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Talks on June 28-29 in Rome between President Francois Hollande of France and Chancellor Angela Merkel of Germany. They will be joined by the Italian and Spanish prime ministers, Mario Monti and Mariano Rajoy. Hollande has invited the opposition Social Democrats in Germany for talks in Paris to win support for his approach to the eurozone crisis. The growth initiative proposed by Hollande is fairly modest and Merkel has expressed her support for this. The tougher issues revolve around some acceptable form of mutualizing of eurozone debt to tackle a loss of confidence in financial markets without a surrender of sovereignty by France and other eurozone nations- a particularly sensitive issue in France. More Europe, would mean more German influence in decisionmaking. Germany rejects eurobonds and direct aid to banks from the ECB. Centralized banking supervision and close regulation by a new European regulatory authority would be needed as part of a new eurozone financial architecture. The immediate issues are of some form of deposit insurance for the eurozone banking system so that there is no run on the banks in Spain and other countries....

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Greg Ip provides useful insights into the nature of the economic recovery in Britain compared to the U.S. by 2015. The recovery in Britain has done better than in the U.S. in job creation, but has lagged behind in productivity gains. The labor force participation rate is 72% in Britain compared to 68% in the U.S., going back up to 2007 levels in Britain, whereas in the U.S. it has steadily declined with some older working class Americans too discouraged to look for work and left behind. Stagnant wage growth is a major issue in Britain, more so than in the U.S. where wage growth is slow. Economic austerity is not the main cause of the economic difficulties as the coalition government of prime minister Cameron relaxed earlier goals for austerity by 2012 with tax revenues and growth below forecasts. The structural budget deficit has been reduced by 6.6% of GDP since the peak, and the Office of Budget Responsibility estimates the UK economy was 1.5%-2% smaller by 2013 because of the austerity policies. Britain was also affected by the eurozone crisis to a larger degree than the U.S. Productivity remains a long term challenge- with needed investments in housing, education and infrastructure, improved lending for new business, and higher tech improvement exports....

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The large increase in auto sales in 2013 to 15.6 million follows a strong rebound in the U.S. market. The gains in sales over 2009 at the peak of the financial crisis, shows Chrysler at 93% gain in sales over 2009, VW at 92%, Nissan 62% and Ford 54%, according to Autodata. Smaller gains of 33% and 26% for Honda and Toyota. Chrysler's sales were 1.8 million in 2013- the company which depended on policymakers in the Obama administration for survival showed remarkable gains under Fiat's CEO Marchionne. VW returning to the market and stumbling repeatedly in the previous ten years, made serious gains with Jetta and Passat models designed and priced for the U.S. market. VW achieved sales of 0.6 million in 2013. Ford sales were 2.5 million, Nissan 1.2 million, Honda 1.5 million and Toyota 2.2 million for 2013. GM sales 2.8 million increasing by 35% in 2013 over 2009. The automobile story may be the biggest story in the U.S. manufacturing recovery. It also may have made a difference in the election campaign of 2012- with winning campaign points in key midwestern states such as Michigan and Ohio for the Obama administration's backing of a renewed auto industry around fuel efficiency improvements, new management, and new relationship with unions. In the period 1998-2007 average sales were 16 million in the U.S. market, with a nosedive to 10.4 million vehicles in 2009, and a rebound to 15.6 million in 2013, according to Autodata. Under previous union contracts with higher wages and pension costs, and a flurry of price incentives, car makers needed higher volume to make profits. Changes since the bankruptcy of 2 automakers include bringing in management from outside the auto industry- Marchionne at Chrysler, Whittaker and Akerson at GM came from other fields (telecom, finance) bringing new perspectives. Mulally at Ford was from Boeing commercial aerospace. Other changes were lower wages and pension costs with renegotiated contracts and relationships with unions, discipline to lower incentives, younger managers moved up and brought in from outside including Reuss and Barra at GM, Farley at Ford, lower sales to fleets, improved fuel efficiency for SUV's and pickups to change the cost of operating, a mix shifted to smaller and midsized cars, improved quality, and changing the buyer perception of American brands....

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Mario Monti, Italy's prime minister, tells Alessandra Galloni of the WSJ, "Germany will never let France go." French economist Sorman says Americans do not realize that the EU and the Euro were created for political, not economic reasons, and the idea was to bring peace to Europe and especially between France and Germany. He sees the EU countries staying through this crisis together, and France emerging more competitive from this experience.

