Mish's Global Economic Trend Analysis

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• Flip Flop, Flip Flop; Sarkozy Hell-Bent on Proving to the UK and the World that He Hasn't a Clue; Cardinal Rule of Allies
• Greeks Reject German Plan for EU Budget Commissioner; On the Verge of a Deal, Yet Again; Political Reality
• Triumph of One and the Price of Arrogance; Merkozy Treaty to Fail on Legal Grounds; UK Should Thank Sarkozy
• Bickering Over Who's at the "Three-Speed" European Table
• Capital Account: Snow stories from Davos and "muddle-through" economics with Mish

Flip Flop, Flip Flop; Sarkozy Hell-Bent on Proving to the UK and the World that He Hasn't a Clue; Cardinal Rule of Allies Posted: 28 Jan 2012 10:49 PM PST It is quite amusing to watch the self-destruction of Nicolas Sarkozy, president of France. Sarkozy got into a feud with UK prime minister David Cameron over a tax on financial transactions. Then under pressure from French banks withdrew support of the tax. For a wrap-up, please see Triumph of One and the Price of Arrogance; Merkozy Treaty to Fail on Legal Grounds; UK Should Thank Sarkozy One might think that Sarkozy would have had enough of self-inflicted damage, but one would be totally wrong. Flip-Flop, Flip-Flop is back again to flip. Sarkozy to Announce VAT Increase of 1.6 Points, Introduce Tobin Tax Via Google translate from Le Monde, please consider Sarkozy will announce Sunday a VAT increase of 1.6 points Nicolas Sarkozy was expected to announce Sunday night a VAT increase of 1.6 point, we learn from several sources. VAT standard rate will be increased to 21.2%, a record in France. This increase is more limited than expected, will ease the burden on labor. This VAT is to take effect this year. The reduced rate would remain unchanged. There will be no increase in the rate of the CSG on wages, an increase of taxation on property as possible. The President will also announce the introduction of a Tobin tax to the French, a stamp duty extended. The implementing rules are not yet clear. Companies with more than 250 employees, forced to have 4% of apprenticeship contracts will be subject to heavy penalties for noncompliance. Why should the UK want to subject itself to this flip-flopping jackass? The appropriate thing for Cameron to do would be to stay as far away from Sarkozy as he can. Cardinal Rule of Allies Hard-line socialist candidate François Hollande is arguably a greater fool, but at least he would be easier to ignore, and more importantly, a person less likely to flip-flop. It is better to have an enemy you can trust than an alleged ally that you can't. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Greeks Reject German Plan for EU Budget Commissioner; On the Verge of a Deal, Yet Again; Political Reality Posted: 28 Jan 2012 04:50 PM PST Europe has been on the "verge" of a deal for two weeks. However, a deal is meaningless if Germany insists on budget controls. Actually a deal now is meaningless even if Germany does back down because at some point Greek politicians will have had enough. Here are the latest stories. Yahoo! Finance reports Greece, creditors on verge of clinching debt deal Greece and its private creditors said on Saturday they were piecing together the final elements of a debt swap and expected to have a deal ready next week, essential for sealing a new bailout and avoiding an uncontrolled default. After muddling through round after round of inconclusive talks, the negotiations are in their final phase - though it appeared unlikely that a preliminary deal would be secured in time for a European Union summit on Monday. Greek bondholders said the two sides were finalising a deal along the lines of a proposal made by Jean-Claude Juncker, the chairman of euro zone finance ministers. The bondholders' comments suggested creditors had accepted Juncker's demand for a coupon, or interest rate, of below 4 percent on new, longer-dated bonds that Athens will swap for existing debt. Greeks Reject German Plan for EU Budget Commissioner It would be foolish to throw another 130 billion euros down the Greek rathole, but if Germany backs down it could happen. The BBC reports Greeks reject German plan for EU budget commissioner Greek officials have reacted angrily to a leaked German proposal for an EU budget commissioner with veto powers over Greek taxes and spending. The Greek government said it must remain in control of its own budget. The European Commission says it wants to reinforce its monitoring of Greek finances, but Greece should retain sovereign control. Under the German proposal, a budget commissioner would have veto powers over Greek budgetary measures if they were not in line with targets set by international lenders. Greece would also legally commit itself to servicing its debt, before spending any money in any other way. "Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time," the Financial Times quotes the German plan as saying. Under the proposals, European institutions already operating in Greece should be given "certain decision-making powers" over fiscal policy, a German official told the Reuters news agency. He was speaking on condition of anonymity. The austerity measures have angered many Greeks. In Athens on Friday, protesters tried to blockade inspectors from the "troika" of institutional lenders - the EU, the