Welcome and Don’t Forget Your Wallet!

Latvians have been given the green light on their euro traffic-lights. German court is preparing its key decision. And the IMF is louring on Frenchmen.

The European Union, as well as the eurozone, is expecting a new member. While Croatia will put itself into the hands of the EU in 3 weeks, the eurozone could have a new member in the year 2014. The Commission has considered Latvia as ‘healthy’ enough and has recommended its acceptance to the eurozone. Latvians celebrated the news in their own way – by electing eurosceptic parties in the local elections. It is not a surprise – one of their first tasks will be to vote for their entry into the European Stability Mechanism (ESM) and to send cash to Brussels. This participation of Latvia in the ESM and its debts is still an open issue.

In Germany, the euro is also occupying the headlines. There have already been several lawsuits to question some of the steps which were supposed to lead to the euro rescue. The lawsuits focus especially on the creation of the ESM and the previous stability funds, which did not even lend a hand to the rescue works significantly. At the next court hearing, the Federal Constitutional Court of Germany is expected to reveal its opinion on Outright Monetary Transactions (OMT) – the program of the ECB.

This program allows the ECB to buy bonds of EU members. Several German academics (and, surprisingly, also some leftist politicians) claim that this step is in fact a direct monetisation of debt and, therefore, it is against German law (as well as against good fiscal manners). Previous suits were solved by court’s Solomon’s judgement: „Yes, but…” Controversial steps have been supported, but on the other hand, they have been tied together by the German parliament voting (e.g. Any decision to borrow sources from the ESM has to be accepted by the parliament). However, this decision will not be applicable this time, because the monetary policy is a part of the Bundesbank agenda, and it is outside the competence of Bundestag. It will be left for the Court to decide. In the case of a negative verdict, a problem will arise – the court has a jurisdiction only over the Bundesbank, not over the ECB. If Bundesbank follows the verdict, in the worst case it will have to leave the eurosystem. However, the decision will definitely come only after the elections in September.

Meanwhile, the ESM is preparing a special fund with the volume of several tens of billion euros, assigned for direct bank recapitalisations. Following the mutual rules discourse, a new debate is emerging about the second pillar of the bank union, i.e. about a resolution fund. This would be a fund collecting banks’ money and using it to save their unlucky sisters. Thus, the ‘healthier’ banks (among others also the Slovak ones, which were restructured with Slovak taxpayers’ money at the turn of the century) would pay for the less responsible ones.

The recent discussion on the competence of the EU and the ECB in Germany is nowadays more and more held only at the academic-law level, while in the UK, the debate is much more wide-spread. Ruling conservatives led by Prime Minister Cameron consider a referendum on the withdrawal from the EU a sure thing. What is even more interesting; the same opinions can be heard also from the side of their labour opponents. A referendum has been supported by 15 Members of Parliament and by 150 councillors. Britons mostly dislike the idea of transferring more competence to Brussels – or to Paris. Lately, there have been attempts to move the control over the creation of some price indicators (e. g. the Brent Crude index of oil prices) from London into the hands of ESMA (European Securities and Markets Authority), headquartered in Paris. Allegedly, the important market indicators like these cannot be in the hands of the market and have to be controlled by a public regulator.

The proponents are using the famous case of the average interest rate LIBOR. In this case, some suspicious practices of banks responsible for LIBOR were revealed. However, this argument ignores the fact that it was the Bank of England that has ‘asked’ commercial bankers for their co-operation in the Bank’s attempts to get over the financial crisis.

Paris is still being criticised and warned from all directions. The IMF has decreased its forecast of French economic growth – if France does not continue with reforms, it will begin to get behind the rest of the eurozone. According to the IMF, the most important one is the reform of the labour market, and the tax burden in France should be decreased as well.

The burden must be really high if it‘s a problem even for the IMF. It was the IMF that gave advice not to decrease taxes to Greece when it was hit by the crisis and had sky-high unemployment rate.

Still, Greece is going to try it at least as they consider decreasing the 23% VAT on foods & drinks. Greeks also increased the pressure on their traditionally corrupted public sector. At the moment, more than 2,000 investigations of a violation of civil servants’ duties are in progress. Another 500 civil servants have already been accused of criminal acts, which is a higher accusation count than for the previous 4 years altogether. However, there have been just symbolic 99 civil servants fired for stepping out of line. What is the count of the fired ones in Slovakia?

A trade war has broken out between China and the EU. China has decided to support the EU’s green energy goals by selling us cheap solar panels. Brussels wants them to be expensive though, therefore, it has imposed an import tariff on them. In return, China has started to investigate the import of European wine.

In the rubric “You will not make this up, it is France!” we are offering you a combo. Paris is threatening the USA-EU union with a veto on the proposed customs if it does not get a cultural exception. The French are probably afraid that chanson would not survive an inflow of Lady Gaga and 50 Cent CDs free of custom dues. The second absurdity is also from the area of culture. French minister of culture Aurélie Filippetti is willing to give some legal advantages to small book stores, which are being decimated by Amazon and similar bookstore chains. She suggests banning free postage. Also, British book-sellers are calling for similar steps. It is necessary to read books, but they just cannot be too cheap and easily accessible!

Today, we can only laugh at our ancestors, the book copyists, who were fighting against the printing press, because it was taking their jobs and incomes. Our successors will once laugh at our silly ideas.

Enjoy your free time at the riverside, preferably not near the Danubian one.

Translated by Roman Ujbányai