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A major shift in foreign investment may be taking place as the 2014 St. Petersburg International Economic Forum takes place in May 2014. Russian policy in Ukraine and tensions with the U.S. and Germany could lead to a shift in investment to other emerging market countries. China's tensions with Japan could lead to a similiar shift of Japanese foreign investment. At the same time India has elected a new government with an absolute majority and an overwhelming mandate from young people to accelerate development. The new government under the BJP party's Modi has a decade of experience attracting foreign investment in western India. Indonesia, Vietnam, Africa and other emerging market countries, could benefit from the shift in investment. Investment could also return to the home countries with lower labor costs in Southern Europe, lower labor/energy/transport costs in North America. For Russia the debate at the St Petersburg Economic Forum was about pursuing one of three policy paths with some riskier than others, or some combination also risky and uncertain- depending on state banks and oil windfall funds, increasing ties with Asian countries, continuing on the current path with lower foreign investment and continued capital outflows. The failure to use the time wisely to diversify the oil based economy which could have been better accomplished in an economy not overly dependent on crony capitalism and centralized economy, both current characteristics, will affect future progress. A key weakness for Russia compared to China is the centralization under one person Putin, more so in the third term. In China the two man team Keqiang and Jinping is part of a larger team chosen by consensus and negotiation and part of a rotational scheme. It has senior leaders who initiated the changes to a market driven economy in the nineties determined to see China on track....

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A behind the scenes account of the chain of events after the meeting of French President Sarkozy and German Chancellor Merkel at the seaside resort of Deauville, France, on October 18, 2010. Based on interviews with EU officials this account shows how these events are leading to closer union of the 16 nations of the European Union. At the seaside meeting Sarkozy met privately with Merkel. Merkel offered to take back the German demand for automatic penalties for nations failing debt guidelines. She insisted that bondholders should bear losses if a member nation of the EU defaults. The French president agreed to accept the German condition knowing that Germany was reluctant to support the bailout fund beyond 2013, and German public opinion was souring on the bailout. The European Central Bank president, Trichet, was furious that the two leaders were undercutting his efforts to create confidence in the euro. Trichet told Sarkozy, he must not understand how serious the situation was. Sarkozy told Trichet, "you must be talking to the bankers," "we are responsible to the citizens." Weeks of negotiating between the ECB and the Irish government followed, leading to the bailout of Ireland. The contagion effects on Portugal and Spain created more tensions for the euro. Merkel softened the German position and the EU leaders meeting in December 2010 moved in the direction of a closer union. Bondholders would still take losses but only if one of the EU member states were to become insolvent. And after months of discussion and debate the EU leaders realized that the only way forward for the European experiment was to build a closer financial union. Germany's future, Merkel told the German parliament, was in Europe....

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The WSJ's Christopher Emsden and Alessandra Galloni's interview with Italy's Labor Minister, Elsa Fornero, after major changes to Italy's labor laws including Article 18. This is a major change for Italy. She describes the problems she faced and how she has tackled them to get the new labor law passed. Fornero will set up a monitoring system to ensure that the law's imprementation takes place smoothly. To make the change Fornero took apart Article 18 to its constituent elements, preserving the anti discrimination aspect and the right to appeal, but allowing employees to be terminated for economic reasons. This puts Italy on an even footing with its europartners Germany and France, and addresses one of the main reasons Italian businesses are loath to hiring new employees. It also addresses the main reason why foreign investment in the Italian economy is so scarce. In achieving this Fornero faced the lack of support from Confindustria, the business association (which does not cease to amaze her), CGIL, the labor unions, and the political class in Italy, with each side wanting to tweak the system to make gains or get special exemptions. Fornero is a pensions expert and economics professor at the University of Turin. Her ministry covers pensions, labor, welfare and equal opportunity policies....

