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The Economist points to the declining popularity of prime minister Valls. President Hollande has the lowest popularity rating of any president of the French Republic. At 18% he surpasses the 22% low for Mitterand around 1992. Sarkozy's popularity dipped to 28% by 2011. Valls own popularity declined to 35% by October 2014 even after winning a confidence vote in the National Assembly. In this situation with negligible economic growth former president Sarkozy is trying to make a comeback as leader of the UMP centre right party.

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E.U. leaders reached a new agreement for solving the debt crisis in Greece and the broader eurozone debt crisis. This time an effort was made to come up with a solution that had some chance of working unlike earlier efforts. Earlier efforts that concentrated on austerity and burdened Greece and other countries in the debt crisis with higher interest rates came under severe criticism as unworkable. The result was higher unemployment, a shrinking economy, higher debt to GDP ratios, and contagion effects. The new plan commits to getting Greece on the path to growth. The European Financial Stability Facility will have powers to buy Greek bonds at their value in the secondary markets which means Greece would owe less to the EFSF, bringing down Greek debt. Greek debt maturities are to be extended over many years and interest rates lowered, with similiar actions for Portugal and Ireland. And private bondholders were given the option of taking 20% less on their bonds or extending the maturities of the bonds at lower interest rates. In return the bonds would have guarantees for repayment by the E.U. so that the private creditors would limit their losses. The draft document of the agreement says all the E.U. countries would commit to fiscal discipline....

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Charles Dallara, managing director of the Institute of International Finance, which represents large global banks, describes the deal that was reached by eurozone leaders for restructuring Greece's debt in July 2011. He was one of the key negotiators. He says the agreement helps prevent contagion to Spain and Italy, and helps increase confidence in banks. By showing the losses are better understood and seen as manageable conveys a message that builds confidence for the banks and for the EU. And the effort to create the conditions for growth in Greece will make all the difference, he says. The Institute of International Finance estimates the deal will cost the banks and other investors $54 billion. Dallara says the turning point in the talks came in mid-July when European governments agreed to a plan for banks to swap Greek debt for new securities, backed by collateral.The focus then shifted to shaping the details. Josef Ackermann, chief executive of Deutsche Bank and chairman of the International Finance Institute, used his skills to pull the package together with European leaders. Dallara has experience going back to his days working on the negotiations for the Brady deal for Latin American debt in the 1980's. The Brady deal was also designed around banks swapping the old bonds for new ones with longer maturities and reduction of principal, and lower interest rates. In return the banks were given guarantees of repayment removing uncertainty- through 30 year U.S. zero coupon bonds- and making it possible for banks to start anew. The reduction of principal in the July 2011 eurozone agreement is around 20%, the Brady reduction was much larger, around 30%. This suggests eurozone governments are putting up more of the funds in this situation with the weaker condition of banks which may need to be recapitalized at some point, and the preservation of the euro itself at stake....

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The government of Theresa May and the EU appear to be on a collision course with the release of the EU draft legal agreement that says Northern Ireland must remain in the customs union and future arbitration or appeal would be under the European Court of Justice.

Ireland favors the EU draft and sees it as a default solution to avoiding a hard border with Northern Ireland if it becomes necessary. Theresa May and the DUP party of Ireland on whom the prime minister depends for her coalition government's thin majority support in parliament, both reject the EU solution. 

The Labor Party says it would solve the Irish border issue by entering into a new customs union with the EU, so that no checks are needed at the border for people and goods. The Labor party sees it as vital to prevent any effort to undermine the Good Friday Agreement that forms the basis of the peace in Northern Ireland.

