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Spain's cabinet announced new changes to labor laws to provide incentives to business to hire. Spain has some of the most restrictive labor laws in Europe and high unemployment. The unemployment rate reached 23% in December 2011, and about half of the people under 26 are unemployed. The cost of downsizing is so high in Spain that Spain's representative on the executive committe of the European Central Bank, Jose Manuel Gonzalez-Paramo, says companies prefer to close rather than downsize. The World Bank has singled out the labor laws as one of the main reasons for Spain's rising unemployment rate. New rules will reduce severance payments to 33 days per year of employment from 45 days. Severance packages will be reduced to a maximum of 24 months from 48 months. To encourage companies to hire permanent workers and depend less on temporary workers the new rules say employers must switch temporary workers to permanent contracts after two instead of three years. As an incentive for companies with a maximum of 50 employees to hire young people the rules give a 3000 euros corporate tax break for each new person hired under age 30. If the hired person was jobless he can still collect 25% of previous unemployment benefits for a limited period with 50% of the unemployment benefits going to the employer. Companies having losses for three consecutive quarters are allowed to pay less in severance payments- only 20 days per year of employment. Companies will now find it easier to leave collective bargaining agreements and make deals with their own staff. Luis Garicano, a professor at the London School of Economics, says this is a good step forward. He finds missing from the new rules subsidies to train young and unemployed people given the high dropout rates in Spanish schools. The government approved the rules by decree, but they will be discussed in the Spanish parliament. The government of prime minister Mariano Rajoy was recently elected with an overwhelming majority in parliament. This makes making major changes different from the process in Italy where a consensus has to be established....

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The IMF, ECB, and the EU, are requiring Greece to make cuts to private sector salaries by a reported 25% to bring Greece's wages more in line with a country like Portugal, because of the lower productivity of Greek workers and a way to make Greek goods more competitive. This is one way to accomplish what a devaluation of the drachma would have done when Greece was outside the eurozone. Greece's minimum wage is about $1000 a month- officials from the troika want to see this go down about $750 a month. The difficulty is that consumer prices are higher in Greece, with gasoline at $8 a gallon and other prices higher due to cartels that control the distribution of consumer goods in Greece. Other austerity measures required by the troika as a condition for further aid to Greece are pension cuts and higher taxes on businesses. Labor unions and business leaders pointed out other factors affecting Greece's competitiveness in a letter to prime minister Papademos as they opposed drastic wage cuts- the letter said " competitiveness is affected more by factors like bureaucracy- which is fed by complex regulation, state intervention, the tax system, corruption and antibusiness mentality rather than wage costs."...