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Dirk Kurbjuweit of Spiegel says Merkel needs to show strong leadership to overcome the challenges with the rise of right wing populists in the U.S., Britain and France. He points to the leadership shown in the latter part of Kohl's term in office to promote German reunification after the fall of the Berlin Wall. The challenges include talking to the German people directly in a convincing way, and meeting the day to day challenges of life for the people with investments in education, health care, infrastructure so that people see real significant improvement. It is even necessary to reorder priorities such as the shift from nuclear energy so that this challenge is met. It is not enough to hope that more Christian Democrats turn out to vote than Social Democrats, that the fifth of Germans who feel the economy is not working for them and feel threatened by immigration see real changes being made to address their concerns.

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President Macron shows flexibility on pension age being raised from 62 to 64 after two weeks of crippling transport strikes in Paris and on national railways. Some aspects of the pensions reform consolidating 42 different pension schemes into one national pension is broadly supported by the public and the CDFT union. The raising of the pension age for transport employees who often retire in their fifties is also broadly supported. The strikes by the CGT union have about 60% support and Mr. Macron's approval ratings have dropped to 33%, leading to Mr. Macron giving ground.

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Greece's problem says Carney, is that borrowed money simply financed the incomes of the large number of government employees- with one third of the workforce in the public sector- the unemployed and those on state pensions. It was not achieved by increasing productivity or increase in production. Nominal private sector labor costs went up by 62% in Greece from 2000 to 2008, when they increased by 15% in Germany. All this was done by using borrowed money after Greece joined the EU in 2001. And all this reckless borrowing was not visible to ordinary Greeks- worse it was being covered up till 2009 by the government till the IMF's Traa pointed this out. And Greeks still cannot come to terms with what happened.

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US House Speaker Nancy Pelosi will spend Tuesday night August 2 in Taipei, Taiwan. China has threatened severe consequences and Taiwanese forces are on alert. Yet with over $1 trillion in China's exports to US and EU in 2021 the response will have to take this into account as also the US and EU to redesign its supply chains. This is the first trip of a senior US official to Taiwan as Speaker Pelosi comes next to the Vice President to succeed the presidency. The US response to the Russian attack on Ukraine was made in Biden's word as a deterrent to China in its role in the Indo-Pacific region. The Pelosi trip may be a reflection of this policy that seeks to maintain the US position that Indo-Pacific is international waters, that US policy will continue as before undeterred by actions such as the Russian attack on Ukraine with the support of China. And that US will engage fully with allies in the Indo-Pacific- Indonesia, Singapore, Malaysia and Taiwan. And that is doing this with the cooperation of its allies in the region- Australia, Japan and India. US and EU imports from China are $541 and $522 billion over $1 trillion for 2022. Loss of even a significant portion of these exports from major tensions in the region would have a severe impact on Chinese economic growth. The US and EU are already engage in redesigning the supply chain and would also face problems in a transition similar to the gas rationing in Germany after cutoff of Russian supplies. The trade is too big a factor at this time. ...

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This WSJ analysis shows China giving Huawei a total of $75 billion in subsidies through grants, credit facilities, tax breaks, and other forms of financial assistance. It is this state support that enabled a little known vendor of telecom equipment to become the largest telecom company in the world. This also made it possible for Huawei to offer generous financing terms and undercut pricing of competitors by as much as 30%, according to analysts and customers. The WSJ analysis shows loans and credit lines from state lenders of $46 billion, tax breaks of $25 billion from 2008 to 2018 with state incentives to the tech sector, $1.6 billion in grants, and $2 billion in land discounts.  In the developing countries lacking financing the Chinese state lenders and government financed a project and Huawei built it. In competitive bidding Huawei's bids came with financing from state lenders that made Huawei a much stronger bidder than competitors such as Ericsson of Sweden and Nokia of Finland. With this kind of steady support and its own determined founders Huawei changed from a small vendor when 4G was first introduced into a pioneer and leader in 5G networks in 2019. Lacking this kind of support and without clear focus of the American and European governments American and European companies now lag behind in 5G technology.  This has caused tensions in the U.S. and Germany over loss of technological leadership in key areas. The Trump administration in its trade tariffs and other actions against Huawei is responding to the issues of state subsidies in China, intellectual property of American firms, shift of factories to China, and loss of tech leadership, leading to a loss of American jobs, risks to national security. ...

