Merkel challenger remarks spark outrage

Chancellor candidate Peer Steinbrueck was widely criticised on Sunday, even by his own centre-left Social Democrats (SPD), for saying German leaders were underpaid. Steinbrueck has struggled to gain ground against Chancellor Angela Merkel ahead of next September's election, in part due to lingering criticism over him earning €1.25m as an after-dinner speaker in the past three years.The remarks from the former finance minister about what he called the inadequate compensation for the chancellor drew speedy rebukes across the country's political spectrum, including from the last SPD chancellor Gerhard Schroeder."A German chancellor does not earn enough based on the performance that is required of her or him compared with the jobs of others who have far less responsibility and far more pay," Steinbrueck, 65, was quoted on Sunday by the Frankfurter Allgemeine Sonntagszeitung newspaper saying."Nearly every savings bank director in North Rhine-Westphalia earns more than the chancellor does," Steinbrueck said of his home state.Merkel's pay is set to rise by €930 per month to €17 106 in 2013 along with pay rises for her ministers and members of parliament, increases that have been criticised by some for sending the wrong signal in an era of austerity."Some of the debates kicked up by the 'guardians of public virtue' are grotesque and are harmful for anyone considering getting involved in politics," Steinbrueck said.The SPD trails Merkel's conservatives by 10 points in opinion polls, but, with its Greens allies, it does have a chance of winning power in September because of the prolonged weakness of Merkel's Free Democrat (FDP) coalition partners. Steinbrueck, whose blunt talk makes him popular among some voters despite him never winning a major election and him being defeated as state premier in North Rhine-Westphalia in 2005, said there were times in his career when he was not as well off and admitted he was now a "wealthy Social Democrat". Schroeder, chancellor from 1998 to 2005, has endorsed Steinbrueck to lead his party against Merkel but distanced himself from Steinbrueck's views on pay."In my view politicians in Germany are adequately compensated," Schroeder told Bild am Sonntag newspaper. "I was certainly always able to live off the pay. And anyone who doesn't feel it's enough pay can always look for another job."Other SPD leaders indirectly criticised Steinbrueck. Dieter Wiefelspuetz, a top SPD member of parliament, said politicians were misguided if they compared their wages to private industry."To serve as chancellor is a fascinating job and the pay is definitely not shabby," he said.Steinbrueck was once seen as the centre left's best hope of winning back the chancellorship. He was popular as the no-nonsense finance minister and the SPD hoped he would siphon centrist voters away from the conservatives.But the controversy over his earning €1.25m for 89 speeches will not go away and his campaign has been marred by setbacks and awkward comments.Analysts say he is also struggling to win over female voters, many of whom are put off by his combative style. "Merkel is popular due to a 'woman's bonus' that she gets," Steinbrueck told the paper.