International Monetary Fund (IMF) and the European Central Bank (ECB) - into their hotel. Elections in Greece are due to take place in April. Political Reality Mark Lowen BBC News, Athens provides additional color commentary. In reality, Greece's finances are already to a large extent controlled by foreign forces. The debt-stricken country has received enormous bailouts from the EU and IMF conditional on deep cuts and fiscal reforms drawn up largely by officials in Brussels. This new German proposal is clearly prompted by the widespread concerns that Greece is not succeeding in bringing its budget into order. Reforms have been slow and the budget deficit remains above target. But ceding more control to Brussels would be deeply unpopular here. Most Greeks are against the austerity programme demanded by the EU and IMF. And much popular anger is directed at Germany as Europe's paymaster general. The fact that Berlin has raised this latest plan won't soften sentiments here. The popularity of technocrat, temporary prime minister Lucas Papademos has plunged from 75% to 8%. Greek citizens are clearly fed up. Anger is going to erupt big time soon. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Triumph of One and the Price of Arrogance; Merkozy Treaty to Fail on Legal Grounds; UK Should Thank Sarkozy Posted: 28 Jan 2012 11:39 AM PST The arrogance of French president (soon to be ex-president) Nicolas Sarkozy is about to bite the Eurocrat nanny-zone officials big time. In December, Sarkozy insisted on a financial transaction tax and other concessions that the UK alone would not sign. In what was billed as a triumph of 26 of 27 is soon going to be viewed as a triumph of one over 26. The Merkozy treaty that 26 nations signed can never legally fly. Triumph of One Der Spiegel reports Critics Question Merkel's Fiscal Pact Proposal The final decision is planned for the next European Union summit on Monday. There leaders from 26 of the 27 member states plan to finalize the new fiscal pact, the agreement pushed hard by Chancellor Angela Merkel requiring signatories to adhere to strict fiscal policy guidelines. But the high expectations awakened by Merkel are unlikely to be fulfilled. Several elements in the agreement are of questionable legality. It can't be written as an EU treaty because Great Britain won't sign it, which means it will only be an "inter-governmental agreement" between the 17 euro-zone countries and a handful of other countries participating voluntarily. It's turning out to be a big handicap. On the one hand, the European Commission's hands are tied, because it can only act on behalf of all 27 EU members. Despite Merkel's wish, the Commission cannot legally take those that violate budgetary rules to the European Court of Justice. According to the fiscal pact proposal, national governments can only do this among themselves. But no country has ever taken legal action against another in EU history. Such a case would be seen as a gross violation of diplomatic etiquette. Court Authority in Question Even if it comes to that, the authority of the European Court of Justice's (ECJ) remains in question. The treaty proposal states that the Luxembourg judges can impose fines of up to 0.1 percent of a country's GDP if they don't properly anchor the debt brake in their national law. But these sanctions aren't actually provided for by EU law. In fact, they deviate from Article 126 of the Lisbon Treaty. And, according to Matthias Ruffert, a European law expert at the University of Jena, it is likely that all 27 EU members will have to ratify the fiscal pact for any ECJ sanctions to be binding. Other lawyers argue that the sanctions would not be as binding as other ECJ verdicts. Because the fiscal pact terms involve only an intergovernmental agreement, they aren't EU law, which means they don't automatically come before national law, says European law expert Ronan McCrea, from University College London. Thus, in the case of an emergency, it would be easier for a national government to disregard such a verdict. Another issue that EU leaders must resolve on Monday is who will be allowed to attend future EU summits. The fiscal pact proposal states that the President of the European Parliament can be invited. But this doesn't go far enough for representatives of the people, who think he or she should be automatically present, in addition to presidents of the European Commission, the European Council and the European Central Bank. For most observers of the EU summit, the fiscal pact is only interesting as a side issue. In fact, many see it as nothing more than one of Merkel's pet ideas, and Luxembourg Prime Minister Jean Asselborn even went so far as to tell SPIEGEL ONLINE in a recent interview that it was a "waste of time and energy." UK Should Thank Sarkozy British Prime Minister David Cameron would actually have signed that fool treaty has it not been for the crap Sarkozy tried to force down Cameron's throat. It would have been a big mistake. Thus, British citizens should thank Sarkozy, because it was Sarkozy's arrogance that doomed the treaty. A humorous irony is that six days ago Sarkozy Dumps Financial Transaction Tax After Pressure From Banks. Kiss Sarkozy Goodbye Because of numerous gaffs, Sarkozy will not be reelected. Indeed, he may not even survive the first round of voting. On