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Italy's prime minister, Mario Monti, a senior EU official before becoming prime minister, has the credibility and credentials to bring the French and German sides together on a new plan forward for the European Union, says Steven Pearlstein of the Washington Post. In this report from Rome, where leaders of Italy, Spain, France and Germany are meeting to discuss solutions Pearlstein describes the solutions Monti is putting forward. The European Investment Fund would be built up so that it has funding of about $175 billion or 1% of Europe's GDP to finance truly productivity and growth enhancing projects of innovative small and medium sized business in transportation, energy, education and environmental sectors. These companies have suffered shortages of capital as banks pulled bank from lending. It is the inadequate private investment that is causing the greatest damage in this crisis and $175 billion is at the low end of the amount needed in this crisis. Other steps Monti is pushing forward- for immediate steps to tackle the crisis deposit insurance to prevent a run on banks is essential for European banks. This would come with a eurozone regulatory authority that would have the powers to regulate European banks. The European Financial Stability Facility would be the "sovereign buyer of last resort," under Monti's proposal. Eurobonds come up as a key part of the solution. This is not because German and French taxpayers would be required to finance economies of Spain and Italy. As was shown by the U.S. Troubled Asset Relief Program (TARP) a well designed program could pay for itself. This would include the EU financial authority taking up stakes in the banks getting help and closing banks that are insolvent. The key point is that if properly executed and executed in a timely and appropriate way this does not have to cost French and German taxpayers- the important thing being to support the eurozone economies before the situation deteriorates. Borrowing at 6% for Spain and Italy will only put the situation out of control as deficits rise rapidly. The concessions for tighter regulation of European banking systems, reducing risk in banking, setting up adequate reserves, closing poorly run banks, and ceding powers to a European Financial Authority that can make the final decisions, are the steps that would have to go with these arrangements. Sound financial management requires that the kind of banking risks taken in the speculative bubbles in Spain, the lack of transparency and credibility in banking estimates of bad loans in the system, and the glossing over the problems at Bankia, would have to be addressed in solutions through regulation by a credible European Financial Authority to convince skeptical German public opinion that financial accounts are conducted in a proper manner....

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ECB president Draghi tells a Brookings Institution audience on Oct. 9, 2014 "for governments that have fiscal space, then of course it makes sense to use it," referring to Germany. IMF's Christine Lagarde is also calling on Germany to increase spending. The German statistics office says exports declined 5.8% in August from prior month. Mr. Draghi also emphasized that the survival of European governments depended on getting economic changes right- "if they don't do the right things, they will disappear forever because they will not be re-elected." Germany's respected economic institutes said in a joint statement that GDP growth in 2014 will be down from earlier forecast of 1.9% to 1.3%. In 2015 growth is forecast at 1.2%. For the 3rd quarter 2014 growth is zero and for the 4th quarter 2014 it is estimated at 0.1%. Economic contraction is not ruled out.

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This Journal editorial says both Hollande and Sarkozy fail to address the issue of competitiveness in the French economy. Much of the election campaign in April 2012 has focussed on taxes on higher incomes and too little on measures that would improve competitiveness. Some of the action taken in recent years such as raising the retirement age to 62 from 60 are being opposed by Hollande, which gives the electon a fairy tale quality says the Journal.

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Financial problems at Banca Monte dei Paschi di Siena and the Italian government's role has introduced an element of uncertainty in the upcoming election in Italy. This has helped former prime minister Silvio Berlusconi recover in the polls. In Spain the newspaper El Pais published information from the ruling Partido Popular financial records showing hidden payments of 25,200 euros a year between 1997-2008. The opposition leaders asked for Rajoy's resignation and Rajoy did not address the matter directly till a joint appearence with Merkel in Berlin, where he said: " I have exactly the same strength, the same courage, and I am just as determined to continue as prime minister to overcome one of the most difficult situations in Spain of the last 30 years." Rajoy has a solid majority in parliament, with his party firmly behind him. This is unlikely to affect the political situation in Spain.

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Voter fatigue with the Conservatives under prime minister Harper is showing up in the province of Ontario. The area around London, Ontario, and Toronto is critical in the 2015 general election. A large loss of manufacturing jobs has left this key manufacturing region of Canada so weakened that the recent 20% decline in the Canadian currency is not leading to a rebound in the manufacturing sector. The Liberals under Justin Trudeau have promised to run a slight deficit to invest in infrastructure that would help the manufacturing sector, while Harper's Conservatives plan to keep the status quo. The vigorous campaign run by Trudeau, the son of a former prime minister, is also helping the Liberals, who are moving ahead in the polls.

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France's parliamentary elections showed the Socialist party gaining 280 seats, with two allied parties getting 34 seats, giving the Socialists an absolute majority in parliament. Greens won 17 seats and the far left 10 seats. Former president Sarkozy's Union for a Popular Movement won 194 seats and allies 35 seats, for a total of 229 seats, down from 304 seats.The National Front led by Marie Le Pen won 2 seats. Marie Le Pen and Segolene Royal both lost their seats. The absolute majority gives Socialist president Hollande more room to implement his legislative program and make changes in eurozone architecture.

