies whilst they undergo serious painful austerity inspired restructuring.  I have consistently argued that the ECB was the only pan -EU institution with the tools and capacity to match the market speed and stop the evident slide into an EU depression.  I thought nobody was listening in Frankfurt as they continue to sing from the strict Bundesbank monetary policy hymn sheet.

But now it seems that someone with weight at the ECB is listening.   Lorenzo Bini Smaghi, the outgoing member of the ECB executive has let it out.   In an interview in today's Financial Times he urged the ECB to take bold action.  Read this comment by the FT:

One lesson Mr Bini Smaghi has learnt is that eurozone policy makers cannot opt out of taking bold decisions. “Some of these decisions may not be optimal and may be criticised, especially with the benefit of hindsight. But not deciding, or postponing decisions, is not an option and leads to worse outcomes.” Nor, he says, should decision makers “hide behind lawyers to avoid taking action”.

It is a carefully-chosen remark. Germany’s Bundesbank and Mr Stark, a former Bundesbank vice-president, oppose any significant expansion of the ECB's government bond-buying. 

No they are not all Grinch at the ECB and it is evident that with Mario Draghi's taking over at the helm, the ECB will do what needs to be done to avoid a depression.

My Christmas got better already!

Why Germany should show solidarity with distressed Euro countries and not just at Christmas

 

There is a strong case for Germany and other surplus countries to rise above the egoistic narrow view of the situation and explain to their electorates that not only it is in their own interest to save the Euro but that they also have a moral duty to support the deficit countries to overcome their problems.  

This has to involve a fair burden sharing arrangement which is in the long term interest of the surplus countries as an indispensable step to save the Euro. Collapse of the Euro will be highly detrimental to the economies of surplus countries, apart from other political, social and possibly even security considerations.

 

Surplus countries have an obligation to burden share the adjustment process of the weak countries, for  following reasons: 

• The weakness of some members of the Euro, in particular Greece, Italy, Spain and Portugal, was known in advance  so strong members share some of the responsibility for admitting into the Euro Club members who were clearly not ready for the commitment.
• Germany and France were the first countries to openly breach the Euro rules in 2003 and they demanded impunity, indeed demanded and obtained weakening of the rules, setting a bad example for the weak countries and weakening the ability of the European Commission to impose discipline on offenders.   If you cannot throw the book at Germany why should you be able to throw the book at Greece?
• When Greece was clearly floundering on fiscal good housekeeping and anyone with eyes to see should have suspected that Greece statistical submissions were, politely put, inaccurate, most countries simply looked the other way and pretended not to notice.
• All Euro members allowed the markets to imply that whatever is stated in black and white in the agreements ultimately there is a sense of inbuilt solidarity among Euro members and no Euro country would be allowed to default.   In particular Mr Jean Claude Trichet when President of the ECB gave many verbal assurances that no Euro country will default on its debts.
• Strong countries made a feast out of the problems of weak countries.   Greece’s balance of payments deficits are the surpluses of Germany.    A UBS research paper shows that the benefit being enjoyed by the surplus countries is so large that it is much cheaper for the surplus countries to help the deficit countries to overcome their difficulties through responsible burden sharing than it would be if the Euro blows up.
• The crisis itself has been as much an economic bonus for surplus countries as much as it has been an economic distress of the deficit countries.    The crisis has weakened the Euro against other major currencies making core surplus countries, whose economy is export oriented beyond the borders of the EU, even more competitive than it would have been if there were no crisis.
• The crisis has also been a bonus for surplus countries in that their borrowing cost have reduced just as the borrowing costs of deficit countries have shot up.  The crisis has triggered investors to take risks off their portfolios and seek capital security in preference to yield.

Germany and France cannot solve the Euro crisis by forcing austerity measures on others while they enjoy all the benefits of the crisis.  They must stop being the grinch!!