Italy upbeat at end of 2012

Italy is ending 2012 on an upbeat note, with renewed financial market confidence and optimism among analysts that the worst of the financial crisis is over, despite expectations of political uncertainty in the run-up to a general election in February.The Treasury's borrowing rates were slightly higher at short, medium and long-term debt auctions last week, but were well below levels seen at the end of 2011, when Prime Minister Mario Monti took over from Silvio Berlusconi as Italy teetered on the brink amid the eurozone debt crisis.In late November 2011, the country was paying a 7.56% rate for its benchmark ten-year bonds, sparking widespread concerns it might have to ask for a bailout.On Friday, that rate stood at 4.48%.As 2012 draws to a close, "even if public debt has breached the two trillion euros mark, Italy's ability to finance itself is no longer in doubt," said Enrico Marro in Italy's Il Sole 24 Ore financial daily."For 2013, optimism reigns," he concluded.The turnaround is principally the result of two factors: the European Central Bank's promise to buy sovereign debt issued by eurozone member states without limit if necessary if they meet certain strict conditions, and Monti's decisive reforms which have restored Italy's credibility internationally. Experts have forecast a couple of months of volatility on the markets in the lead up to the February 24 and 25 elections, but the worst appears to be over. Italian bank Intesa Sanpaolo said "the fever should drop off in 2013 compared with 2012."The bond spread a key measure of the difference between Italian and German 10-year bond yields has also dropped sharply over the year, dipping below 300 basis points in early December from double that figure at its peak. While European leaders congratulated Monti on restoring calm to the markets, Berlusconi's announcement at the start of December that he is running again for prime minister sparked panic and the spread began to inch up again.The media magnate has dismissed the spread measure as "a trick and an invention" used to bring down his government. Investors will be watching closely in the coming weeks to see if Berlusconi's large-scale media campaign for re-election wins him potential votes from Italians tired of Monti's austerity packages and record unemployment levels.Renewed confidence in financial markets contrasts sharply with official forecasts for economic growth over the coming year, as Italy struggles to pull itself out of a recession.Despite Monti's "Grow Italy" plan, the economy is not expected to return to growth before the end of 2012 or the beginning of 2014."Business and household sentiment does not appear to have benefited from the easing market tension," Intensa Sanpaolo said.The government has forecast a 0.2% contraction of the country's gross domestic product in 2013 an outlook considered overly optimistic by Italy's business association Confindustria, which expects GDP to shrink by 1.1% next year.One figure is on the rise however: the number of people on Twitter following Monti, who is drumming up support for a reform-led electoral campaign. Monti, who resigned last week after Berlusconi's People of Freedom party pulled support from the government, has said he is keen to lead the country again after the elections a message welcomed by the markets, European leaders and Italy's Catholic Church alike.

 

IMF, EU push for softer deficit cuts

The International Monetary Fund and European Commission officials have encouraged France and its eurozone partners not to fixate on deficit reduction targets if it would exacerbate the bloc's debt crisis.The head of an IMF mission in France, Edward Gardner, urged officials in Paris last week to consider their 2013 budget targets "in a broader European context."The IMF and the EU Commission expect the French public deficit to amount to 3.5% of gross domestic product (GDP) next year.They do not believe France can reach its 3.0% goal, the eurozone limit, without additional measures that could aggravate an already tenuous economic situation."The credibility of the medium term orientation policy" was more important than a specific deficit target, Gardner told reporters.Loosening the criteria would "be more effective, more credible in a coordinated fashion" across the 17-nation eurozone, he suggested.In Portugal the public deficit fell at the end of the third quarter to 5.6% of GDP from 6.7% at the same point a year earlier, while neighbouring Spain has promised to slash its deficit to 3.0% by 2014 from a blowout shortfall equal to 9.4% of output last year. Germany expects its budget to be in balance this year, two years ahead of schedule, but IMF head Christine Lagarde has suggested that Berlin ease up a bit in its drive for healthy finances. "Germany ... and others ... can allow themselves to go a little more slowly than others in the push to straighten out their public finances," Lagarde told the German weekly Die Zeit in comments published last week.Her call echoed other European voices that are now arguing for greater emphasis on growth rather than austerity measures."The IMF is beginning to understand that the French situation has become dangerous," economist Marc Touati at the ACDefi consulting group said. Unemployment is climbing and the economy is still struggling, he pointed out.The IMF was "trying to prepare public opinion" for missed government targets, Touati suggested."This is not really a new position," Frederique Cerisier at the French bank BNP Paribas said of Lagarde's recent remarks. She acknowledged however that some international institutions were "placing added emphasis" on the need to cut deficits more gradually.On Tuesday, the EU's 'fiscal compact,' a hard-won step towards tighter economic coordination agreed as part of efforts to tame the debilitating debt crisis, takes effect.Finalised in March, 25 of the 27 EU member states accepted a 'balanced budget rule' in the compact to ensure that governments would no longer run the massive budget deficits which drove the debt crisis and nearly sank the euro.But as the European debt crisis drags on and economies flounder, the idea of allowing governments more time to straighten out their finances has gained ground.European Economic Affairs Commissioner Ollie Rehn said last week that France needed more reforms rather than more austerity."Once you have a credible medium-term budget strategy, backed up by reforms, you can have a slower adjustment," he told French daily Le Monde.If a 3.0% French deficit remains a valid reference, "what needs to be taken into account above all is the structural budget adjustment effort which France is making with remarkable intensity," the EU official said.French officials nevertheless seem determined to stick by their targets. They insist that the public deficit will be brought down to 3.0% of GDP next year from 4.5% in 2012, based on a 2013 growth estimate of 0.8% that economists consider overly optimistic.Friday's third-quarter growth figures gave them little comfort: official statistics revised growth over that period down from 0.2% to 0.1%.French Finance Minister Pierre Moscovici wrote in the German business daily Handelsblatt that France had a duty to reverse years of budget deficits."In the past 30 years, France has not been able to pass a balanced budget. State debt rose to an unacceptable €1.7 trillion in 2011. It is our duty to reverse this," Moscovici said. On Friday he reaffirmed the goverment's 2013 growth target.Cerisier at BNP Paribas warned that France, which is nowbenefitting from exceptionally low borrowing rates, must be careful how it communicates to markets, if it wants to maintain its credibility.But, she added: "The fact that we can begin to discuss all that is proof that countries have become more credible with respect to their economic targets."

