Europe: no preferential treatment on a French deficit

Emmanuel Macron’s emergency measures will lead to a breach of the European rule of 3% deficit.

France and Italy, same price? Two days after the announcement of Emmanuel Macron in response to the crisis of yellow vests, the European Commissioner for Economic Affairs Pierre Moscovici said that France would not benefit from preferential treatment in case of slippage of its deficit. “There is no double standard, the rules are the same for everyone,” said Pierre Moscovici on the sidelines of a conference organized by the Financial Times in Frankfurt.

“It is out of the question to have a privileged treatment for some and overly harsh for others, even if [the rules] are quite subtle and complex, I agree,” continued Pierre Moscovici, while Italy, in the thick of the budget with Brussels, fears unequal treatment. “I refuse to imagine that we pretend nothing in front of the requests ‘billionaires’ coming from a Macron in obvious difficulty and that we take the pockets of the Italians”, indeed warned this Wednesday the vice – Italian Prime Minister Matteo Salvini.

3.4% deficit

Tuesday, the Minister of Public Accounts Gérald Darmanin has quantified the Senate to 10 billion euros the cost of emergency measures and recognized that the budget deficit will reach 3.4% next year if saving measures are not taken. However, the European rule limits the public deficit of a country to 3% of its GDP. Barely a year after leaving the procedure for the excessive deficit, France would be close to the limit of 3.5% which would force the automatic reopening of a new procedure.

Pierre Moscovici reiterated that the rules of the European Stability Pact in some cases allowed budget slippages. A “temporary, limited and exceptional” deviation from the 3% limit is “conceivable”, the EU commissioner reaffirmed, as long as this excess does not last two consecutive years and does not exceed 3.5% over one year. “The European Commission understands that in the face of social movements and very strong demands to reduce the territorial or social divide, a government may have to take action,” he conceded.

130% debt

Italy’s budget proposal for 2019, which nevertheless provides for a deficit of 2.4%, was rejected by Brussels because of the weight of the public debt. The sources consulted by AFP recall that France does not have the same debt as Italy: a little less than 100% against more than 130%.

Italy, heading to the right

  • Italy refuses to change its budget
  • In Rome, the bells will soon ring the tocsin
  • VIDEO. The incident between Moscovici and an Italian MP

A new “working meeting” is scheduled for Wednesday between the head of the Italian government, Giuseppe Conte, and the President of the European Commission, Jean-Claude Juncker. As for the French budget, the European Commission gives itself until the spring to analyze it, said Tuesday the spokesperson of the European executive. “The final budget” of France “will be analyzed in the spring when we publish our economic forecasts,” said Margaritis Schinas at a press point in Strasbourg.

Europe’s future: Open Innovation, Open Science, Open to the World

The Tour d’Europe meeting in the EU presidency country, Bulgaria, was organised by an independent Think Tank in Sofia.

The meeting took place on 29 January 2018 at Structure Gallery and gathered a broad range of actors from policy advisers and former Bulgarian ministers, scientists in the recognized Academies of Science and top universities, as well as innovative start-ups and young entrepreneurs active in the new digital economy. The RISE high-level expert group and authors of the RISE book were represented by Daria Tataj, Luc Soete, Mary Ritter, Julio Celis, Dainius Pavalkis, Ivo Slaus, and Marzenna Wareza.

Key messages:

  • Openness has boundary conditions.

Openness has both a digital and a physical context. The ‘scientific capital’ in Europe should be open and accessible for digital start-ups across Europe. However, when openness builds on an asymmetric context, it can aggravate brain-drain and decline of R&I systems. Therefore, openness must be balanced by a local agenda, including links to cultural diversity and absorptive capacity. It is not about global or local; it is about a smart combination of both.

  • Reconcile history and future.

Many R&I systems in Eastern Europe have undergone dramatic transformations. Comparative strengths shape future opportunities in accumulated R&I. In the early days of the digital revolution, Bulgaria was the Silicon Valley of Eastern Europe. The science system in Bulgaria still retains a scientific specialization in physics, mechatronics, advanced computing, and artificial intelligence. This R&I profile opens up for synergies with the growing digital service economy, where the young generation in Bulgaria – and in other Eastern European countries – is increasingly successful and competitive. However, a reconciliation of past and future strengths requires trust-building and new forms of collaboration between the established scientific community and the new and young digital platform economy.

  • Diffuse knowledge and technologies.

First, create the regulatory and financial framework conditions for universities opening up for closer science-business collaboration; this also implies actions at EU level to modify State Aid rules. Second, understand the motivations of researchers and create incentives. European funding can combine different incentives: curiosity-, challenge- and entrepreneurial incentives. Third, reinforce cooperation networks across Europe; common European missions, where different countries and regions can bring their value added, could help in framing this diffusion, training, and networking.