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Steinmeier has pursued the middle road in Germany's relations with Russia even after the tensions over Ukraine. He says we have to put behind us the illusions that a multipolar world will replace the bipolar world. He looks to his Protestant faith in these times, and says it is important to stay involved, and not allow escalation of conflicts at the periphery, such as the one in Ukraine. Critics such as the German newspaper Frankfurter Allgemeine Zeitung, say his diplomacy and efforts at Ostpolitik is a matter of just opening doors, that Putin has already created discord in Europe.

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Michael Barnier leads the negotiating team for the EU as it begins negotiations with Britain on Brexit. He is a former foreign minister of France and former EU commissioner, giving him the necessary skills and experience. Yet as he meets with the Affairs of the European Committee in the German parliament, even Barnier is not clear how the negotiations will be conducted. Only that the issues relating to disentangling the closely interwoven economies of the EU and Britain relate to nationals of the EU and Britain in each others region, the common 20,000 legally binding regulations, and the price tag for Britain to pay of 60 billion euros. The leading German in the negotiating team is Gunther Oettinger, a former EU budget commissioner, and he tells Der Spiegel that the bill may be even higher than that number. The figure will be arrived at by taking into account the obligations of Britain and applying this to assets. The obligations include the money owed to the EU budget, share of medium term budget planning to 2020, share of pension payments to EU civil servants. The British take a different view and do not understand why they have to pay this amount when they are exiting. The British want to see their future relationship on trade and access to the EU markets discussed early, but the EU position is just the opposite, first exit negotiations to be completed by September 2018, then other discussions on trade. March 29, 2019 is the date set for Britain to be no longer a member of the EU. Yet even the sequence of issues has not been set and the sides could not be further apart than they are now. Each side looking at its situation domestically with elections in the EU in 2017, and May facing the added challenge of Scotland threatening to leave the UK. ...

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This review of Acemoglu and Robinson in the MIT News is relevant to the situation faced today. The two professors at MIT and University of Chicago, have provided two books relevant to today's crises, the first "When Nations Fail" in 2012 about the need for inclusive nations, and the second "The Narrow Corridor" about the importance of the role of individual and society in sustaining democracy. Their point in the first book "When Nations Fail" in 2012 coming after the financial crisis caused by banking excesses stated that the nations fail when they are not inclusive.  In practice it is about " the system being rigged" to favor some groups as the Republican party and Mr. Trump say has happened. The banks and lobbyists, pharmaceutical industry and lobbyists, tech industry and lobbyists, leading to a system where individual and society are pushed into a corner. Social theorist and economists fail to look at things in practice such as profit seeking behaviours and unethical behaviour that goes unchecked, which continued after the financial crisis into the election of 2016, with charges of rigged systems.  This week Germany's DW.com oped pages covered New York with the statement that treatment in New York costs $15,000 for coronavirus infection illness yet many New York residents in the worst affected neighborhoods would find a $500 expense difficult to bear. Early closing of schools to control infection rate was resisted by Mayor De Blasio of New York because many parents depended on schools for lunches for their kids. The situation had been allowed to deteriorate to that level.  In their second book the MIT authors are saying that the role of the individual and society are important to check that of the state (for example if it is perceived as being rigged by the influence of lobbying of legislators and politicians as the Republican party and Mr. Trump have maintained). It is only when it is checked and there is some tension is there the possibility of democracy and democratic processes, say the two MIT authors. In the absence of this the states and elites of politicians and business interests supporting the leaders and their common behaviours, become a perpetual state, in effect a one party rule of two parties with similar behaviours and interests in the state. A situation that allowed the outshoring of American manufacturing and European manufacturing to China including critical infrastructure, essential infrastructure over 2 decades even over the protests of Mr. Lighthizer since 2010. As the twin crises evolved in Europe of austerity policies after banking excesses in Europe, and the migration crisis of migrants coming from North Africa and the wars in the Middle East, a similar situation began to develop in Europe as the political elites entrenched in Germany, France, and Spain faced new voices. The tensions that arose were constructive bringing in the role of society and individual that the MIT authors say are so necessary for the narrow corridor of democratic process to function. New parties emerged in France with Macron's La Republique En Marche, Podemos and Ciudadanos in Spain, and in Germany with the SPD and CDU shrinking till the revival of Merkel for her handling of the pandemic. Coming from an intuitive way born from experience in East Germany, Germany's recent president Joachim Gauck, civil rights activist  came up with the same ideas. He is a Lutheran pastor in former East Germany who struggled against the government of the German Democratic Republic (former communist East Germany) for a role for individual and society against the state. We profiled and quoted him in "The Way Forward"  column in Lyrarc.com. Gauck's point was that  having diverse groups in the conversation is important, not excluding others from outside in the conversation is important. Gauck called  debate "the oxygen of democracy,"  that needed to be maintained.  Genuine democratic process is hard to sustain, it happens only when the role of individual and society is given prominence, so that only a narrow corridor exists for democracy, a narrow space in which can be sustained only if the effort is there, the goodwill is there, and the grace of Divine Providence.  It is fragile and it is critical to sustain.   In this sense the sometimes heated debate in the U.S. and Europe, Asia and Latin America about words such as- austerity, community, solidarity, migration, New York Mayor De Blasio's choice between school lunches and infections, about infrastructure, pharmaceutical prices, infrastructure, outshoring, jobs sent overseas, manufacturing locally, made in USA or made in India or made in France, Atmannirbhar Bharat, misallocation of capital starving health and public services, are all relevant and essential for democracy. This includes the discussion to avoid use of the military in protests in American cities in the middle of a pandemic which just crossed the 2 million mark in cases in the U.S., that was taken up by Defense Secretary Esper. In it lies the hope for democracy and many voices. Der Spiegel recent look at the pandemic how it happened in China, closes with the line- you need more than one voice in society. A constant reminder that many voices be heard, counseling patience, but also that wise choices be made with divine providence.           ...

