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Bundesbank President: Inflating away crisis an “absurd discussion”; Bild front page: “Inflation alarm! Bundesbank goes soft on the euro”

11 May 2012

Bundesbank President Jens Weidmann has moved swiftly to deny reports that his organisation was prepared to accept higher inflation in Germany to reduce pressure on other eurozone states, claiming in an interview with Süddeutsche that this was an “absurd discussion”. He said that keeping inflation below 2% in the eurozone as a whole meant that “in some cases” German inflation would be higher, but that “we will ensure [in the ECB’s governing council] that inflation in Germany will not run out of control. Citizens can rely on the vigilance of the Bundesbank”.

Germany’s highest circulating paper, Bild, warns on its front page that the “Bundesbank is going soft on the euro”, arguing that “Over the next few years prices in Germany will rise much faster than before. Our venerable Bundesbank, the sacred guardian of price stability, will do nothing about this since it considers it to be ‘manageable’”. In an op-ed accompanied by a picture of a one billion DM banknote from the Weimar era, the paper’s chief editor Nikolas Blome argues that “[inflation] will above all hit workers, employees and pensioners.
FT FT Editorial CityAM WSJ: Fidler EurActiv Süddeutsche FAZ Bild Bild: Blome Reuters Stern

UK’s EU bailout fund guarantees “may not be legally binding”
The Times quotes Open Europe’s director Mats Persson, discussing the EU Bill set out in the Queen’s speech to enact an EU bailout fund treaty change. He says: “There are two issues with this EU treaty change that could cause big problems: first, it allows the eurozone to integrate further with consequences for UK interests; second, the quid pro quo guarantee that the UK won’t be forced to contribute to euro bailouts in future may not be legally binding.”
Times Open Europe blog

European Commission: France, Italy and Spain will all miss their deficit targets
The European Commission has this morning published its new economic and growth forecasts for 2012-2013. According to the Commission, Spain’s deficit at the end of 2012 will be 6.4% of GDP, well above the agreed 5.3% target. Italy will not be able to achieve a balanced budget in 2013, unless it adopts new austerity measures, while France will also miss its target of 3% of GDP by the end of 2013. Les Echos notes that the Commission expects the French economy to grow by 1.3% next year, as opposed to President-elect François Hollande’s forecast of 1.7%.

Open Europe’s Raoul Ruparel is quoted by BBC News in a round-up of experts’ views, saying, “The growth vs. austerity debate is somewhat of a false dichotomy. Let’s not forget that the eurozone is undergoing huge changes and many countries are rebalancing their whole economies…Ultimately, the eurozone cannot exist with 17 German-style export-oriented economies and adjusting the approach to account for this is more important than the overly simplistic debate on growth.”

AFP reports that French President elect Francois Hollande will be invested on Tuesday May 15, and will meet German Chancellor Angela Merkel in Berlin later that afternoon. The two leaders will hold a joint press conference. Yesterday, Socialist Party spokesman Benoit Hamon told BFMTV that “Hollande will not change his position on the fiscal treaty, because he has a mandate from the French people…if the treaty is not renegotiated, it will not be submitted to the electorate, either in Parliament or through a referendum”.
BBC News Les Echos Le Figaro Les Echos WSJ 2 WSJ Economist 3 Economist: Charlemagne El País Les Echos Il Sole 24 Ore Le Monde Le Monde 2 Le Monde 3 Le Monde 4 Le Monde 5 Le Monde 6 Les Echos La Tribune Irish Independent Nouvel Observateur Telegraph FT: Errera

German Foreign Minister: Current EU budget leads to subsidies being spent on “day spas and romantic hotels”
Speaking in the Bundestag this morning, German Foreign Minister Guido Westerwelle argued that: “The EU can’t increase its budget, but has to use its resources better than it has done so far… We need to re-think of the use of EU funds. Calculating what share of each country’s contribution comes back in the form of European subsidies is no longer fit for purpose. This ultimately leads to aberrations such as EU subsidies going to day-spas or romantic hotels. We are all familiar with absurd examples of this type of subsidies in our own country. With European taxpayers’ money, we must achieve better efficiency quotas and demand better results.”
Open Europe research  El Mundo Welt Focus

Pasok to launch final push to form national unity government in Greece;
Barroso: If a country doesn’t abide by the rules, it’s better that it leaves

Hopes of a coalition in Greece increased slightly yesterday when the Democratic Left party called for the creation of a national unity government to serve for two and a half years to ensure Greece stays in the euro, although with some renegotiation of the current reform programme. The party’s leader Fotis Kouvelis criticised Syriza, whom he had earlier supported, for trying to force new elections and push Greece out of the euro, although he is still thought to want any coalition to include Syriza. The mandate to form a coalition is currently held by Pasok, with a Pasok-New Democracy-Democratic Left coalition now being pursued although still looking unlikely. Even if the coalition were formed it would only hold 168 seats out of 300, a fairly slim majority given the substantial reforms it would need to push through. City AM reports that the first post-election poll, for Alpha TV, put Syriza as the biggest party with 27.7%, suggesting it could win 128 seats if a new election is held. The poll put New Democracy on 20% and Pasok on 13%, suggesting a loss in votes for some of the smaller parties.

In an interview with Italian TV channel Sky Tg24 yesterday, European Commission President José Manuel Barroso said, “[The eurozone] is like a club. I don’t want to talk about any specific country, but…If a member does not abide by the rules, it’s better that it leaves the club.” Speaking to the Rheinische Post German Finance Minister Wolfgang Schaeuble suggested that the eurozone is much better prepared for a Greek exit than previously and has the short term tools to deal with contagion.
FT FT 2 WSJ BBC EurActiv Telegraph Irish Times Irish Times Les Echos Liberation IHT Kathimerini Rheinische Post: Schäuble EUobserver Kathimerini 2 La Stampa Bild Kathimerini 3 Les Echos 2 Les Echos 3 Il Sole 24 Ore Les Echos 4 Les Echos 5 Les Echos 6 La Tribune Le Monde Le Monde 2 Les Echos 7 Nouvel Observateur EUobserver 2 FT: Stephens Economist: Leader Economist Economist 2 AP

El País quotes a high-ranking EU official saying that the Eurogroup expects the Spanish government to demand “a very considerable increase” to Spanish banks provisions against loans to the construction sector. In exchange the eurozone may allow Spain more time to reduce its deficit.
El País El Mundo El Mundo 2 FT BBC Guardian FT: Jenkins WSJ Review & Outlook Telegraph

Conservative Home: Could George Osborne's leadership ambitions deliver a referendum on the EU?
Former Conservative MP and Conservative home columnist Paul Goodman writes that Conservative MPs have told him “that the Chancellor is floating the possibility” of an EU referendum. Goodman argues that “The Chancellor knows that the centre-right is the dominant force within the party, that it wants an EU referendum of some kind, and that he can't become leader without its support.

Separately, in a sign that Labour may also be considering a referendum Patrick Wintour of the Guardian writes on Twitter that “Labour front bench discussing referendum on EU, might be race to get there before Tories, judging by reports”.
Conservative Home: Goodman Spectator Conservative Home: Howarth Conservative Home: Howarth Guardian Twitter: Wintour

MEPs passed a report yesterday on the European Parliament’s expenditure which was highly critical of a number of spending areas including EuroparlTV, the Parliament’s in-house TV station which attracted around 30,000 viewers per month in 2010 despite receiving a €9m subsidy in 2010 alone, and a series of prizes awarded for films, journalism and projects promoting EU culture or integration. The report also highlights a €179m shortfall in the parliament’s voluntary pension fund.

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