 

France's 75% tax on rich struck down

France's top constitutional body on Saturday struck down a 75% upper income tax rate, dealing a major blow to Socialist President Francois Hollande, who had made it his centrepiece tax measure.The government vowed to push ahead with the tax rate, which would apply to incomes over a million euros a year, and propose a new measure that would conform with the constitution.The tax rate had angered business leaders and prompted some wealthy French citizens to seek tax exile abroad, including actor Gerard Depardieu who recently took up residency in Belgium. The Constitutional Council said in its ruling that the temporary two-year tax rate, due to take effect next year, was unconstitutional because unlike other forms of income tax it applied to individuals instead of whole households. As a result, the council said, the tax rate "failed to recognise equality before public burdens".Though largely symbolic it would have applied to only about 1 500 individuals the Socialists said the tax rate was aimed at making the ultra-rich contribute more to tackling France's budget deficit.The move was welcomed by the French Football League (LFP) which had expressed concern at the impact on top footballers such as Paris Saint Germain's Swedish star striker Zlatan Ibrahomovic. LFP chairperson Frederic Thiriez said if the measure had reached the statute book there could have been an "exodus of the best players" in the French league.The 75% tax rate was a flagship promise of the election campaign that saw Hollande defeat right-winger Nicolas Sarkozy in May. Prime Minister Jean-Marc Ayrault said the ruling was a "symbolic but not severe censure" and pledged to ensure the measure was adopted." The government will propose a new system that conforms with the principles laid down by the decision of the Constitutional Council. It will be presented in the framework of the next Finance Act," he said in a statement. "We want to maintain" the measure "because it symbolises the need for the effort to be more fairly shared," he added.The Constitutional Council also rejected new methods for calculating a separate wealth tax, striking down a provision that would have increased the amount of taxable revenues and capital gains. Other new measures in the budget were approved, however, including an increase in some upper tax rates to 45% and the addition of capital gains to taxable income. Finance Minister Pierre Moscovici said the ruling "does not compromise" budget efforts and said the council had approved "the essential" of the government's economic policies.But government critics hailed the ruling as proof the Socialists are pursuing unfair tax policies. "While the whole world watched us in dismay, Francois Hollande deceived the French into believing that 'taxing the rich' would be enough to solve our country's problems," said the head of the right-wing opposition UMP, Jean-Francois Cope."In reality, discouraging entrepreneurs and punishing the most wealthy until they leave our country inevitably puts the tax burden on the middle class. This moral error was sanctioned today. "France is struggling to plug a €37bn hole in its public finances to meet its target of reducing the budget deficit to the EU ceiling of 3% in 2013.The 2013 budget included €12.5bn in spending cuts and €20bn in new taxes on individuals and businesses. Critics have said the new tax measures will stifle economic growth, with the French economy already expected to contract by 0.2% in the final quarter of this year. The 2013 budget is based on a government forecast of 0.8% economic growth next year a figure many economists consider too optimistic. Hollande has seen his popularity plummet in recent months as the economy stagnates and unemployment mounts.

