| Socialists Score Well in First Round of French Parliamentary Elections, Poised to Take Control of Assembly and Senate for First Time Ever; Economically Insane Ideas Coming Up Posted: 10 Jun 2012 07:30 PM PDT Be prepared for the Socialists to wreck France. The Guardian reports French Socialists on course to score absolute majority in parliament and President François Hollande is about to get a free hand in his response to country's economic crisis. The left has scored well in the first round of French parliamentary elections, leaving the Socialist party within reach of an absolute majority that would give François Hollande, the president, a free hand in his approach to dealing with the economic crisis.
The Socialists need 289 out of the 577 seats in the national assembly to take an absolute majority in the final runoff on Sunday 17 June.
First-round results show the Socialists are predicted to take between 275 and 315 seats, according to polling company TNS Sofres, and could make up the numbers with the backing of their electoral allies, the Greens.
The first round vote results suggest that the broad left will dominate parliament. Early results and estimates showed the left in general taking 47%, the right 35% and the far-right Front National 13%.
One of the biggest defeats of Sunday evening was Jean-Luc Mélenchon, the firebrand hardline leftist from the Front de Gauche. He had stood in a high-profile, deprived Pas-de-Calais constituency in a personal battle against Front National leader Marine Le Pen, but was knocked out in the first round.
Le Pen will now face a Socialist in the runoff. Mélenchon said he was disturbed by Le Pen's high score and would continue to fight the far right.
If the Socialists win an absolute majority, it would be the first time in modern history that the party had control of both houses of the French parliament: the assembly and the senate. Implications Not Pretty I applaud the throw the bums out mentality. However, the new bums will be at least as bad judging from proposed financial transaction taxes, rollbacks in retirement age, and economically insane plans to restrict layoffs. Economically Insane Ideas Coming Up Last Friday, citing Reuters, I reported Hollande About to Wreck France With Economically Insane Proposal: "Make Layoffs So Expensive For Companies That It's Not Worth It" Today, the Financial Times confirms the proposal in its report France plans law to make firing harder Michel Sapin, labour minister, said part of an "urgent" response to joblessness was to penalise companies that seek to increase dividends and maximise profits by shifting production to lower-cost locations – dubbed "stock market redundancies".
"The main idea is to make redundancies so costly that it's not worth it," he told France Info radio.
Mr Sapin, who said he planned to introduce legislation after the summer, said the level of compensation for fired workers and the cost of converting an abandoned plant to new use should be made sufficient to deter businesses from resorting to redundancies.
Such a move would be in defiance of calls from business for an easing of the country's already weighty employment protection legislation, which was singled out last week by the European Commission as one of the structural factors inhibiting the French labour market.
But the government, which is hoping to win a parliamentary majority in National Assembly elections on June 10 and 17, is under pressure from trade unions to take action in the face of a wave of redundancies threatened or under way across a number of French industries, particularly carmakers, telecoms companies, banks and airlines. If Hollande goes down the path he has stated, the French economy will soon enough be in ruins, likely in need of a bailout. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| S&P Futures Open +15,Nasdaq +32, US Dollar Index Opens Down on Spain Bailout News Posted: 10 Jun 2012 03:08 PM PDT S&P Futures Opened up 15 points and Nasdaq futures up about 20 points but soared to +32 points in seconds as if something was solved by this bailout in Spain. It wasn't. Nonetheless, shorts appear for the moment scrambling to cover. When reality sets in is anyone's guess. On a delayed feed basis the US dollar index now down about 90 cents, gold is up about $12 and silver up about 46 cents. US Dollar Index First 20 Minutes  click on chart for sharper image The pertinent question is what happens to Spanish bond prices. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Rajoy Proclaims "Victory", Says It's Not a Bailout "It's a Credit Line"; Existing Bondholders Subordinated Posted: 10 Jun 2012 10:39 AM PDT In the too stupid to make up category, Rajoy defends 'victory' for EU credibility Mariano Rajoy, the embattled Spanish prime minister, has defended the eurozone's €100bn bailout for Spanish banks as a victory for European credibility.
He repeated Spanish assertions that the EU aid was different from the full bailout programmes previously provided to Greece, Ireland and Portugal by the EU and the International Monetary Fund, which involved detailed austerity targets and monitoring.
"There's no conditionality of any kind. This does not affect the deficit," Mr Rajoy said, placing the new loan deal in the context of his centre-right government's efforts to restructure the banking system, cut the budget deficit and reform the labour market since it took power less than six months ago.
Economists and analysts say the EU loan nevertheless amounts to a rescue for Spain because the money will go to the state Fund for Orderly Bank Restructuring and was necessary only because Spain itself could not access the sovereign bond markets at a reasonable price.