January 19, I reported Le Pen Inches Closer to Bumping Off Sarkozy in First Round of French Elections; Interesting Crossover Vote Opportunity for Hollande Supporters to Dump Sarkozy. On January 21, The Guardian reported Marine Le Pen and France's Front National sense their time has come The conjunction of the eurozone crisis, the loss of France's triple-A credit rating, and rampant unemployment, currently at a 12-year high, has given unexpected credibility to Le Pen's anti-Europe, anti-immigration stance. The economic storm has created what political pundits and pollsters believe may be a now-or-never moment for the Front National after 40 years spent largely in the political backwaters. Poll after poll places Le Pen third with 21.5%, hovering just behind Sarkozy at 23.5%, and with the Socialist party's François Hollande well in the lead for the first round of the presidential vote in April. If the opinion polls are accurate, it is perfectly feasible, allowing for the accepted margin of error, for Le Pen to reach the second-round run-off a fortnight later. Some surveys show support for the FN candidate to be considerably higher, topping 30%. The days when the FN, then run by Le Pen's father, Jean-Marie, now 83, could be dismissed as the loony fringe of French politics have long gone. Some of its policies have been anxiously emulated by Sarkozy's government as it shifts to the right, giving them a mainstream respectability. UK Wins Regardless The UK wins if Le Pen wins because if she wins the Eurozone breaks up. That would be a good thing in my opinion. However, Le Pen is not going to win. Hard-line socialist François Hollande is going to win regardless of who the final two candidates are in the election. Sarkozy has made too many mistakes and the socialists will never vote for Le Pen. Socialist Hollande is likey worse than centrist Sarkozy. The saving grace however, is Hollande has promised to rework the Merkozy treaty which would doom the whole thing, signed by 26 or not. Thus, the whole mess will soon come flying apart unless Cameron snatches defeat from the jaws of a "Triumph of One" victory by signing a revised treaty before the French presidential elections. In the meantime. expect more Bickering Over Who's at the "Three-Speed" European Table. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Bickering Over Who's at the "Three-Speed" European Table Posted: 28 Jan 2012 09:42 AM PST Last month, in an effort to snub the British and prime minister Cameron who would not go along with the Tobin Tax concept, French president Nicolas Sarkozy forced through a rule change that excluded non-euro member nations from sitting at the table. This move has ruffled the feathers of Poland who thinks it should be at the table. Please consider Poland bristles at idea of 'invitation-only' summits "If Poland does not obtain the appropriate status as a participant in meetings of the eurozone that give the feeling that we are participating in a certain part of the decision-making process… then it will be difficult for us to sign the fiscal pact," Mr Tusk [Donald Tusk, the Polish prime minster] said this week. "We will not accept such a model." The principal opponent of the Polish move, diplomats said, has been France, where president Nicolas Sarkozy has long viewed the new pact as a way to create a "two-speed Europe", with eurozone countries moving into a tighter subgroup as the remaining 10 nations gradually become less integrated with their brethren in the single currency. French objections centre around Poland's unwillingness to be subject to the treaty's main elements – a series of debt and deficit limits that will be enforced by fines, which would now only affect eurozone members – and to contribute to the eurozone's new €500bn bail-out system. Without shouldering such burdens, France has argued, Poland should not be allowed at the table. Last year, Mr Tusk angrily rebuffed a Franco-German "pact for the euro" which would have had eurozone members commit to budget and economic measures that went beyond current EU strictures. Eventually, the agreement was renamed the "euro-plus pact" and Poland, along with some other non-euro countries, became signatories. Three Speed Europe Clearly we have the Euro Pact, the Euro-Plus Pact, and the 27-nation EU-Pact. That sounds like three tables to me. Poland demanded the topic be debated on Monday in a gathering of European heads of state. The Financial Times says the "prospect could lead to another summit that stretches late into the night." I say count on it. If there is another disagreement on a major issue will there be a 4th table? Meanwhile, I have to ask why the British would want to be at any table. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Capital Account: Snow stories from Davos and "muddle-through" economics with Mish Posted: 28 Jan 2012 12:35 AM PST I was on Capital Account with Lauren Lyster once again on Friday. She was covering the economic forum in Davos so the interview was with Demetri Kofinas. I come in about the 17 minute mark. Link if video does not play: Snow stories from Davos and "muddle-through" economics with Mish I believe the "RT" channel is picked up on Comcast but I could not find it on ATT U-verse. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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