Tuesday, 15 January 2013

Can Angela Merkel make it 3 in a row and Peer Steinbrüeck avoid another gaffe

The German federal elections in September 2013 will determine significantly the future direction of any Eurozone assistance, bailouts and general funding. A change of government in Berlin could see a massive alteration in not only the way in which Eurozone aid funds are spent, but what criteria need to be met to gain access to it.

Currently, there is a ruling coalition in Berlin comprising of “the Union” which includes both Chancellor Merkel’s CDU and their Bavarian sister party the CSU, and the pro-business FDP who together were able to form a centre-right government. Since the 2009 elections though, there has been a significant change in fortune for Chancellor Merkel’s coalition and if elections were to be held today, they would not gain enough seats in the lower house of the German Parliament (the Bundestag) to form government again.

One of the largest obstacles to the CDU-CSU forming government is the theoretical electoral performance FDP who have been described by various segments of the German press media as nothing more than a “Zombie Party”. This is due to the fact that the FDP currently have a projected total vote at an insignificant 4% -down from 14% at the previous federal election. If this trend continues until the election it would be disastrous for the CDU-CSU not only because their coalition partners’ total vote has decreased by 10%, but also because in federal elections, any party which receives fewer than 5% of the total vote does not receive any seats in the Bundestag.

If we look at polling from the 2009 elections, we can see that that 10% or so of former FDP voters who have said that they would not vote for the FDP at the next election have most likely changed their preference to the SPD. If this was to continue until the September elections, there will be most probably be a SPD-Green coalition like the one that existed under the Gerhard Schröder governments.

Although current polling and forecasts suggest that an SPD-Green coalition will be able to form a government, there remains one erratic and uncontrollable factor in the race for the Chancellery and that is SPD leader Peer Steinbrüeck himself. The worst ailment for any politician to have in a political sense is something I like to refer to as simply “foot in mouth disease”. Mr Steinbrüeck – the man who has been chosen to lead his party in the upcoming federal election, is unfortunately suffering from a severe case of such an ailment.

Since being chosen to lead the SPD Steinbrüeck has had two major blunders which have – and will continue to, hurt and haunt his campaign until the election. These were his declaring that he believed the Chancellors salary was too low, and that Chancellor Merkel enjoyed a “female electorate bonus”.

What many people outside of Germany (and apparently the leader of the SPD) do not realise is that although the German economy as a whole is one of the better performing economies in Europe, there is a clearly visible difference in wealth between those Germans from the former East Germany and their Western counterparts. After more than 20 years since unification East Germans continue to work for lower wages, have less accumulated wealth and have had to deal with an increase in hours worked per week.

Those residents of Länder which constitute the former East Germany are concerned that the Eurozone crisis will one day come to Germany and that they will be put into a position comparable to what the Greeks are currently facing. They are also fearful of austerity potentially being implemented and their being driven further into economic inequality. The last thing these Germans want to be told by any prospective future Chancellor who would have the power to implement austerity and potentially drive them into poverty is that he wants a pay increase.

A politician should never use the insulting of the opposite sex either intentionally or unintentionally as a campaigning tool. Simple logic should set off the proverbial internal alarm bells and Steinbrüeck should have realised that by insulting women, he is alienate approximately 52% of the German population and may even help convince undecided female voters to vote for the CDU or CSU. What makes Steinbrüeck move even more suicidal is the fact that the incumbent Chancellor, Angela Merkel is a woman.

Normally, the incumbent Chancellor Angela Merkel would have to be careful about what she spoke of whilst on the campaign trail with the Eurocrisis and Germanys role within it being a topic of much debate. Thankfully for her, Mr Steinbrüeck is diverting all the attention away from the Chancellor and onto his and the SPD’s deteriorating campaign.

