Pensions are at the center of Greece’s latest dispute with its creditors.
The Greek Kathimerini newspaper reports that the International Monetary Fund’s managing director, Christine Lagarde, stressed to Prime Minister Alexis Tsipras during a recent meeting at the World Economic Forum in Davos, Switzerland that his government’s proposal for pension reform was inadequate.
The IMF jointly administers Greece’s €86 billion bailout with the European Union.
But Tsipras has said Greece won’t succumb to “unreasonable and unfair demands” and reportedly told Lagarde “there is no way” he can cut pensions for current retirees.
“One pension is a whole household’s income in the present circumstances,” the far-left leader told parliament last month. Read more
Projections Underscore Need for Entitlement Reform
Projections released by the Congressional Budget Office on Tuesday underscore the need for comprehensive reform of America’s biggest spending programs.
The CBO, an independent outfit, warns that the federal deficit will jump to $544 billion next year, or 2.9 percent of gross domestic product — the first time since 2009 that the shortfall is expanding relative to the size of the economy.
Over the next ten years, deficits would add up to $9.4 trillion unless significant policy changes are made.
The CBO sees the debt rising from $13.1 trillion last year, or 74 percent of GDP, to $23.8 trillion, or 86 percent, by 2026. Read more
Unfunded State Benefits: America’s Next Fiscal Crisis
America’s fiscal crisis looks less pressing than only a few years ago. A combination of spending restraint and tax increases that has resulted from messy compromises between President Barack Obama, a Democrat, and the Republican Congress should help push the deficit down to a manageable 2.5 percent of economic output this year.
Longer term, the rising costs of health and pension programs still look worrisome. But before the problem reaches Washington DC, it could wreak havoc at the state and local-government level. Read more
Between the Crazy, Serious Ideas in Republican Debate
Wednesday’s Republican presidential debate hosted by CNBC was easily the worst so far this year. The moderators seemed more interested in catching the candidates in hypocrisies and discrediting their looniest proposals than encouraging a substantive debate — but at the same time let some of the most outlandish claims go unchallenged.
Between the crazy, though, there were glimmers of a reform-minded conservative platform taking shape. Read more
Democrats Resist Weakening Decades-Old Social Model
Democrats in the United States are deluding themselves and their voters if they vow to resist changes in the economy over which politicians have little control.
From their doubts about a transpacific trade pact to fights against flexible labor relations, Democrats are showing themselves to be uncomfortable with many of the tenets of globalization that have redefined the world economy since the 1980s. Read more
Protests by French farmers against low dairy and meat prices are diving Europe. While similar actions are expected in neighboring Belgium, Germany and the Netherlands are irked that the Paris government is enacting protectionist measures in an attempt to quell the unrest.
When French farmers blocked the roads in northwestern Brittany and Normandy last week, the Socialist administration of President François Hollande quickly gave into their demands, canceling around €100 million in taxes and allowing them to defer another €500 million for three to four months. The state also promised €500 million in support to help indebted farmers restructure their loans.
The concessions didn’t stop farmers in Alsace, in the northeast of France, from blocking German trucks carrying agricultural products into the country this weekend.
The French, who are Europe’s largest producers of agricultural products, say beef prices have fallen 13 percent in the last two years while pork producers have been hit by a Russian embargo imposed in retaliation for European sanctions.
Dairy is said to be 12 cents below its break-even price.
Europe liberalized its milk market in April, removing a quota system that had been in place for thirty years. While the reforms have benefited some, especially large agricultural companies, smaller and outdated farms are struggling to make end meets.
French officials estimate that one in ten farms are in financial difficulties while tens of thousands could face bankruptcy.
Belgian farmers have similar laments and are expected to throw up roadblocks of their own on Thursday.
Germany’s agriculture minister, Christian Schmidt, reminded the French government on Wednesday that it must “stick to the rules” of the single market and not stop products from his country being sold in France. “I don’t see French farmers hindering their exports, so imports should not be hindered either,” he said.
In an interview on German radio, Schmidt urged French farmers to consider instead why they had lost competitiveness relative to Germany and other European nations.