 

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Greg Ip of the WSj points out that Britain is in a weaker position to tackle Brexit than it was when Boris Johnson called for supporting the Yes vote to Leave the EU three years ago in the referendum. Business investment is lower than France, Germany and even Italy. And today protectionism, nationalism, hostility to globalization mean that its not so easy to increase exports by signing free trade agreements with other nations. Even a treaty with a friendly Trump administration  is not certain as Mr. Trump favors looking at how he can get the best deal and reverse any advantages of other trading nations, Britain being no exception. A trade agreement with the U.S. could mean the U.S. barring Britain from signing one with China as a condition of Mr. Trump. Greg Ip also points out that it was precisely joining the EU that helped Britain catch up with German and French standards of living after a period of low growth, inflation, and balance of payments crises in the 1970's. Joining the European Economic Community was as prime minister Heath stated would " enable us to be more efficient and more competitive in gaining more markets not only in Europe but in the rest of the world."   ...

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Spain will allow a European banking supervisory authority to visit banks and exercize financial supervision over banks receiving aid from the EFSF, the EU rescue fund. In addition investors including small retail investors will have to take losses to reduce the loans required to recapitalize Spanish banks.

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Reports by David Sanger and other reporters from the NYT on the situation in Ukraine as seen from the US, Russian, European, and Ukrainian sides. Russian president Putin sees Ukraine as part of the Russian cultural and economic sphere with deep ties to Ukraine in its history. The western parts of Ukraine near Poland and near the capital Kiev see their future more in relation to other Eastern European countries that have moved closer to or joined the European Union such as Poland and the Baltic republics of Lithuania, Latvia and Estonia. It is not clear even to advisors to the Russian government what Mr. Putin's intentions and plans are. Russia has not yet recognized the two breakaway republics in Eastern Ukraine based in Donestsk.  Some of the key points in Ukraine's recent history- one needs to know this because Ukraine has a difficult history in its relations with Poland/Lithuania and with Russia alternating over centuries, with neither relationship providing the kind of government that would have helped Ukraine's people. Formed only in 1991 the Republic of Ukraine has a long history since 1500 of being part of Poland and Lithuania, and later part of Russia, with some parts of Ukraine under the Austrian Hapsburgs till 1900. Ukraine was part of the Soviet Union in the 1920's to the 1950's in one phase in which it suffered badly with collectivization of agriculture under Communist Soviet leadership and famines. In the second phase of Soviet rule after the 1950's Ukraine made a dramatic recovery as Krushchev assumed control with Leonid Brezhnev who was from Ukraine. After 1964 Brezhnev ran the the Soviet Union till 1984 and this was a good period for Ukraine. The Soviet Union collapsed in 1990 and Russian leader Yeltsin separated Ukraine and Belarus to go their own ways as separate countries from Russia. For 1990-2000 Ukraine did badly losing about 60% of its GDP, a situation also experienced by Russia with economic instability. Russia recovered under Putin, yet Ukraine has struggled since because of mismanagement under different governments and widespread entrenched corruption.  Governments alternated in the period 2000 to 2020 between ones friendly to Russia and friendly to Poland and European Union. This happened in 2004 and again with protests in 2014. The protests in 2014 in Kiev and Lviv led to a government that favored closer ties with EU and NATO. It is this pendulum swing that is Ukraine's and Eastern Europe's experience in the 20th century and it continues into the 21st. What Russia wants is for Ukraine to not be a place for NATO operations, even if it is not allied to Russia after Russian president Putin was disappointed with the Russian allied government's performance under Yanukovich in the 2000-2014 period with corruption and mismanagement. France in the 16th and to 18th century is described by Brendan Simms of Cambridge in his new book on Europe, as needing the external danger for unity, and unity to meet external danger. This could be true also for Russia as the danger posed by NATO helps bring unity to Russia. And this could be a way to unify Russia and provide it with the confidence that it seeks in its effort for parity with the European Union and the US, China in the 21st century.   ...