US lawmakers seek last-gasp fiscal deal

After weeks of failed haggling, the fiscal cliffhanger is at hand as US lawmakers convene Sunday in a bid to strike a year-end deal that avoids huge tax hikes and possibly spending cuts set to kick in January 1.With the clock ticking ever closer to the New Year's time bomb, the suddenly alarmed Senate and House were holding special sessions 36 hours before the year-end deadline for a plan that would keep America from tumbling off the so-called fiscal cliff. The stakes in the game of holiday-interrupting brinkmanship are enormous. Economists agree the $500bn in fiscal pain due to hit when the new year starts would stifle the US economic recovery and send the country back into recession, spelling bad news for the global economy as well. Aides to both sides' leaders in the Democrat-controlled Senate worked feverishly behind closed doors Saturday to fashion a deal palatable to Democrats as well as to Republicans, who control the House of Representatives. The Senate convenes Sunday at 1:00 pm (18:00 GMT) while the House goes into session an hour later, with no votes expected before 23:30 GMT. Both chambers would have little time to debate and then pass a deal that has eluded the White House and Congress for weeks. President Barack Obama, who called congressional leaders to the White House on Friday, will address the crisis once more when he gives an interview on NBC's Sunday morning talk show "Meet the Press. "Amid the tense negotiations, Obama pressed lawmakers to clinch a deal, even if they must reach a compromise that lacks the significant deficit-reduction measures both sides had sought. If lawmakers fail, "every American's paycheck will get a lot smaller," the president warned. "Congress can prevent it from happening, if they act now. "Obama, sensing a mandate from his re-election last month, wants to raise taxes on the rich. Republicans want only to close tax loopholes to raise revenue and demand significant spending cuts in return, notably to federal benefit programs like Social Security. But if nothing is done by the deadline, all taxpayers will see an increase. Following the White House talks, the Senate Majority Leader Harry Reid and Republican Minority Leader Mitch McConnell are heading efforts to craft a deal. But any agreement would also have to pass the House, where there is doubt that an Obama-backed deal would win favor with restive conservatives in the Republican caucus. While each side must for the sake of appearances be seen to be seeking a deal, one way out is to go over the cliff, then fix the problem in the first days of next year. Under that scenario, Republicans who are philosophically opposed to raising taxes could vote to lower the newly raised rates on almost all Americans without formally hiking taxes. Lawmakers, while ruing the inability to work out a multi-trillion-dollar grand bargain in time, have said a pared down version dealing mainly with taxes was within reach. Citing unnamed people briefed on the talks, The Washington Post said one version under consideration would protect nearly 30 million taxpayers from paying the higher, alternative minimum tax rate for the first time and maintain unemployment benefits for two million people.The plan also would halt a steep cut in Medicare reimbursements for doctors and preserve popular tax breaks for both businesses and individuals, such as those for research and college tuition, the report said.But the two sides were still at odds over where to set the limits of wealthy - at $250 000 or $400 000 of annual income and over taxes on inherited estates. Nor has there been agreement on spending cuts so sought after by Republicans, who say excessive government spending is the main driver of US debt. Obama warned that if an agreement was not reached in time, he would ask the Senate to hold an up-or-down vote on a basic package that protects the middle class from a tax hike, extends unemployment insurance, and "lays the groundwork for future... deficit reduction. "In a weekly Republican address, Senator Roy Blunt expressed some optimism, saying that "going over the fiscal cliff is avoidable. "But he criticised Democrats for focusing mainly on taxes while setting aside government spending, arguing that such inaction "shouldn't be an option."