Although the SPD’s approval rating is at approximately 30% in current polls, there was not a significant spike when Peer Steinbrüeck was chosen as party leader and in point of fact, their approval has not noticeably increased since Steinbrüeck’s election. With 8 months to go, perhaps Peer Steinbrüeck’s “foot in mouth” gaffes will sway voters back to the CDU, CSU or FDP and give Chancellor Merkel her third term as Chancellor of Germany.

Thursday, 3 January 2013

Who's Who, and What Will Happen at the Italian Election?

Members of the Eurogroup have been progressively implementing the necessary reforms and providing the required amount of conditional aid to ensure that the Eurozone retains some semblance economic stability and credibility allowing it to remain an attractive destination for investors. All the good work born from numerous late night meetings in Brussels and endless phone calls between the various Ministers and Heads of Government have all been thrown into chaos with the withdrawal of support of former Italian Prime Minister Mario Monti’s technocratic government by ex-PM Silvio Berlusconi.

Like most other continental European parliaments, the Italian Camera dei Deputati contains numerous smaller parties – none truly large enough to govern in their own right, who are required to form coalition governments in order to be given a formal mandate to govern by the President of the Republic.

With elections scheduled for the 24th of February 2013, there are four political parties which will constitute the bulk of any future government. For the larger parties, their respective platforms will help decide who leads the next government whilst the electoral performances of the smaller parties will determine the quality and quantity of ministerial portfolios they are allocated in any coalition.

To better understand the current situation I have provided below a summary of the four parties which will feature prominently in the upcoming election, their leaders, policies, and any potential setbacks they may incur.

Silvio Berlusconi’s centre-right Popolo della Libertà (PdL) withdrew support for the technocratic government before its unofficial mid-February date of resignation bringing about the current early election. This date had been agreed upon via a gentleman’s agreement between the leaders of the major parties. The PdL which has been described by commentators in Europe as nothing more than Silvio Berlusconi’s personal political party, benefits greatly from the use of his media empire through both the print and television mediums.

The PdL has used data provided by the Mediaset (media company controlled by Silvio Berlusconi and his family) daily opinion polls on the publics government satisfaction to implement or change plans of action. PdL advisors decided that with government disapproval levels at approximately 61%, it was the most opportune time to withdraw support for Monti and launch an electoral campaign.

Whilst appearing on one of the RAI (Italian public broadcaster’s) channels current affairs programmes, Berlusconi stated that the gloomy economic situation Italy was facing when he left office was not due to bad economic management on his part, but rather due to investment banks selling large quantities of their Greek and Italian bonds at the one time. He has claimed that he will reverse most if not all of Monti’s reforms, including property tax. When quizzed about how he would then recoup the lost revenue, he simply said that he would implement a “minor increase” in tax paid on beer and spirits.

The PdL also has to deal with the negative consequences brought about by Berlusconi’s private life. Events such as “Bunga Bunga” parties, the soliciting of prostitutes, and the “Ruby the Heartstealer” scandal have earnt him the ire of voters in traditionally conservative, catholic Italy and this will potentially alienate the party from older voters. These older voters normally constitute a large portion of the PdL’s electoral base. Much like the relationship between the French and their former French President Nicolas Sarkozy, Italian voters do not want a “Hollywood” Prime Minister at such a crucial time.

Critics of Berlusconi have said that the only reason he is running for the Prime Ministership again is because his Mediaset company needs money. This is primarily due to falling revenue brought about by a decline advertising space bring purchased. This is due to two primary factors - the European economic crisis, and that they do not have the rights to broadcast Italian professional football (soccer) matches. It is understood by people in the Italian business community that if companies invest significant amounts of advertising revenue with Mediaset, they will then gain preferential access to the Prime Minister and Ministers, and could be potentially be awarded government contracts.

The right-wing and regional autonomy orientated Lega Nord has traditionally been a major coalition partner with Silvio Berlusconi’s party (whichever name it is running under at the time), providing the coalition with the second largest amount of Deputies. An important development which has occurred recently has been a change within the Party’s internal hierarchy with founder Umberto Bossi being forced into retirement. This has occurred following recent scandals involving Bossi himself, the then treasurer Francesco Belsito, and members of the so called “Magic Circle”.