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The Bank of Cyprus and the Cyprus Popular Bank (Laiki Bank), passed stress tests given by the EU in 2010 and 2011. By the end of 2010- even as other banks such as Barclays were cutting their Greece government bonds by over 50%- the two banks held 5.8 billion euros of Greece bonds, over $1 billion euros larger exposure to Greece than nine months earlier, according to European regulators. Regulatory supervision failed to alert the banks and the banks risk management failed to see the warning signs in Greece. The Laiki Bank Risk Officer went in the opposite direction actually increasing exposure to Greece, saying in a conference call in August 2010, that he had used the bank's capital position "to deepen selectively some highly profitable client relationships." What went wrong with the stress tests by the EU regulators in July 2010 of these two banks, was that the tests looked at what would happen if economic conditions deteriorated, but did not consider the possibility that government bonds could produce losses. The two banks suffered total booked losses of 4.3 billion euros in 2013 from holdings of Greece bonds. The EU stress tests of July 2010 showed the two banks having total of 572 million in surplus capital. The two banks then went on to issue dividends in 2010-2011 totalling 141 million euros. By March 2013 the Laiki Bank was "on respirator" for a few months, according to the Central Bank of Cyprus, until the 10 billion euro EU bailout in March 2013 with the closing of Laiki Bank and the sharp downsizing of Bank of Cyprus....

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Germany's calls for closer political and fiscal union for the eurozone countries to complement and support the euro currency arrangement. German chancellor Merkel calls it "more Europe," "step by step." It all hinges on French president Hollande and how well the Socialist party does in the elections to the National Assembly on June 10 and June 17, 2012. If he does well and gets a working majority with other like minded parties he will not need the support of parties that are opposed to giving up sovereignty. Hollande's mentor is Jacques Delors, a former president of the European Commission and a strong supporter of the idea of European Union. England under the Conservatives remains Euro-skeptic. France and Germany were driven closer by the idea of European Union by necessity, because of history and three wars. The European Union had strong support after 1945 from French and German leaders, Monnet and Adenauer, who struggled with political opposition but won over skeptics, with the process continued by German chancellor Kohl, a mentor of Angela Merkel....

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This leader in The Economist magazine says a hard Brexit of the sort announced by Theresa May at a Conservative Party conference is clearly bad for Britain. It also point out that half of British people voted to remain. It is not clear that voters have voted for a hard Brexit, a soft Brexit, or voter alienation with elites and effects of years of austerity since the financial crisis have helped tilt the vote to Brexit. It points out that the rhetoric may be damaging Britain's chance of negotiating a Brexit that limits damage to GDP, which the Treasury estimates to be nearly twice the loss in GDP if a member of a single market as compared to leaving it. British government leaders may be overestimating the willingness of leaders of France, Germany and other countries to make concessions. By talking up to their party base politicians such as May may be putting German and French leaders to also toughen their positions on free movement as an integral principle of the European Union, and consequently of membership in a single market. ...

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The British parliament votes 321 to 278 on a motion that rules out leaving the UK specifically on March 29 without a deal negotiated with the European Union on future relations. The margin of votes was 43. Thirteen government ministers abstained from the vote. The repeated votes in parliament are a tactic used by the prime minister Theresa May to get her party members to back the deal she has negotiated with the European Union. The ruling Conservative party is split on whether to leave the European union and if so what the relations should be between Ireland and Northern Ireland, whether Britain should remain in the customs union of the EU.   The repeated votes have only exacerbated and made worse than before the divisions in the Conservative Party, leading to a view that only a second referendum can break the deadlock. The indifference shown in France and Germany by business and the public to Britain's membership, and the manner of handling of the immigration crisis by Chancellor Merkel with large numbers of African and Arab immigrants entering Germany, have contributed to the dissension in Europe over Britain's right to control the flow of immigrants across its borders. The deeper Merkel positioned the ruling CDU party to welcome migrants in 2016-2017, the more skeptical the British public became on the free flow of people in the EU leading to the large bill boards on open immigration in Europe during the referendum on EU membership and the small margin in favor of leaving the EU. Austerity policies of Cameron and Osborne over two terms only increased the divisions of British society. The lack of good leaders in the Conservative Party has worsened the crisis. Theresa May comes from a London constituency which voted against leaving the EU, yet has taken up the leadership of the different Leave factions in the Conservative Party as she sought the position of prime minister after Mr. Cameron. Prime Minister Cameron promised the referendum on EU membership in a ploy to win votes in a closely contested general election and called the referendum not anticipating the result, and resigned as  prime minister. By being against Britain leaving the European Union, yet willing to use the issue for opportunistic vote getting in a close election Cameron and other politicians in the Conservative Party split the country in what some have called an act of recklessness. The votes in parliament and possible fesh elections, a second referendum, are a way to find a solution to this mess.   ...