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The Economist says British prime minister David Cameron's negotiations with the European Union during the recent summit talks were a failure. The diplomacy of the Cameron administration is described as inept and is seen as damaging British interests severely. It leads to an isolation of Britain in Europe. In this negotiation French President Sarkozy is seen as coming out ahead. The inept efforts to protect Britain's financial sector are unlikely to benefit the sector.

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Francois Hollande, Socialist candidate for president in France, has led the Socialist party for many years. He started his career as a junior politician in the Mitterand government, and regards Mitterand his mentor. Another mentor is Jacques Delours, who was president of the European Commission. He has many years of training, and has persevered thorughout with a certain sense of humility in the midst of colleagues and politicians in France with larger egos. That inner strength and courage has emerged in the recent campaign appearances and the final debate with Sarkozy in April 2012. He has shown this in the recent campaign by not overstating expectations as he looks at the long term, and at the same time not understating when courage demanded a stronger statement. He has taken timely and effective positions in the current debate of austerity vs growth, or growth coupled with restraint in fiscal spending vs austerity, that is raging in Europe. He was quick to call the situation in Greece, a failure of governance in Europe, as well as a failure of governance in Greece. With the new voices of Premier Monti in Italy and ECB president Draghi from Italy, pushing for growth coupled with fiscal responsibility, a president Hollande in France, would add another voice to European aspirations for growth in the debate with Angela Merkel's Christian Democrats in Germany. ...

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Interview with German Greens party politician, Jurgen Trittin, who could be finance minister in a Greens supported government. Trittin says his views are similiar to that of the IMF which is calling for debt relief for Greece. If elected in a Greens-SDP coalition, Trittin says, he would end the policy of purely cutting state expenditures.

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Francois Hollande becomes the first Socialist candidate to be elected president of France since Francois Mitterand 17 years ago.

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A sense that the policies of Hollande in France are better aligned with the Obama administration's position on economc issues.

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IMF Managing Director, Christine Lagarde says Greece should have 2 more years to achieve the deficit targets. Speaking at a news conference during the annual meeting of the IMF in Tokyo in Oct 2012, Lagarde said: "it is sometimes better, given circumstances.. to have a bit more time... This is what we advocated for Portugal, it's what we advocated for Spain, and it's what we are advocating for Greece, where I have said repeatedly that an additional two years was necessary for the country to actually face the fiscal consolidation program that is considered." A two year extension would add an estimated 20 billion euros to the financing cost for Greece, at the same it improves the chances for growth and means having a program that is more likely to work.

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Spain's Mariano Rajoy loses a no confidence motion in parliament and resigns as prime minister in May 2018. He is replaced by Pedro Sanchez of the opposition Socialist Party. It has only 84 seats in the 350 member parliament making his government short lived and paving the way for new elections. Rajoy came in after the 2009 financial crisis assuming the prime minister position in 2011. He has governed throughout the period of the economic crisis and high unemployment in Spain during the eurozone debt crisis, the collapse of the housing boom, the banking bailout and austerity programs in Spain. Economic growth resumed gradually since 2013.

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The joint statement after the G-8 summit stated that "our imperative is to promote growth and jobs." It stated the budget deficits need to be addressed but said "spending cuts must "take into account countries' evolving economic conditions and underpin confidence and economy recovery." Germany's Merkel in her remarks said growth and deficit reduction supported each other, that "we have to work on both paths, and the participants have made clear, and I think this is great progress." Opposition Social Democrats in Germany say Ms. Merkel is adept at changing as the situation changes, and it appears Merkel is making the transition away from strict austerity policies she had championed earlier. Especially now with fresh elections in France, Netherlands and Greece, and the election of Francois Hollande on a pro-growth platform, the German position of strict austerity is being increasingly questioned on all sides. French president Hollande met U.S. president Obama at a pre-arranged meeting prior to the summit. Obama and Hollande see the need to reduce high unemployment in the U.S. and Europe by encouraging growth, creating a common interest....

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Spain's Budget minister, Cristobal Montero, said the government would have a new credit line and provide an early infusion of $10 billion to aid financially troubled regions. Many of the regions are in such financial straits that they are unable to pay suppliers, and this is putting many small businesses in serious difficulties. Spain's prime minister Rajoy says the Spanish government needs to be concerned about what is happening in the regions, and that he would help regions as long as they meet their budget goals. Spain adopted a decentralized model after the years of the Franco dictatorship, and regions handle education, health care and social services, culture and providing services. With the economic crisis following years of free spending by the regions, the extent of this autonomy and the lack of budget controls is being called into question. Officials from regions such as Aragon, Valencia and Murcia have called on the federal government to play a bigger role.