  • Build trust to bridge science and society.

Citizens must be involved in the R&I process as lead-users, co-creators, and crowd-funders. However, citizens’ involvement also entails a danger of capturing the policy agenda. Researchers should explain and society should have a strong voice in priority setting. We should mobilize a combination of existing communication channels: social innovation communities in cities and local communities, universities as platforms for evidence-based public discussion, direct discussions with experts from different sectors – and from abroad -, and organized use of social media. The smart specialization strategy was an excellent example of striking a balance between top-down direction setting and bottom-up openness to people, businesses and municipalities.

  • Simplify programmes and project management.

Focus European funding on results, not on the process. Abolish the reporting obligation for time-sheets and focus the monitoring on the achievements of the project and its contribution to overall programme objectives. A more simple administration may also speed up the grant award process, which would make the programme more attractive for start-ups and innovative firms, for whom speed is crucial.

Gold: Italian Enria is to oversee Europe’s banks

Earlier this month, the results of the third EU-wide bank stress test were published. In the past week, the public learned that the Italian Andrea Enria is to become the new head of the ECB Banking Supervision from 2019. The latter is not exactly confident.

Italy: Desolate debt situation

Last Wednesday, the Governing Council of the ECB nominated the current Chief of the European Banking Authority (EBA) to replace its former boss Danièle Nouy. The election also included Sharon Donnery, Vice President of the Irish Central Bank. Now, this person has yet to be approved by the European Parliament and the EU leaders. This leaves the future chief overseer from the country, which acts anything but “model boy” in terms of bank stability and fiscal policy.

Just a reminder:

In the coming year, the new Italian government wants to raise new debt from the originally agreed 0.8 percent to 2.4 percent of the gross national product in order to finance the benefits promised in the election to the population. Because of Europe’s particularly high debt mountain of more than 130 percent of economic output, the new debt policy of the Italians is strongly criticized by the rest of Europe.

The Italian banks are also considered ailing, which can be seen from the relatively high proportion of bad loans. This amounts to 10.8 percent. Even more miserable are the banks in Greece (45.3 percent), Cyprus (38.9 percent) and Portugal (13.6 percent).

By comparison, the balance sheets of the banks in Great Britain (1.5 percent), Germany (1.7 percent) and the Netherlands (2.2 percent) look a lot healthier. Since Italy’s economy represents the third strongest economy within the Eurozone, everyone should realize that a financial collapse of Italy for the various European bailout funds should be a few numbers too big.

If the worst-case scenario does indeed materialize, many Europeans will most likely remember a currency alternative forgot in recent years: gold.

WGC reports global ETF gold inflows

Initial shifts in gold seem to have already begun. This is indicated by data released by the World Gold Council last week on global inflows of gold ETFs.

In the wake of stock market turmoil in October, the WGC reported 16.6 tonnes of inflows for the month, with North America (up 12.4 tonnes) and Europe (plus 10.5 tonnes) recording the strongest gold appetite, Particularly meaningful, however, is a look at the development since the turn of the year.

In fact, the sentiment here is very mixed, with North America accounting for 58.1 tonnes of gold outflows in the first 10 months, while 48.2 tonnes were registered in Europe during the same period.

The main reasons for this are two problem areas: Italy’s debt and Britain’s Brexit.

The outlook for the current week

Inflation is on the rise – in some countries more, in others rather less. Last week, for example, Turkey reported an inflation rate of over 25% for October (see table), the highest level in 15 years.

Worldwide inflation rates

Oct-18 Dec. 17
euro zone 2.2 1.4
Germany 2.5 1.7
France 2.2 1.2
Italy 1.6 0.9
Spain 2.3 1.1
Portugal 1.0 1.0
Greece 1.8 0.7
Turkey 25.2 11.9
Canada 2.2 1.9
United States 2.3 2.1


A flood of further inflation figures is expected in the coming days. For example, for Germany an increase from 2.3 to 2.5 percent, for the United Kingdom an increase from 2.4 to 2.6 percent, for the US, an increase from 2.3 to 2.4 percent, for the eurozone an increase from 2.1 to 2.2 percent and for France an unchanged value of 2.2 percent.

This level of devaluation is a big problem, especially for German investors. They only achieve returns of 0.46 percent even on Bunds with a ten-year maturity. Systematic asset destruction is thus preprogrammed, especially as short-term maturities of up to six years currently even hit negative returns.

Anyone looking for asset protection and inflation protection will therefore always encounter one asset class: gold.