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There appears to be a conscious deliberate decision by the Chinese government and policymakers to shift the economy from low-end technologically unsophisticated and polluting industry, that pays low wages with little worker protections, towards technologically sophisticated, environment respecting, and higher wage industry. This does not mean textiles are out, but textile companies that are larger better managed, able to introduce newer technologies and produce higher quality product- that command higher prices in the world market and therefore also able to sustain decent wages and worker protection- are in. Phasing out the smaller shops and the poorly run or deliberately polluting and labor exploiting companies run from Hong Kong or elsewhere. The general shift is to be a leader in products which are value added either by technology or human capital, such as better trained more knowledgeable workers. This is similiar to the shift Japan made after the sixties, as it moved from a rural to a urbanized society and textile companies like Kanebo became technologically sophisticated, while small shops withered out, and Japan gradually shifted into automobiles, electronics and chip making. The noticeable difference is that Japan with a prewar industrial base and a smaller market protected its home market for Japanese companies, whereas China lacking this prewar industrial base let foreign investment and companies overseas bring in equipment and use low cost Chinese labor to supply western markets. And it turned a blind eye to labor protections, at least till it had built up its own industrial base and knowhow with policy requiring Chinese partners in industry and technology transfer. Economic winds are also doing the job. Inflation, Chinese goods prices increased by 4.6% in May according to the U.S. Commerce Department. This is a result of the Chinese government requiring worker protections and decent wages and stricter pollution enforcement resulting in increased energy costs. For years the U.S. and other countries depended on China for low cost goods and the demand for low cost goods depressed margins which resulted in legitmate costs such as pollution control technology, worker protection and decent wages, being ignored. China is now left with heavy environmental cleanup costs, and a bad image internationally as a heavy polluter. The huge external trade surpluses China has built up exceeding a trillion dollars have pushed up the value of the yuan making Chinese goods costlier in world markets, and apparel and shoe makers in developed countries seeing Vietnam as a better lowcost alternative. The story of this phase of Chinese industrial development can be seen in a town like Honghe, a 90 minute drive from Shanghai, which has half of its 100,000 residents working in 100 factories and 8000 shops that knit, dye, package and ship some 200 million sweaters a year, bringing in according to local government estimates $650 million a year. Now many of these shops are idle and mirant workers are returning home. To see the subtler signs of the Chinese policymakers hand note that even visa policies have been tightened to make it harder for foreign buyers to visit Chineses factories and trade shows. Also the Chinese government has raised the minimum age for workers in these factories from 16 to age 18 and so on. And the impact is being felt in places like Honghe near Shanghai, Shengzhou another city near Shanghai which makes one third of the world's neckties, and in Dongguan in Guangdong where its toy, shoes shops close. The change also shows how quickly things can change in the world economy. Only 3 years earlier in 2005, Jiaxing Yishangmei Fashion Company, a family owned company was booming and had just landed Walmart Stores as a customer. Now Walmart no longer sources from this company. Analysts say that the Chinese sweater industry was probably overbuilt, with about 6 cities in China claiming to produce more than 100 million sweaters annually. A wave of consolidation could boost efficiency, and bring pressures to innovate rater than compete only on price. And many Chinese economists, and policymakers think China has relied too much on cost-cutting and simple production models to increase exports. A researcher at the Chinese Academy of Social Sciences thinks such a high dependence on foreign trade is not good for China. For the US and Japan this researcher says that trade is equivalent to 20% of gross national product and by contrast for China trade is equivalent to an extreme of 75% of GNP. ...

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Equity markets in Europe and the U.S. are likely to see some of the 62 trillion yen, or $630 billion, which the Bank of Japan plans to add to holdings of banks and households in two years 2013-2014. A senior advisor to Deutsche Bank, Thomas Mayer, says equities of Germany, France and Britain are likey to see interest from Japanese investors, as are bonds and equities of the U.S. Japanese companies such as Toyota and consumer product companies such as Sony and Panasonic will now be able to better compete on price against their S. Korean, American and European competitors.

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Commodities prices hit a low in June before the second Greece election on June 16, with lower unemployment numbers in the U.S. and growth of 6-7% in India and China. Still average prices of oil in 2012 of $115 a barrel are higher than the level in 2011. And corn prices dropping to $5.25 a bushel are still high compared with prices earler. Corn farmers in the U.S. are adding to acreage. The relatively lower prices also give more room for smaller stimulus by central banks to stimulate growth. Freeport-Mining CEO, Richard Atkinson said in a presentation that the growth is coming on top of a bigger baseline for China, India and Brazil. China's copper consumption went up by about 6 million tons a year, averaging 13% growth a year in the period 1995-2010. Now even with slower growth at 6% a year, by 2025 he estimates China's copper consumption at 9 million tons per year. This is a structural change that is supporting commodity prices, says Amrita Sen, analyst at Barclays Capital.

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Japan's new LDP prime minister, Shinzo Abe, supports targeting the yen at around 90 yen to the dollar to support Japanese exporters. He sees this happening through monetary easing by Japan's central bank. At a rate of 85 yen to the dollar or above Japanese exporters would be in a position to become profitable and pay taxes. Abe says central banks around the world, including the U.S. Federal Reserve, are printing money to support their economies and increase exports. Switzerland and S. Korea pursued policies to keep their currencies from becoming too strong to support their exporters. China has managed its exchange rate to maintain export competitiveness. Exchange rate intervention has not been effective for Japan, and the focus now is on monetary policy and setting a 2% inflation rate target.