Replacing Bossi as head of the Lega Nord has been Roberto Maroni. Maroni, although seen as a Bossi disciple, has differenced himself following Berlusconi’s announcement that he intends to run for office again. He has come out and stated that the Lega will continue to support the PdL but not with Berlusconi at its helm. Maroni and the Lega see Berlusconi’s antics in both the public and private sphere, and his instability, as detrimental to their electoral goals. By aligning themselves with him, the Lega believe that there will be a significant enough voter backlash that they could loose representation in the Camera from normally safe areas such as Venice and Lombardy. By opposing Berlusconi, Maroni believes that disgruntled voters who would normally vote for the PdL will instead cast their ballots for the Lega therefore giving them a larger presence in Rome.

Berlusconi has done himself and the PdL no favours by announcing soon after Maroni declared that the Lega would not support the PdL, that the PdL would in turn not support the Lega in the next Regional elections. These elections are very important for the Lega as it works in unison with their aim of regional autonomy. On a personal level, Maroni does not take kindly to threats. He will more likely than not direct the Lega to campaign heavily against the PdL at the next Regional elections, trying to oust current PdL members whom they did not previously campaign against.

Then Unione di Centro (UDC) is the centrist party headed by Pier Ferdinanando Casini had kept their intentions for the upcoming election to themselves until recently. It was not known whether Casini would run himself for the Prime Ministership or align himself with Berlusconi’s PdL. What was occurring during this period of public speculation was the UDC’s courting of current Technocratic Prime Minister Mario Monti to run for Prime Minister. He would therefore attempt to gain a democratic mandate to govern in his own right as a part of the UDC. Although this is something that financial markets and European leaders wish would happen, in reality is quite unlikely.

The reforms that Monti’s technocratic government has managed to implement will be of benefit to Italy (so long as they are not repealed) in the long term, unfortunately, there will be some short term pain. Some taxes have had to be raised and payments frozen, as well as a downsizing of the overstaffed and under performing civil service. This has lead to Monti having a disapproval rating of above 60% which will dampen any chance of Monti becoming PM. What I do believe to be a more probable outcome, is that the UDC will receive enough seats the Italian Camera and remain independent. They would then negotiate with the governing party of the day and support or oppose legislation as it is proposed.

Although it is unlikely that the UDC will join any center-left coalition continuing its preference for center-right coalitions, the clash of personalities between Casini and Berlusconi will mean that it is doubtful that they will join any coalition government involving Berlusconi. For them to do so though, they will demand Cabinet representation with the role of Finance Minister being the least they will accept.

The centre-left Partito Democratico (PD) headed by Pier Luigi Bersani appears to be the group most likely to lead any government post the February elections. In news that was greeted with both contentment and caution from global financial markets, Bersani has declared that if elected, he will continue with the reforms set-out by Mario Monti. Although he does agree that reforms of the Italian economy are essential, European leaders are predictably concerned as Bersani is from somewhat of the same school of thought as his Socialist counterpart in France – François Hollande, as he is more in favour of growth policies as opposed to pure austerity.

By mentioning his preference to a combination of both growth and austerity measures as opposed to pure “Teutonic austerity”, Bersani is attempting to walk the fine line between electoral victory at home and European assistance internationally.

Voters in the country’s South would respond more favourably to growth measures compared with those in the more economically developed North. This is because these types of policies will potentially reduce the chance of welfare and pension payments being cut. Residents of the Sicily, Basilicata, Campania, and Calabria would be most receptive to this as many are heavily reliant on government assistance. Companies in the more industrialised North would also be in favour of any growth measures as it would give consumers especially in Regions such as Friuli Venezia Giulia, Piedmont, Lombardy, Emilia Romagna and Tuscany more disposable income to spend on their goods and services. This is just simple economics.

