Wednesday, November 21, 2012 CYPRUS MAIL
12
Opinion
We must cede some sovereignty to get bailout WHILE there seems to have been agreement with the troika over the measures for the banking sector, most parties and presidential candidates are taking the obligatory defiant stand on other issues, based either on incomplete information released by the government or their own populist agenda. We hear that they would never agree to a bailout that would cede our sovereignty, allow the troika to ‘get its hands on our hydrocarbon reserves, lead to privatisation of semi-governmental organisations or radically change our pension system. It is quite amazing that the parties and individual politicians are taking hardline, public stances on issues they are not fully informed about. But we should not be surprised considering they are making a big fuss over non-issues, like the hydrocarbons and national sovereignty, as well. Is it possible for any country that is bailed out by international lenders not to cede some of its sovereignty? If it does not, it will get no money because lenders, understandably, are not prepared to give billions in loans, without having a big say over how these would be used by the recipient. Surrendering a part of its national sovereignty to lenders is the sacrifice a bankrupt state has to make to secure a bailout. As regards the natural gas, everyone is taking a stand, without knowing what the troika has actually proposed. Is all the fuss about the couple of hundred million euro that the state would receive up front for exploration rights? There would be no other revenue from natural gas - assuming we find adequate quantities that we are able to market - for at least six to eight years. Of course it is impossible to draw any conclusions when there is inadequate information. We assume that President Christofias will give the party leaders the full picture when he briefs them this morning about the discussions with the troika, because much will depend on this meeting. Negotiations with the troika have been wound up and all that remains now is for the government to give its response. Christofias, most probably, would like to secure the backing of the party leaders for his decision, whatever it is. But before this, he will have to brief them about the main contents of the bailout and the information will have to be much more comprehensive than what has seen the light of publicity. Hopefully, his response will be positive and he will secure the backing of all the political parties for the unpopular measures of the bailout; he spoke of the need for national unity yesterday. The alternative, a united front for the rejection of a bailout is too frightening to even think about.
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Hollande’s softly softly plan needs tough action Analysis Catherine Bremer
A
fter six months keeping the world guessing about whether he had a vision for fixing France’s sickly economy, President Francois Hollande has unveiled a battle plan “à la française” to ease companies’ labour costs and trim public spending. But the softly-softly pace of adjustment may be too slow to satisfy financial markets after Moody’s on Monday became the second credit ratings agency to strip Paris of its AAA rating, citing both a loss of competitiveness and low growth. Hollande’s “competitiveness pact” aims to create 300,000 jobs and lift output by half a per cent over five years by granting 20 billion euros a year in corporate tax relief and pruning public spending by 1 per cent. The measures will be funded by modest sales tax rises from 2014, sparing households immediate pain. Tweaks to labour laws will follow next year to make hiring and firing somewhat more flexible while extending the length of job contracts. The plan is bold for a left-wing French government, yet it falls short of what business leaders wanted and critics say it may be too timid to pull the economy out of decline in time. Moreover, a key plank - spending cuts of 12 billion euros a year - will require sharp reductions in welfare payments or local government, hard to sell to a parliament full of mayors and civil servants, and an electorate including more than 5 million public sector workers. “Hollande has not said where the 12 billion euros will come from because he doesn’t know. None of us knows. There would be a lot of resistance to public sector cuts,” a government source said. Most economists have applauded Hollande’s move to embrace reform, despite muttering from Berlin that the measures should be bolder. But they say success, in the face of stalled growth and rising 10 per cent unemployment, depends on Hollande being able to implement all his plans - corporate tax relief, labour reform and spending cuts - to the letter.