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Christian Noyer, the Governor of the Bank of France, says that the supervisory infrastructure and deposit guarantee structure for the eurozone has not kept up with the creation of a single currrency, leaving an obvious gap that has to be fixed. Of particular importance is the link between sovereign and banking risks that is behind dangers in today's eurozone crisis, especially in Spain, which he says should be broken. The creation of a single euroarea supervisory authority is a prerequisite for a deposit guarantee fund that will separate and delink bank and sovereign risks. The other step is to create a banking resolution scheme similiar to what the U.S. has setup, with the FDIC having a resolution plan to come in and unwind a failing bank, include large banks with systemic risk.

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Rappaport of the NYT asks how it is possible that the U.S. Treasury is critical of the EU Commission's ruling that Apple pay back $13 billion in taxes because of its low tax rate of .005% in Europe, when Treasury is strongly critical of tax avoidance. The negligible tax by Ireland, base of Apple operations, is seen as a state subsidy not available to competitors. It also, as the EU Commission says, does not correspond to economic reality because the revenues are mostly made outside Ireland. An arrangement that is basically a strategy of tax avoidance. Today the leading candidates for president, Trump and Clinton, the major parties, and Congress, all are critical of tax avoidance strategies which deprive Treasury of much needed revenues. Restoring upward mobility is a priority today and programs to provide tution free access to public colleges, healthcare access, and infrastructure development, require public funding. Then why is the U.S.Treasury critical of the EU ruling? It is because Treasury sees this as money that should be coming to Treasury not the EU. However Treasury has failed to make this clear. The Financial Accountability and Corporate Transparency Coalition's Clark Gascoigne, calls it very ironic. And other experts say the money would not be coming to the U.S. anyway unless a low tax rate induces Apple to repatriate profits to the U.S. One expert calls it hypocritical. Senator Schumer says he agrees with Paul Ryan that tax legislation for a low tax rate for repatriation of profits back to the U.S. should be the next step, so that an infrastructure fund can be setup. Senator Levin and transparency advocates sees the EU action as normal and to be expected, as the anti-establishment sentiment today comes from such dealings that create the impression that the system is rigged in favor of some corporations. ...

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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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Baker and Erlanger describe Russian president Putin's effort to finance parties on the right and the left to oppose western sanctions on Russia. The effort by Russian television RT to spread disinformation in the European Union. The goal is to create fractures in European unity and weaken the European Union and NATO. Other experts such as former national intelligence officer, Fiona Hill, and former assistant secretary of state, David Kramer, are skeptical about the effectiveness of these methods. These methods may also come from an old book of methods from the Cold War period because of president Putin's experience in Dresden during the Soviet days, which current European Union leaders would see as having little relevance to the global economy and global scene of today. The rise of the smaller parties in Europe in opposition to the traditional parties has more to do with the difficult economic conditions in Europe, and has little in common with Russia and its problems with its oil dependent economy and its interests in Eastern Europe. As the 2015 Pew Research survey on Europe shows, opinion is shifting towards greater support for the European Union as economic conditions improve, and is likely to move further in this direction with a return to economic growth. Favorable views of the EU which dropped from 60% in 2012 to 53% in 2014, was up to 61% in 2015, according to the survey. The Euroskeptic parties are viewed "as a good thing," as a way to shake up the complacency of the major ruling parties in tackling the economy, according to the Pew Europe Survey. In the percentage of people who see the Euroskeptic parties as a good thing for the country- Podemos left party in Spain gets 70% favorable rating, UK Independence Party 66% favorable, Five Star Movement in Italy 58%, AfD in Germany 50%, and much less so in France with 36% saying this for the National Front, and 36% for the New Right in Poland....

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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. ...