European decision makers (in reality those countries who currently hold a Triple-A credit rating) would still be cautious of the desire for growth measures to be implemented by any Bersani government. They are aware though that Bersani fully understands that he needs to follow their advice so to be eligible for any emergency European funding and support. Conversely, the European power-brokers understand that by announcing that growth policies will play a major part in the party’s electoral platform, this is simply a means of gaining votes. And as we know with politics, it is not uncommon for politicians to change their minds and break election promises.

If the PdL was serious and wished to lead a governing coalition again, it would be commonsensical for Silvio Berlusconi to resign as Party President. This would then insure support from the UDC and Lega – both of whom are now anti Berlusconi and not necessarily PdL.

It is my belief that if the current political situation in Italy does not change, a coalition of centre-left and leftist parties will form a government with Pier Luigi Bersani becoming the next Prime Minister. For the Eurogroup and financial markets, this is the best result possible with the exception of Mario Monti somehow being named Prime Minister.

I would also expect that there would be a rally on the Milan bourse primarily in the stocks which compose the FTSE MIB 40 as investor confidence will return bringing with it capital which had previously been withdrawn from the market due to a lack of investor confidence in the wider Italian political system and economy. Italian government bond yields would also fall as the broader financial markets would have faith that the currently implemented reforms would not be repealed and the path set by Monti continued to be followed. With Europe’s third largest economy hopefully stabilised following the election, Brussels can then focus on shoring-up Spain, Portugal and Greece.

Let us hope that on the 24th of February, Italian voters have their country’s long term future and not short term personal gain in mind when casting their ballots.

Tuesday, 18 December 2012

Trouble in Libyan Paradise

In another sign that the changes brought about by the Arab Spring may be falling by the wayside, corruption in Libya has now become worse than before the revolution and martial law has now been declared in Libya’s Southern districts to combat the increasing level of violent robberies, kidnappings and murders. This is in sharp contrast to the transparency and safety promised following Gaddafi’s deposition.

As of the 17th of December, the former Ghadames, Ghat, Obari, Wadi Al-Shati, Sabha, Murzuq, and Kufra districts have fallen under military rule and martial law has been declared. This has been brought about due to a sharp increase in lawlessness throughout the region. Brigandry and narcotic production have risen dramatically since the revolution with kidnappings and murders on rural roads occurring frequently. Although corruption and cronyism existed under the Gaddafi regime, the level of corruption has now become so rife that the central authorities have had to take this dramatic action.

In other news, the Libyans have now closed its land boarders with Chad, Niger, Sudan and Algeria thereby restricting the movement of people as well as goods and services. The government has become increasingly concerned that there will soon be an international mission in Mali to counter Al-Qaeda linked militants who have gained control of the North of the country. They fear that there will be an inflow of militants fleeing pursuers who will expect them to face some form of justice (be that in the court room or by the mob).

Tripoli is aware that Libya will be a destination for those fleeing as a large proportion of militants were formally hired mercenaries under the Gaddafi regime. With the fall of the regime, they fled back to Mali bringing with them large caches of weapons and ammunition which have been used throughout the conflict.

One must wonder whether or not the Libyan government through this statement have unintentionally announced that an international intervention into Mali is in the process of being organised.

Sunday, 16 December 2012

How Egypt May Have a New Pharoah

The much-hyped address to the Egyptian nation by President Mohammed Morsi was promoted as a means for which anti-Morsi protestors’ questions would be answered and the proverbial olive branch of peace would be extended to opposition parties for the benefit of Egypt and its people. What the Egyptian people and the world actually saw can be described as nothing less than farcical and disgraceful.

The Arab Spring brought the winds of change to the Arab world with regimes being toppled and reforms implemented from North Africa to the Middle East. Egypt, which had long lived under foreign occupation, puppet governments and dictators was not immune to these winds of change, and in the early part of 2012 Egyptian daily life had changed forever – or so the people thought.