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China is not experiencing high unemployment in 2012 the way it did in 2009. The lower growth rate of 7-8% is not having an adverse impact on unemployment. This makes it possible for the stimulus this time to be much smaller. There is rising upward pressure on wages. According to the National Bureau of Statistics, CEIC and WSJ, average annual wages at private sector manufacturing companies in current U.S. dollars was up 5% in 2009, 16% in 2010, and 20% in 2011. This is being encouraged by the government as China gradually shifts its economy towards higher domestic consumption and better standards of living for workers. Hon Hai Precision Industry Company added 82,000 workers in China in 2011. Salaries at the Shenzen plant were 2200 yuan or $345 a month in February 2012, an increase of 10%. An April survey by Manpower Group showed that a majority of companies will increase workers or hold employment stable, only 3% of companies will have job cuts. Demographic changes are also playing a part-with fewer people in the 15-19 age range, dropping from 120 million in 2005 to 95 million in 2015, according to UN estimates. The number of migrant workers remains steady at 252 million in 2012, up 4% from 242 million in 2010, according to the Bureau of National Statistics....

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Moody's downgrades the credit ratings of 26 Italian banks in May 2012. Italy's largest retail bank Intesa Sanpaolo SpA, showed net profit of 804 million euros, up 22% from the prior year. Of this 183 million euros was from capital gains made using the ECB low cost loans under special ECB financing to buy government debt. The ECB financing was through the Long Term Refinancing Operation launched by the ECB in December 2011, which benefitted Italian and Spanish banks.

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Theresa May becomes the only candidate for leadership of the Conservative Party after Ms Leadsom withdraws from the race. No leadership vote will no take place with Conservative Party members and no early general election is planned. May is expected to become prime minister of Britain by July 12, replacing David Cameron. Her theme is for "one Britain" and to do away with the rising inequality and gap between London and the rest of the country, which was part of the anxiety of voters who voted 52% for Brexit on issues of immigration burden on social and health services, national sovereignty, and a sense of ordinary people being neglected by elites in both parties. May will invoke Article 50 to leave the European Union and begin a 2 year period of negotiations only after she has developed a clear negotiating strategy. Kenneth Clarke, a Conservative Party cabinet minister called May a "bloody difficult woman," but this did not affect May, who said Mr Juncker of the EU was the one who would find this out in negotiations.  What is significant for Britain is May's moderate position coupled with a clear goal for removing some of the causes of the inequity in British society, which is needed for Britain to remain united. She called on companies like Amazon, Google and others to pay their fair share of taxes, and made clear her intent to strengthen the mechanisms for controlling executive pay. Also part of this strategy will be a more effective immigration control policy, which she did not implement vigorously as Home Secretary in the Cameron government, partly because of constraints set by EU membership. May made clear her agenda going forward by saying: "There is a growing divide between a more prosperous older generation and a struggling younger generation. And there is a gaping chasm between wealthy London and the rest of the country."  Changes May is supporting are to make executive pay rules to become binding not just advisory, and for employees and consumers to gain seats on company boards.  ...

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Italy's major problem is lack of growth, with growth averaging 0.3% in 2001-2010 compared to 1.1% for the eurozone area. In the 1st quarter of 2011 growth was only 0.1%. Italian bonds yield two percentage points above the yield on German bunds. With growth at the present level, Italy's would see an increase in debt to GDP ratios, according to Barclays Capital. Debt to GDP is currently at 119%.

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ECB president, Mario Draghi, is interviewed at his office in Frankfurt by the Wall Street Journal's Blackstone, Karnitschnig, and Thomson. Draghi quotes economist Rudi Dornbusch, who told him in the old days that the Europeans were rich enough to afford paying for it if everybody didn't work. Draghi, was head of the Bank of Italy, before becoming president of the ECB. He is acutely aware of the problems faced by Italy and other countries like Spain which have let labor markets become rigid, with extensive job protections and generous benefits for the unemployed. The result is that employers are reluctant to hire and young people face high unemployment rates- as high as 50% in Spain. For this reason Draghi sees the old social model in Europe as obsolete and already out. Draghi's sees austerity measures and spending cuts with the structural changes underway in Spain, Italy and other countries as the only way to generate economic renewal. On the Long Term Financing Operation launched by the ECB in Dec. 2011, Draghi says there was agreement within the ECB and the decision was unanimous. He makes it one of his objectives to achieve as much consensus as he can, to do what is right for Europe and to do it together with his colleagues in the ECB and the EU. That financing operation, and the binding deficit controls achieved at a recent summit of European leaders, he sees as all part of the pathway to fiscal union. ...

