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The IMF report on Italy in July 2012 says Italy faces another year of recession. Debt as a percentage of GDP is expected to reach 126% in 2013. One bright spot is that Italy is expected to post a primary surplus by 2013- that is government revenues will cover promised services, excluding interest payments on oustanding bonds of $2 trillion. Because of the recession small shocks could change the outlook says the IMF, and it emphasized the importance of the changes being made to the labor market and for improving competitiveness. These changes need to be implemented early because of elections expected in spring 2013. A key concern is borrowing rates which are near 7% for Italy and Spain. The European Stability Mechanism, the rescue fund, was authorized to make purchases of Italian and Spanish bonds in the June 2012 summit. The ESM becomes operational in the summer of 2012, after the German Constitutional Court makes its ruling about it being legal and after ratification by national governments....

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This exceptional report from rural areas in France by Roger Cohen shows why the support is growing for the far right and the far left in rural areas and smaller towns outside the large cities which have suffered from high unemployment and neglected as technology and capital moved to other areas. Cohen talks to Nicholas Bay, secretary general of the National Front, who says this election is about patriotism, the nation state vs globalization, as the National Front tries to portray its opposition as being less pro-France, and less pro French culture. The centrist candidate Macron stands in front of a statue of Alexandre Dumas in Picardy, an hour northeast of Paris, and says he is for an "open patriotism" that embraces people of different origins and embraces refugees. Cohen attends a Le Pen rally in Metz, Lorraine, talks to a National Front mayor in Picardy and left party supporters in the town, talks to foreigners in the banlieu of Sevran. Cohen says a National Front victory is possible if enough voters who support the far left party of Melenchon do not vote for centrist candidate Macron, and enough voters of centre right Fillon supporting French culture and nationalism drift to Le Pen. As in the Dutch election with Moroccans derided by the far right the immigrant issue is a factor. Against this background is how events play out in the last weeks of the election. In March and April the events in the U.S. show a Trump administration moving to the centre, adopting a quieter and more constructive tone towards Mexico and immigrants. Relations with Russia have worsened after the U.S. response to the chemical attack in Syria, and the French public may now see this as a common threat to NATO and the European Union. As in the Dutch election a lot depends on the last weeks of the election and how well the centrist parties, the centre right and the centre left get their message across about what is to be gained by building anew on the foundations of the past without risking a lot on an uncertain path of referendums and exit from the European Union.   ...

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This WSJ editorial says despite his call for "hard-hitting sanctions" prime minister Cameron of Britain has not taken action to stop the flow of "dirty money" from Russia into the City of London. About $75 billion left Russia so far in 2014 in capital flight as the Russian elite shifts money overseas including to the City of London. France has a planned $1.6 billion sale of Mistral naval ships to Russia, and will need the British example to cancel this sale. Putin's strategy is to distance Europe from the U.S. In the EU countries opposing tougher sanctions are Germany, Netherlands, Italy and Greece. Netherlands suffered the most with 193 Dutch citizens killed in the shooting down of Malaysian Airlines Flight 17 over eastern Ukraine.

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This essay in the Economist magazine describes the voter rejection of ruling parties and their candidates in France. Two presidents and two former prime ministers from the Socialist party and the Republican Party, Hollande and Sarkozy, Valls and Fillon face rejection. And another candidate from the Republican party Juppe also has fared poorly. This leaves two outsiders LePen of the National Front, and Macron a former Economy minister in the Hollande government who launched En Marche as his own movement for moderate change alternative in 2016. The rural-urban and less educated-more educated divide which was evident in voting in the U.S. election and the Brexit referendum is now seen in France, says this essay. Research from the Economist shows National Front support highest in outlying areas of major cities. The fears of immigration, terrorism, and globalization leaving parts of the working class behind are factors in this election. Support for the European Union is also a factor as it has suffered in recent years.     ...

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The last days of the pro-Russian Donetsk People's Republic in eastern Ukraine, as Ukrainian government forces under the government of prime minister Poroshenko defeat separatists by July 2014. Russia decides not to intervene further. Opinion polls show a majority of Ukrainians in Donetsk do not favor separatism, and opposition is based on alienation from the poor quality of governance in Kiev. With the Poroshenko government committed to respecting the rights of Russian speaking Ukrainians, Tymoshenko soundly defeated in elections, and Russia's economy at risk in the adverse impact on foreign investor sentiment, Russia's sees little to be gained from supporting the separatists.