Hosni Mubarak’s regime although secular was deficient in its respect of human rights, civil liberties, the democratic process, and was guilty of mass corruption and cronyism. Following days of protests which gave the world iconic images of Tahrir Square filled with protestors, the old regime was ousted and elections were organised for the new, democratic government.

At the time of Mubarak’s resignation following days of protests, the organisation best placed to participate in the newly announced electoral campaign was the Muslim Brotherhood. The organisation which had been banned in Egypt on-and-off for over a half century had a well developed and sophisticated network with administrative hierarchy and official press mouth-pieces which other organisations were lacking.

The democratic Presidential elections therefore brought with them a Muslim Brotherhood victory with their candidate Mohammed Morsi being elected President. With the promise of real change, Egyptians were initially welcoming of the result. However, it soon became apparent that the promises and assurances given by Morsi that the new Egypt would be one built upon the foundations of tolerance and respect were false. Almost immediately, groups which the Muslim Brotherhood did not approve of – such as Egypt’s Coptic Christians, began to face increased persecution and discrimination as police and new government officials turned a blind eye to what was occurring.

In late 2012, in a move which brought with it not only domestic – but also foreign condemnation, President Morsi announced that he had passed new laws which gave him extra powers. These decrees stated that:

  •  No laws or declarations passed by the President from the time of his inauguration until a new parliament is elected can be overturned by any authority, including the judiciary. 
  •  There would be a retrial of all those charged with killing or injuring protesters involved in the uprising. 
  •  All Mubarak-era officials alleged to have terrorized protesters will be retried. 
  •  Egyptian prosecutor general Abdel-Meguid Mahmoud be dismissed and replaced. 
  •  No authority may dissolve the Shura Council (the upper house of Egypt's Parliament) 
  •  The Constituent Assembly would be given a two month deadline to finish drafting a new (Islamist) constitution. 
  •  No authority but the President may dissolve the Constituent Assembly until the country's defining document is completed. 

The differences the between old and new regimes have now become few and far between. Opposition leader and former Director General of the International Atomic Energy Agency Mohamed ElBaradei has even labelled Morsi the “New Pharaoh”

The televised address mentioned previously, whilst not addressing any of the points the Presidents staff said he would raise, also served to inflame tensions with the opposition parties to such a point where they called for a boycott of the referendum on the new constitution (this was later changed to a vote of ‘no’). Judges have also gone on strike to protest the new powers and Islamist constitution. This means that the referendum will now take place over two weeks because there are not enough judges to supervise all of the voting booths.

Early indications are that Christians who make up approximately 10% of Egypt’s population will be voting en-masse against a constitution which they believe to be too Islamist in nature. In a contrasting view, Sheiks have told their followers at Friday prayers to vote for the constitution as a way to stabilise the country and the economy which has been suffering in recent times.

It will be interesting to see not only if the new Egyptian constitution is accepted but also what voter turnout will be.

Thursday, 6 December 2012

The Real Cost of Government

In an age where European states are struggling to grapple with the severity of their debt levels, reforms which should be made as a part of a larger means of debt reduction have not taken place. Ineffectiveness and cronyism dominate government ministries, and institutions where public funds which should be used for capital investments or debt repayments are instead used to pay many inefficient workers, parliamentary subsidies, and various perks.

It is common knowledge that this is the case in Greece (you only need to watch CNBC most weekday mornings to see this), but this problem also exists at a similar level in Europe’s third largest economy – Italy. Over the past year Eurostat (the official statistical agency of the European Union), Der Spiegel (German weekly news magazine) and Vision (independent Italian think-tank) have been accumulating data and published comparisons on the amount of money needed to run the Parlamento Italiano (Italian Parliament) – primarily the lower house, the 20 Regional Parliaments, and other Parliaments throughout Europe.