An opinion poll published on Sunday in the newspaper El País showed that 78 per cent of Spaniards had "little or no" confidence in Mr Rajoy, whose Popular party won an overwhelming election victory over the Socialists in November. Victory or Defeat? If a 100 billion euro bailout is a "victory" then what constitutes defeat? The answer of course is a restructuring or default. Once the rest of the European banks sell all their exposure to Spanish debt, a restructuring or default is exactly what will happen, just as with Greece. No Strings Attached? Rajoy says there were "no strings attached". Complete details have yet to emerge but there is one major string already. It's called subordination. Spanish Bondholders to Rank Behind Official Loans After Bailout Bloomberg reports Spanish Bondholders to Rank Behind Official Loans After Bailout Investors holding bonds issued by Spain and its banks will rank behind official creditors in the queue for payment after the nation asked for a bailout of as much as 100 billion euros ($125 billion).
Rajoy said the agreement was "the opening of a credit line," rather than a bailout such as those received by Greece, Ireland and Portugal, and the conditions of the loan affected the financial industry, the sovereign is ultimately responsible for it.
"The risk is now all Spanish bonds are inferior to the ESM," Steen Jakobsen, chief economist at Saxo Bank A/S in Hellerup, Denmark, wrote in a note. "Finland already declared that if this loan is coming from EFSF they want collateral."
"This is state financing, and the risks of an equity injection into the banks will stay with Spain," said Alberto Gallo, head of European macro credit research at Royal Bank of Scotland Group Plc in London. "Spain needs a systematic restructuring of its banking system, which could entail haircuts to subordinated bank debt.
Holders of the subordinated debt of banks that Spain has to rescue will probably have to accept losses, according to Gary Jenkins, director of Swordfish Research Ltd. in Amersham, England.
"Whilst Spanish politicians tried to claim that this was not a bailout it is of course a de-facto bailout of Spain itself," Jenkins wrote in a note. Key Statement "Holders of the subordinated debt will probably have to accept losses". So who wants to hold that debt given what happened to Greece? It will be interesting to see if there is initial euphoria in the bond markets. Regardless, sooner or later (probably sooner), selling pressure will eventually overtake any initial excitement of this alleged "victory". Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Details of the Secret "Nannyplan" Emerge; Proposed Nannygroup Uniforms Posted: 10 Jun 2012 12:18 AM PDT EU nannycrats are marching forward with plans without regards to Germany or German constitutional issues. The plan is dead on arrival because it includes eurobonds and other questionable items, but nannycrats do not care about such issues. List of Nannycrats Working on the Master Nannyplan - European Union Commission President Jose Manuel Barroso
- European Council President Herman Van Rompuy
- Euro group head Jean-Claude Juncker
- European Central Bank President Mario Draghi
Notably missing is anyone representing Germany although the plans include eurobonds. Even if one ignores the eurobond issue, the nannyplan cannot possibly fly. I pieced together details from an article on Reuters: Europe works on new euro zone bond plan The original source is cited as Der Spiegel but as is typical in economic articles, no links to external sources are provided. I happen to believe that if you quote someone you ought to have the decency to put in a link, but these days few do. Rant aside... Nannyplan Details - Plans will create a "genuine fiscal union" in which individual member states would no longer be able to independently take on new borrowing.
- Governments would only be able to decide how to spend money that is covered through their revenues.
- Any country that needs more money than it takes in would have to report that need to the group of euro finance ministers.
- Finance ministers will decide which financial levels are justified and would then issue joint euro bonds to finance these new borrowing needs.
- "The exclusive group of ministers would be led by a full-time chair, who could ultimately rise to the position of European finance minister"
- This "powerful group of finance ministers" would be controlled by a new European body in which representatives of national parliaments would have seats.
Nannyplan Synopsis - The proposal is to create group of nannies (similar in theory to the Fed except the decisions are primarily fiscal).
- The group of nannies will be headed by a master-nanny (think someone like Bernanke or in this case Jean-Claude Trichet). The nanny-master will originally be a full-time chair. However, that person could ultimately rise to the position of "European Finance Minister (EFM)", but also known as "Grand Poobah".
- The nannies will be controlled by elected politicians who will no doubt appoint a master-nanny who will do what the majority wants.
Grand Poobah Uniform I am pleased to report that I have obtained an image of the " Grand Poobah" uniform.  The term "Grand Poobah" appeared in the cartoon series The Flintstones. The "Grand Imperial Poobah" was leader of the men's group " Loyal Order of Water Buffaloes". Wikipedia says ... "Grand Poobah is a term derived from the name of the haughty character Pooh-Bah in Gilbert and Sullivan's The Mikado (1885). In this comic opera, Pooh-Bah holds numerous exalted offices, including "First Lord of the Treasury, Lord Chief Justice, Commander-in-Chief, Lord High Admiral... Archbishop of Titipu, and Lord Mayor" and Lord High Everything Else. The name has come to be used as a mocking title for someone self-important or high-ranking and who either exhibits an inflated self-regard or who has limited authority while taking impressive titles." "Grand Poobah" is a far more fitting name for the proposed "European Finance Minister" position. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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