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France's president Hollande says in a televised town hall speech in Dijon, France, that the "deficit will probably be around 3.7%, even if we try to make it less." The austerity measures are hurting economic growth and France is likely to press for more time to met the EU's deficit target, similiar to the situation facing Spain and Portugal. Earlier France had committed to achieving the 3% target in 2013.

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Household debt levels declined in the U.S. to 108% in 2014 for ratio of total debt to disposable income, returning to levels in 2003, according to the U.S. Federal Reserve. The level reached a high of 130% for the U.S. in 2007. The reached a level exceeding 150% in Canada for 2014, which combined with decline in oil revenues with lower oil prices puts additional stress on the Canadian economy. In Japan the level has declined to 125% in 2014. France is close to the U.S. level, up significantly since 2003. Germany's ratio declined significantly to about 90% in 2014. In the U.S. consumer credit levels were up 2.3% in the 3rd quarter as credit for consumer purchases such as autos and appliances increased. Credit for home mortgages increased only slightly by 0.1%, as demand for new homes remained sluggish and banks imposed stricter standards following the mortgage crisis. U.S. households continued to pay down mortgage and credit card debt.

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GDP growth for the 17 eurozone countries showed a 0.2% decline in the second quarter of 2012, according to Eurostat, the EU's statistics agency. The German econonomy showed GDP growth in the second quarter 2012 of 0.3%, France showed zero growth for the third consecutive quarter. Italy and Spain showed negative 0.7% and negative 0.4% growth during the quarter. The ZEW indicator of sentiment in Germany fell to its lowest level reflecting German manufacturers reluctance to invest in new equipment. As the eurozone economic growth remains flat and declining for longer period, German business sees this affecting German exports. Analysts at Commerzbank and Dutch Bank ING see a further slowdown in the German economy in the second half 2012. The German economy showed GDP growth of 0.5% in the first quarter 2012, compared to the prior quarter, before declining to 0.3% in the second quarter. Further decline is now expected.

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This editorial in the NYT says Russian president Putin is ending up with the very situation he has sought to avoid- NATO forces right next to Russia's borders. Not something the western alliance intended but a result of aggressive moves by Mr. Putin in the Ukraine crisis, and NATO's response of having a rapid deployment force in Eastern Europe and the Baltic states. It says this is not in the best interest of Russia or the western alliance.

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Steven Erlanger describes the mood in France as it faces problems of improving competitiveness in a rapidly moving global economy. A sense that the actions of the Hollande government will not be enough to tackle the need for deeper changes.

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According to Eurostat Spain's total tax revenue as a percentage of GDP was 32.1%, lower than the eurozone average, which is above 40%. The underground economy in Spain is estimated to be about 20-25% of GDP. Spain's tax agency has relied on computerized records to track tax revenue receipts. The focus is now shifting to in person visits and tracking of businesses in the underground economy to make certain these businesses are paying taxes.

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Ukraine president Poroshenko tells a news conference in Kiev in September 2014 - "the doors of the E.U. are open to us; I am absolutely convinced of this. Events in Kiev and Brussels gave us a firm hope, a belief, that we will soon get the prospect of E.U. membership." Poroshenko plans to repeal a 2010 law barring Ukraine from membership in any military or political alliance, so that it can apply to join NATO. Clearly Mr. Putin's remark to EU president Barroso that Russia could reach Kiev in 2 weeks has stiffened resolve all over Eastern Europe from Lithuania to Poland, and changed perception in Germany and France about Mr. Putin. The German response from Merkel was to have "a consistent presence" in the Baltic Republics, so that the consequences of threats in Eastern Europe would be made clear to Mr. Putin. Poroshenko says he is in constant communication with Putin about settlement of the situation in eastern Ukraine, showing the costs recognized by all sides to prolonging the conflict....