French agricultural exports have steadily declined since countries in Central and Eastern Europe joined the European Union. But other Western Europeans have managed to maintain their position.
Open Europe, a British-based think tank, points out that this is despite — “or possibly because of” — France being the single largest recipient of farm subsidies under Europe’s Common Agricultural Policy (CAP). The country is due to receive €62.8 billion in support under the current 2014-2020 budget.
The organization is skeptical of the policy’s effectiveness.
By providing income support irrespective of whether any meaningful economic activity takes place on a farm, direct CAP subsidies often act as an outright disincentive for farmers to modernize, in turn locking in unviable business models and hurting Europe’s competitiveness.
The Dutch, who are the biggest exporters of agricultural products in Europe and advocate reform the subsidies system, are unlikely to protest. But their farmers are disgruntled by the extra help their French competitors are getting.
Pork producers in the Netherlands said on Wednesday, “If Brussels approves the €600 million in support of French farmers, then there is room for our government to restructure pig farms as well.”
German dairy farmers similarly complained to the European Union about the extra support for French farms and a proposed “eat French” campaign. Spanish farmers warned they could retaliate with a boycott of French products.
France’s Hollande Unlikely to Risk More Reforms Until 2017
Elections in France this year and next could doom any chance of deeper economic reform even as the country seems incapable of bringing down unemployment.
Stuck at over 10 percent since he came to power in 2012, the high jobless rate has weighed down on President François Hollande’s popularity. With an approval rating under 20 percent, the incumbent seems unlikely to win reelection in 2017. But he is still running and should want to avoid dividing his Socialist Party on economic policy.
The next regional elections are due in December. Called after a reorganization that saw the number of regions cut from 22 to thirteen, the Socialists are gearing up for another defeat. They have lost all local elections since Hollande beat the conservatives’ Nicolas Sarkozy in 2012 with 51.6 percent of the votes.
Party unity has been tested by Hollande’s late conversion to liberalization.
Earlier this year, he allowed his centrist prime minister, Manuel Valls, to push reforms through parliament that shorten labor arbitration procedures, weaken protections of some professions, such as pharmacists and notaries, give coaches the right to compete with intercity trains and shops the freedom to open on more Sundays.
The left was unimpressed. Martine Aubry, one of Hollande’s opponents in the 2012 Socialist Party primaries and the architect of France’s 35-hour workweek, sneered, “Has the left now got nothing else to suggest for the organization of our lives than a Sunday walk in a shopping center?”
To avoid spitting his party, Valls made use of an arcane constitutional prerogative that let him force the reforms through without a vote, daring the opposition to introduce a motion of no-confidence that was predictably defeated.
He could use the same power to enact labor reforms that are bold by French standards but would do little to mend a divide between typically young workers with insecure jobs and older, unionized workers who are almost impossible to fire.
Valls wants to allow employers to renew short-term contracts twice, rather than once, and give them a €4,000 bonus when they hire their first worker.
The measures should help trim unemployment. Temporary work contracts now account for 80 percent of the jobs created in France.
But simplifying and shortening layoff procedures — something France has been urged to do for years by the European Commission and Organization for Economic Cooperation and Development, among others — would do far more to encourage hiring.
That is a bridge too far for Hollande. After giving businesses €40 billion in tax relief, his 2012 election promise to soak the rich already rings hallow. Touching long-term contracts and their generous benefits risks angering the trade unions, whose support he needs in 2017, and would see the Socialist Party split.
The Greens have already quit Hollande’s coalition. Other far-left parties refused to back him in the most recent local elections, allowing Sarkozy’s conservatives to take over control in 28 départements.
Valls insists there is no time to waste. Excessive regulations and high social security contributions from employers hinder labor mobility and add to France’s labor costs which, at €34 per hour, far exceed the European average of €23.
Relatively high productivity at least partially justifies the higher costs of French workers but that is no consolation to the millions who are out of work.
However, growth is finally picking up. The French economy is projected to expand 1.1 percent this year and 1.7 percent in 2016. Hollande may be betting that this will be enough to finally bring down unemployment and give him a fighting chance in what is likely to be a rematch of his 2012 contest with Sarkozy. Companies may have to wait another two years before they see another round of reforms.