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Stamouli and Walker of WSJ describe the last days of negotiations in June before Greece pulled out its negotiating team, and German chancellor Merkel decided to call off the bailout of Greece. The impasse was over pension cuts and vaue added taxes, yet the negotiations were still going over details when Tsipras pulled out Greece's negotiating team with the surprise announcement of a referendum on July 5, 2015. By saying the Syriza party would call for a "no" vote Tsipras alienated public opinion in Germany. Chancellor Merkel seeing the shift in domestic opinion favoring Greece's exit from the euro during the tense months of negotiations with the Syriza government and acrimonious charges, moved to call off a continued EU bailout of Greece.

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The caretaker government of prime minister Mark Rutte in the Netherlands will commit to following austerity plans in its Stability Program report to the European Union. Elections are now set for September 12, 2012. The government was able to get the support of two smaller left-leaning parties to austerity plans. Opposition parties have questioned the policies and said they will reverse them if elected. Rutte's Liberal party and Jaeger's Christian Democrats, with the help of the Christenunie, D66, and Groenlinks, now hold a slim 2 seat majority in the 150 seat Dutch parliament. The Freedom party that had previously supported Rutte withdrew support for austerity policies that it said would hurt pensioners. The moves help avert a credit ratings drop by the credit ratings agencies leading to a loss of the Dutch triple A credit rating. The measures will increase the sales tax from 19% to 21%, make health care spending cuts and impose a pay freeze on civil servants. Savings achieved will be 11 billion euros. Rutte described his actions as: "the government's respose to the acute crisis in confidence in the financial markets." Earlier in the week Fitch Ratings had threatened to lower the Netherlands credit rating. The measures will reduce the Dutch deficit to 3% in 2013 from 4.5% in 2012 to meet EU fiscal compact rules. The changes to the health system are part of changes advocated by the OECD and the IMF because of surging health care costs for an aging Dutch population. There is concern about the sales tax increase because of its effect on consumer spending, and recent comments by S&P managing directors and others in financial markets emphasize the need for economic growth, as austerity measures by itself are inadequate solutions....

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Unemployment in the eurozone drops to 7.7% in 2017. Unemployment in Spain drops to 17%.

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Efforts being made to convince the Spanish government of Mariano Rajoy to accept IMF aid to recapitalize its banks. The IMF released information showing Spanish banks would need to raise at least 37 billion euros or $46 billion to prevent a worsening of the banking crisis. The report was released before the meeting of EU finance ministers on June 9-10 to persuade the Spanish government to accept IMF aid. The eurozone bailout fund was given powers in 2011 to make loans to governments for the purpose of recapitalizing banks, with conditions and terms set for the financial sector not for the government's spending plans. According to people aware of the discussions taking place in the European Commission and the IMF, one option is to have the European Banking Authority and not the IMF oversee the program. This avoids the usual stigma of accepting aid coming from the IMF with strict conditions attached including restrictions on the government's fiscal plans.

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The IMF's changing views on the value of fiscal austerity. In the current debate about the value of fiscal austerity, there is the IMF view, a German view based on its own experience, and the views of other countries in Europe. The IMF's view has shifted over time. The IMF World Economic Outlook 2010, describes its view of the effects of austerity measures in the form of spending cuts and tax increases- "Fiscal consolidation typically has a contractionary effect on output. A fiscal consolidation equal to 1% of GDP typically reduces GDP by about 0.5% within 2 years and raises the unemployment rate by about 0.3% percentage points." Over the longer term there are benefits as the private sector is not crowded out in the search for captal funding by the excessive government borrowing. The IMF's economic models suggest that it would take 5 years before reaching the breakeven point when the benefits of austerity measures exceed the effects of austerity. The German view held by German central bankers is that the actions stimulate growth in the short term. Manfred Neumann, professor emeritus at the Institute for Economic Policy at the University of Bonn, says this is called the "German hypothesis" as it reflects the experience of Germany from austerity actions taken by Germany. Laurence Ball, professor of Economics at John Hopkins University, is critical of the "German hypothesis" and its application across Europe in different situations. Germany is a large exporting nation and exports helped counterbalance the effects of austerity measures. Within the eurozone with fixed exchange rates the exports of less competitive countries cannot be boosted through devaluing the currency to gain price competitiveness. The other problem is that with interest rates close to zero in the euro zone the central banks cannot cut rates aggressively to counteract the effects of spending cuts. The problem gets compounded when a number of countries are taking austerity measures at the same time accentuating the downturn....