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The number of unemployed in Spain reaches 5.6 million people in April 2012. Finance Minister Guindos said the only bright spot was exports and a drop in the current account deficit which shows Spain's improving competitiveness: "This shows the Spanish economy is competitive, unlike some other European economies, thats the most important element of optimism for the future." The Spanish cabinet approved a Stability Program Report to be submitted to the European Union showing GDP growth of 0.2% in 2013 and 1.4% in 2014, following contraction of 1.7% in 2012, and unemployment falling slightly to 24.2% in 2013. Spain's government debt level is shown at 82.3% of GDP in 2013 declining to 81.5% in 2014.

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The government of president Hollande in France added about 7 billion euros of new taxes after May 2012, and an additional 20 billion euros in the 2013 budget. Spending cuts totaled about half the tax increases. France's taxes are the highest of the major EU countries and there is concern that this may hinder the economic recovery. French businesses are cutting back on capital spending. Insee survey for April 2013 showed French manufacturing businesses planning cuts in investment of 4% for 2013. The government says spending cuts go up in 2014 to about two thirds of the deficit reduction and tax increases about 6 billion euros. France's statistics agency Insee says economic growth was 0.5% in the second quarter of 2013 compared to the prior quarter. The recovery was supported by consumer spending, with private capital investment lagging behind. This is about 1.9% growth in GDP on an annualized basis, according to J.P. Morgan.

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Patrick Buisson, a key Sarkozy adviser, who helped him win the presidential election in 2007, says Marie LePen's chances in the 2017 election are dimmer than people realize. Her Front National is popular in the north of France with working class people who formerly voted in favor of the Communist or Left parties. In the south of France in areas like Nice her niece Marion is popular with people who have social views on the right on abortion, and gay marraige. The problem is reconciling these 2 blocs of voters and the way Le Pen appears to have moderated her views on social issues. The opposing candidate from the Right parties formerly led by Sarkozy is Francois Fillon, actually prime minister for the full term of 5 years under Sarkozy. Fillon's views are closer to the FN voters in the south and opposes gay marraige and abortion, and has a strong foothold with Catholic voters in traditionally Catholic France. It is this split that hurts LePen who had hoped to run against Bordeaux mayor LeJuppe. The left parties are in disarray and likely not to be a factor. Another difference is that the voters in the south of FN do not see it the same way as FN voters in the north on issues of increasing the size of the state. Voters in southern France do not favor increasing the size of the state as Le Pen has promised and opposed by Fillon. Fillon has plans to cut France's large state employees by 600,000. France has a large state owned sector of companies and increasing the work week to 48 hours, reducing the state sector size to help private companies with incentives is seen as a way to increase productivity and grow the economy, plans supported by Fillon. A major problem for Marie LePen is her family name of Le Pen which Buisson says people in France associate with her father Jean LePen, and extremist positions. Buisson thinks Marie LePen will never be able to shake off this image in the second round of the election as she loses some of her right wing Catholic support to Fillon, and fails to attract enough working class voters in the north of France because of the family name. ...

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

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Theresa May, Britain's Home Secretary in the Cameron government, is a candidate for prime minister with the planned resignation of David Cameron by the fall of 2016. May was first elected to parliament in 1997 from Maidenhead, a town west of London. She was educated at Oxford University, worked in financial services and the Bank of England, before entering politics. She is known for hard work, a direct approach, and candor on policy issues. During a annual party convention she told Conservative party members that "our base is too narrow, and so occasionally are our sympathies," adding that people called Conservatives as the "nasty party." This was the period when Blair's Third Way was popular and Labor Party was in power. A daughter of a clergy man, she presents a rather austere image but reassuring in turbulent times with a down to earth and patient manner.  Her sports hero is a cricketer Geoffrey Boycott, known for taking long patient batting stands on the cricket  grounds- something Britain needs as it faces long and difficult negotiations with the European Union.  During the EU referendum she supported Cameron and the Stay campaign but quietly, so that she can be seen as the Unity candidate for the deeply divided Conservative Party. On immigration  she was as Home Secretary responsible for one of the difficult issues of the Brexit campaign- with net immigration at 330,000 in 2015 exceeding the 100,000 target set by Cameron. That she retains confidence from all segments of the party, as well as her education, experience, and resilience, may provide some of the "calm and composed" manner that German Chancellor Angela Merkel has called for in the Brexit negotiation. ...