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Rising wages and rising production costs for Chinese exports of low tech products like shoes, clothing, toys, clothing, furniture, means a lot of these factories will shut down and move to lower wage countries like Vietnam and India or elsewhere. Elimination of rebates on more than 2000 export items raises cost of manufacturing 14-17% according to Guangzhou based American Chamber of Commerce in South China. And the the tough new labor law enforcing worker rights would increase manufacturing costs by 40% according to the Textile Council of Hong Kong. Additional costs would be incurred to meet tougher environmental controls and anti pollution laws and stricter enforcement. As a result of this Adidas wants its suppliers like Taiwan based Apache Footwear with 18000 employees in Guangdong to move as fast as they can to India where it opened a second factory. This process will unfold over several years till India and Vietnam bercome the new sources of cheaper goods because of the large supply of manufacturing labor for lower value added products, as it will take years to build the logistics and infrastructure for these plants in these countries. But because wages will also rise in India and the laws in India are more likely to be enforced than they were in the atmosphere in China where the Communist led government may have turned a blind eye to enforcement and worker rights in the interests of growth, the export of deflation to the west in the way of cheap Chinese products may be a thing of the past. China is doing this as a planned move it appears. Why? On the surface it makes sense that the heavily polluting factories making lower value added products like shoes, clothing, toys, furniture, would not receive rebates from te state and to improve living conditions and promote consumption at home the government woud pass tough new laws to ensure employee benefits and collective bargaining rights, and employee job security. It also reduces trde tensions at a time when the US economy will be in poor shape and jobs lost become a political issue in the 2008 presidential campaign. But there may bigger pressing concern and urgency in these moves after so many years of this being discussed and this may be that China finally may be at a moment when it is confronted with a sober fact that the US consumer is heavily in debt and may not support China's export growth model much longer and with it China faces a really significant slowdown in its growth rate from 11% to maybe half that if China does not develop its own domestic markets for growth. The old foreign investment model may not work anymore. See the link to Ireland where growth is falling off quickly. Higher wages and longer term jobs with benefits would enable a large middle class to develop from this huge manufacturing worker base especially as China moves to more value added products where even higher wages would be paid. This in turn creates a domestic market over time that would insulate China to some extent from the winds that would be blowing from a US economy suffering from a deep recession that may last several years. This may be evident in the words of the Governor of Guangdong when he says that the government is not abandoning the exporters but that selling domestically is good for the country and good for the people. Something deeper is at work here and one would expect an about turn in policy where instead of workers not receiving back wages and lax enforcement that went on freely in the last decade we would see an effort to build the kind of middle class that would provide the market for Chinese goods that would sustain growth at a more modest but sustainable pace. Which means in the short term all those workers at factories that make toys, shoes, clothing and furniture in provinces like Guangdong would be jobless. Some of these factories may move to provinces in the interior like Sichuan and Hunan provinces which may pickup employment. A report by the American Chamber of Commerce in Shanghai written by Booz Allen says that a fifth of the companies surveyed are considering relocating outside China, and that over half of foreign manufacturers surveyed think that mainland China is losing its competitive advantage to places like Vietnam and India....

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The Editorial Board of the Washington Post on the challenges facing Mario Monti, the new prime minister, and the Italian people in 2012-2015.