French President Hollande (above) sent his prime minister to Germany to tell Chancellor Merkel that France would reform at its own pace and would not be pressured to go faster That will hinge on acquiescence from a disgruntled public, on the eurozone avoiding further crisis or a deeper lurch into recession, and on investors keeping French borrowing costs low. Hollande is under growing pressure from foreign investors concerned at France’s strained public finances, flatlining economy and industrial decline that has led to a 70-billion-euro trade deficit. Paris also faces new competition for its exports from Spain and Italy, which have been forced by their debt crises to reform their labour and product markets faster. Hollande’s November 6 announcement of the tax rebates was his response to an inde-
ON THIS DAY NOVEMBER 21
pendent review of competitiveness that recommended 30 billion euros in direct cuts to labour costs. The rebates will be linked to payroll size in a way that the government says is equivalent to a 6 per cent reduction in labour costs from 2013. The government reckons this could boost exports by 10-15 billion euros over two years, shaving the non-energy trade deficit. “All other things being equal, this will improve the current account by quite a bit,” said a government adviser, whose position bars him from being quoted by name. Naysayers note that any trickle of jobs created through the tax rebates will be outstripped
by continuing job losses as long as economic growth remains below 1 per cent. A rule of thumb for France is that employment stabilises once growth reaches 1.5 per cent, and it takes 2 per cent expansion or more to achieve a net increase in jobs. “The tax rebate plan may enable us to absorb some of the recession, by adding some jobs, but it won’t boost economic activity,” said Philippe Ansel, an economist with Fondation Concorde, a business-funded, economically liberal think-tank. “France remains squashed between Germany, with its high-quality products, and Spain and Italy, which have made bigger efforts to reduce their labour costs.” Like other critics, Ansel says the rebates are worth only a net 10 billion euros to companies since they come on top of 10 billion euros a year in corporate tax rises in the 2013 budget. His think-tank advocates a 50 per cent cut in payroll contributions for companies exposed to foreign competition. Hollande is also under fire for capital gains tax changes that will penalise investors in startups as well as failing to make good on a promise to ease the tax burden on corporate profits that are reinvested. French public spending accounts for 56 per cent of economic output, second only to Denmark at 58 per cent, and the tax take from companies amounts to 17.9 per cent of gross domestic product, compared to just 4.3 per cent in Denmark. Departing from Socialist dogma, Hollande questioned at his first presidential news conference this month whether the high spending bill had brought the French a better quality of life. Hollande sent his prime minister to Germany to tell Chancellor Angela Merkel that France would reform at its own pace and would not be pressured to go faster. Yet Hollande’s economic team knows the pressure is on. “It’s fine to tell the Germans we’ll reform at our own pace but we do have to reform,” said the first government source. “Hollande is a very prudent person, and that’s fine, but if you spend too much time talking, you risk getting nowhere.”
WHAT THE MAIL SAID
1783
25 years ago Saturday November 21, 1987
French inventor Jean François Pilâtre de Rozier and François Laurent, the Marquis d’ Arlandes, make the first manned hot-air balloon flight, travelling five miles over Paris in 25 minutes.
UN peacekeepers in Cyprus said yesterday they would stop a planned march by Greek Cypriot women to the Turkish Cypriot north and warned of dangers in the buffer zone. “In addition to the numerous marked mine fields in the buffer zone, there is danger of mine detonations in unmarked areas” UN spokesman Alex Twickel said in a statement.
1979 The US embassy in Islamabad, Pakistan is destroyed and one US marine killed as an angry bomb set fire to the embassy.
1980 350 million people around the world tune into the popular American television programme Dallas to find out who shot J. R. Ewing?
35 years ago Monday November 21, 1977 Turkish Cypriot leader Rauf Denktash has repeated his proposal for the setting up of a joint government in Cyprus pending the finding of a solution to the political problem and the joint operation of the Nicosia international airport.
1985
45 years ago Tuesday November 21, 1967
Jonathan Pollard, a U.S. Navy intelligence analyst, is arrested on charges of illegally passing classified U.S. security information about Arab nations to Israel.
Turkish naval units patrolled the north of Cyprus and jets flew over the island today as 30,000 demonstrators in the city of Izmir demanded war with Greece. The Turkish 39th division moved westward to make way for other military units arriving from the east of the country. The government was reported to have submitted a five-point demand to Athens over the Cyprus crisis which has brought the two countries close to war.
1995 Serbia, Bosnia and Croatia agree to a US brokered peace deal, the Dayton Accord, to end the fighting in BosniaHerzegovina.