The Italian Camera dei Deputati (Chamber of Deputies - lower house of parliament) costs €1.66 billion annually to function. This is an astonishing amount when compared to running costs of the lower houses of parliament in France, the UK, Germany and Spain. When combined, the running costs of the French Assemblée National, British House of Commons, German Bundestag and Spanish Congreso de los Diputados do not equal the €1.66 billion spent by the Italian taxpayer on the Camera. When broken down into per capita figures, Italians are paying €27.15 for their lower house to function, compared with €8.33 in Germany, €8.11 in France, €7.71 in the UK, and €2.14 in Spain.

Of the €1.66 billion spent on the lower house, only a meagre 15% is spent on Deputies. Almost a quarter is spent on personal staff, and more than 18% of the annual budget is allocated to pay parliamentary pensions. Other parliamentary perks include a free barber for Senators and heavily discounted food (beef carpaccio with lemon sauce for only €2.76 – less than the price of a coffee down the street). Public cynicism has also come about after discovering that parliamentarians receive €3,700 a month for the purposes of maintaining relations between themselves and their constituency. Parliamentary staff also benefit from high wages and expense accounts which leads to the practise of employing family or friends with negligible real work being done as there is no incentive for these staff to work. In what can only be a prime example of the exorbitant waste of taxpayer money on inefficient government is not the €230,000 annual wage paid to the Italian Head of State – the President, but rather €270,000 annual wage that a senior short hand writer in parliament receives. That’s 17% more than the President of the Republic!

Finally, as if the amount of money spent in Rome on the Camera alone was not enough, Italians also have to pay for Regional governments and parliaments to function. This requires the payment of money to more officials, assistants and consultants in the regional capitals. For example, residents of Lombardy, Apulia, Latium (Lazio), and Sicily (for of the 20 Regions of Italy) are paying €8.70, €15.40, €18.50 and €35.10 respectively as well as the €27.15 for the Roman government.

With much of these funds being wasted supporting unrealistic undertakings, it may be time that the Italians in power looked at implementing austerity a little closer to home before hurting its own people and crying to Brussels.

Friday, 30 November 2012

Don't Forget The Finns!

Whilst anti-austerity campaigners throughout the Mediterranean area of the Euro-zone have been directing their anger and frustrations towards all things German (particularly German Chancellor Angela Merkel and her Finance Minister Wolfgang Schäuble), another country is dictating terms almost as much as the Germans but escaping with minimal minimal criticism - Finland.

During the 1990's, the Finns experienced tough economic times and have since worked hard to ensure that it never happens again. With their own financial crisis still fresh in their minds, the Finnish have managed to be one of the few members of the Euro-zone to attain, and retain a AAA credit rating from the major ratings agencies (Standard & Poors, Moody's, and Fitch). The Finnish voting public like their German counterparts (this is very important as German Parliamentary elections are scheduled for 2013) are beginning to tire of what appears to be the never ending cycle of late night meetings in Brussels for an end result which would inevitably see Finland  poor more of its own money into the various collective bailout funds being established. Compounding this, is the perception that the various reforms which bailout countries need to undertake as a condition of receiving aid are not being implemented. 

As a way to ease discontent at home and to ensure that countries receiving aid could not renege on their promises, Finland has organised for both Greece and Spain to offer them collateral in return for aid. This allows the Government in Helsinki to talk tough on Greece and Spain and how they need to reform whilst displaying to the local electorate that their money is being looked after and not wasted. The Finns were also the proverbial "final hurdle to clear" in the most recent Greek aid package. They arrived in Brussels with once main demand - no more loans which was eventually agreed to. This shows that the Helsinki has now become less willing to assist the Mediterranean countries and may in future actually ask to be exempted from providing funding for future financial facilities and mechanisms. 

The Finnish Prime Minister Jyrki Katainen gave a very good interview with Germany's Der Spiegel which can be read here in English.

Wednesday, 28 November 2012

More Ways For The Global To Become Local

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