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U.S. president Obama called Libya and the policy of not following up on helping establish a stable democratic government in Libya his biggest mistake. Kristof of the NYT says people looking back would say Syria and not establishing safe zones is Obama's biggest mistake. He describes the 470,000 deaths in Syria as a huge tragedy that could have been avoided to a large extent by setting up safe zones. In addition the UN estimates that millions of refugees on a scale similar to the partition of India in 1947 were created.There is bipartisan opinion on this. Kristof cites General Cartwright's opinion in a conversation he had with Cartwright that this should have been done. Others who agree are Madeleine Albright, Bill Clinton's Secretary of State, who spoke at the Democratic Convention about how America helped change her life as a young refugee after Russia's invasion of Czechoslovakia following Prague Spring. Albright says force should be used carefully so as not to aggravate the situation but action taken where needed, something that was done successfully under Bill Clinton in the Bosnian conflict following Serbia's ethnic cleansing policy under Milosevic. Not only that, with the diplomacy of ambassador Holbrooke Clinton was able to negotiate the peace accords that hold till today- a huge achievement.  Kori Schake, director of defense strategy in the George W. Bush White House also agrees. This would have improved U.S. relations with Turkey as this was a key Turkish request. And it would have reduced the dimensions of the refugee crisis in Europe, which has hurt the European Union. The Brexit "No" vote many in Britain have attributed to ads showing refugees in endless numbers streaming across Europe's borders. Similar ads were used in Austria's elections. Kristof points out that Secretary of State Kerry's job of negotiating a peace is difficult in these conditions. Another issue raised by Kristof is the lack of Obama's leadership in helping the refugees in Jordan, Lebanon and Turkey, as he points out only 41% of this is funded. David Miliband former British Foreign Secretary, who heads the International Rescue Committee , says 200,000 Syrian kids are growing up in Lebanon without an education. George Washington counseled against getting involved in the wars on the European continent for a young nation, this advice was not followed in the Reagan and other administrations without showing the carefulness needed before action is taken. As Hillary Clinton has once pointed out the situation has resembled a pendulum swinging in the other direction under president Obama, and former Defense Secretary, Panetta, has expressed similar views. Hillary Clinton and Leon Panetta, Gates, Gen. Jones, served in the first term of the Obama administration, many of these mistakes were made in the second term by president Obama and his White House advisors Dennis McDonough, Valerie Jarrett who clearly lacked the deep foreign policy experience of Hillary Clinton, Leon Panetta (who served under Bill Clinton), and Gates who served under many presidents). ...

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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 view from Germany on Trump's economic plan and the need for changes by his advisors. DW.com's Wenkel says Trump needs to understand that 80% of job losses in recent years have come from not from globalization, but automation and higher productivity, rationalization. He says higher tariffs on Mexico could backfire.

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The Pirate Party, a party of digital activists favoring more transparency and sharing of information online has about 10% of voter support according to recent polls. The Pirate party concept started first in Sweden, but it is in Germany where it has gained political support. This party was founded in 2006 in an underground Berlin nightspot C-Base, where many digital activists gathered. In Sept. 2011, the German Pirate Party gained 9% of the vote, 15 of 249 seats in the Berlin state elections. This was repeated in the Saarland state elections, and now is likely to happen in elections in Schleswig-Holstein and North Rhine-Westphalia. These votes are coming at the expense of the Free Democrats and the Greens. The Free Democrats are hurt badly, and may not make the 5% of votes needed to win seats in North Rhine-Westphalia. The Greens are seen as part of the establishment, giving the Pirate party support from people thinking outside of the establishment. The polls show the Christian Democrats having voter support of 35%, Social Democrats 27%, Left 7%, Greens 14%, Free Democrats 3%....

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Rising food prices in China have pushed China's consumer price index to a two year high of 5.1% in November, 2010. Rising prices of cooking oil have hit Chinese who live on small incomes the hardest. Food represents about one third of the CPI, but it accounts for 75% of the index's rise. Chinese housing prices have gone up significantly making it hard for new homeowners, now that food and fuel prices are following. The National Developmment and Reform Commission announced a 3.77% rise in retail gasoline prices, to about $3.50 a gallon, an increase of 11% in about one year. Wholesale soyabean oil rose 23% in 2010 to about $1451 a metric ton, with most of the rise since July. China's government response was to impose price controls, asking the largest producers to cap retail prices through March 2011. It also quintupled the fine to 5 million yuan, or $750,000. And the government auctioned off millions of metric tons from its strategic national reserves in Xinjiang and Shandong. But price controls are discouraging production. One mid-size producer in Shanghai, says he has deactivated half his plant, instead off maximixing output ahead of the Lunar year in February. His warehouse is filled with 20,000 boxes of unsold oil, with the production date Nov 23, around the time price controls went into effect and a large grocery distributor halved his order. Edible oil is the third biggest packaged food outlay for ordinary Chinese, after yogurt and milk, and it has a big impact on the lives of the average family....