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Vladimir Putin presents his views on democracy in Russia, on prevalent corruption, and ways to introduce democratic processes through internet referendums on legislative initiatives, the election of governors and local officials. He says democracy cannot be built overnight, that sovereignty of the people of Russia is the true basis of democracy and this was achieved through the fight with the oligrachy and anarchy of the 1990's. Rights that Russians want to see democracy ensure are: right to work, free medical care and education for children. In addition with the development of civil society and the advance of the middle class in Russia democratic processes have to keep pace. But he doesn't see democratic processes working with what he calls " a circus of candidates making unrealistic promises" with "spin doctors and image makers controlling politicians." And he does not see modern democracy limited to casting votes, and calls for internet based democracy and referendum based democracy to be integrated into the overall development of institutions, particularly at municipal and regional levels. He calls for a change in the mindset of Russians away from corruption in public service, saying that as long as the mindset is there one set of thieves are unmasked only to be replaced by another set of thieves. And cites polls that show teenagers aspire to be public servants because of the easy money to be made in public service. To correct this he proposes salaries that are high enough and at the same time have absolute transparency, declaration of expenses and family purchases, residences, vacations etc. Other steps include separating executive power and property and separating executive power from the system of checks over it....

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Dilution of the Volcker Rule by defining "hedging" as covering bank risk on a "portfolio basis," "including aggregate risk of one or more trading desks." The new wording is in a 174 page draft proposal for the rule released by regulatory agencies. The Federal Reserve, the FDIC, the CFTC, the SEC, and the Treasury Department are putting together the final wording. This opens the door for banks to engage in proprietary trading on their own account. Experts say this makes it possible for financial firms to make all kinds of bets on the market, by defining the risk of its portfolio broadly, such as a U.S. recession. Additional changes are the deleting of the requirement that chief executives pledge their firms are not engaging in proprietary trading. Another change that is being debated is whether to require banks to report all trading to a single repository so that regulators can see if there is systemic risk. The result of this would be a watering down of the original Volcker Rule provision in the Dodd-Frank legislation, that banned proprietary trading after the 2008 financial collapse on Wall Street....

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Italy's finance minister Carlo Padoan, the EU president Jean-Claude Juncker, and Vitor Constancio, vice president of the ECB, express the need for increased public spending and investment to reverse increasingly sluggish economic growth by Septembr 2014. In a letter to Paduan, finance ministers of France and Germany, Sapin and Schauble, express support for a new investment program in 2014-2015.

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Debbie Wasserman Schultz's vigorous efforts to fire up the Democratic party's base after the waning of support since the 2008 presidential election. She says it is a make or break moment for the middle class and drawing attention to the problems of the middle class is not class warfare. She was chosen by Obama as the Democratic National Committee chairwoman as the party heads into the 2012 presidential election.

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The relationship from college years at Amherst College in the U.S. of Greek political leaders Antonis Samaras and George Papandreou. The efforts to setup a national unity government that failed. The increasing support for the opposition New Democracy Party led by Samaras- with 16% unemployment- and the prospect of new elections. Samaras supports spending cuts. He also favors tax cuts, and a flat tax rate of 15% on business. Greece has a long history of tax evasion and distrust of central authority going back to centuries of Turkish rule. Samaras believes that the lower tax rate of 15% would help change the Greek cultural trait of evading taxes becaue it would be on the honor of people to pay such a basic tax. EU leaders are skeptical that lower taxes are the right policy to reduce the deficit. This adds to the political uncertainty as the new government would have to implement the measures agreed to between the current Greek government and the EU leaders. A similiar situation existed in Portugal but the recent elections there, participation of the opposition party in talks, and the newly elected government conducting its own negotiations, has removed that element of uncertainty which exists in Greece. ...

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A Pew Center poll in Greece shows support for the Euro at 69% in 2013. The situation in Greece has improved in 2013 with the economy expected to decline by 4% in 2013 and return to growth in 2014. The current account deficit at 11% in 2008 is now close to zero. Unemployment is stabilizing and the competitiveness is being restored as labor costs per hour are down 30%, according to Alpha Bank. Ten year government bond yields are now below 8% in 2013, a dramatic improvement.

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Syriza party's young leader Alexis Tsipras retains popularity even as Greece accepts the third bailout program from the EU with conditions for pension reform and tax changes. He now says some of the pension reforms were necessary even in the absence of the bailout conditions, saying it is not normal for someone to retire at age 45 or 50. He also says that he is fighting tax evasion so that the rich pay their share of taxes. The mainstream parties have lost confidence because the programs did not ensure a equitable sharing of tax and other measures, and more of the burden falling on the poor. In contrast to Portugal where the tax burden is shared more equitably, more of the burden in Greece has fallen on the poor and less affluent.

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Spain's prime minister, Mariano Rajoy, accepts EU and IMF aid for recapitalizing Spain's banks. Rajoy tells a news conference in Spain on June 10th, 2012, "nobody pressured me," he did this because it would "help the credibility of the European project." The Partido Popular took decisive steps to improve Spain's competitiveness during the first 6 months of the new administration, but was caught by surprise by the problems in Bankia, a bank put together from failing cajas savings banks. The cajas savings banks were heavily involved in the housing bubble in Spain.

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In a shift from statements at earlier summits which focussed on fiscal restraint, the Camp David summit continued the "firm committment to fiscal consolidation," yet emphasized jobs and economic growth as "imperative." There is new flexibility to address needs for economic growth and no specific timetables for fiscal balance as in previous summits. Obama had many one to one encounters with the other leaders. He discussed the euro crisis with Cameron while working out on a treadmill, and watched the Champions League soccer final between Chelsea and Bayern Munich with Merkel and Cameron. Each leader of the G-8, Harper of Canada, Monti of Italy, Hollande of France, Medvedev of Russia, Cameron of Britain, Noda of Japan, Merkel of Germany, was assigned a cabin in the rustic wooded setting of Camp David's mountains. A special effort was made to see that Germany's Merkel did not feel isolated in the setting because of the growing sentiment that austerity policies pushed by Germany are not working. On Iran, Obama stated that he was "hopeful that we can resolve this issue in a peaceful fashion that recognizes their sovereignty, but also recognizes their responsibilities."...