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Under a new law going into effect on Oct. 1, 2017 and supported by Angela Merkel's government, all social networks will be required to delete within 24 hours "all illegal content." This is an effort to take immediate action against hate speech, libel and other illegal content. Companies could be fined upto $57 million. Germany's Justice Minister Heiko Maas said "we cannot accept that social networks ignore our laws." Mr. Maas says the voluntary effort setup earlier had not worked as the social media companies were too slow. The law now means the networks will devote more resources, with Facebook increasing the staff for this purpose doubling it almost from 4500 to 7500, showing that the problem had not been addressed the way it needed to be. The new law details 22 sections of the criminal code that social networks need to enforce. Including laws banning libel, character defamation, hate speech, insults against religions, offensive statements and privacy violations. Britain's May and France's Macron have also called the efforts of the networks insufficient. A similar law in the U.S. before the 2016 election could have saved the country from many of the problems arising from illegal content being posted, including damage to the image of the U.S., inciting deep divisions, racial tensions, hate rhetoric and defamation leading to coarsening of public dialogue and debate.  During 2016 many European leaders were exposed to hate speech including Angela Merkel. The social networks were slow to respond and did not take their civic duty as seriously as they should have considering the grave damage to the social and political fabric of the U.S. and the European Union countries. The governments also took time to act, studying the problem carefully before taking action leading to further damage, one reason the current legislation was passed quickly and decisively. Experts say other countries will act following the German example to preserve civil dialogue and strengthen democracy. ...

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The US under president DJT puts out a new National Security Strategy in a document which states it clearly. The days of the Middle East given importance are thankfully over it says. The focus is on the First Islands, from Taiwan, Philippines to Japan for strengthening defense in relation to China. The Monroe Doctrine is now part of US foreign policy with a DJT addition- "that the American people- not foreign nations or globalist institutions- will always control our own destiny in our hemisphere."  It also means the US has a new policy towards Russia and for NATO.  The DJT administration priority, it states, is “ending the perception, and preventing the reality, of NATO as a perpetually expanding alliance.” The new strategy is that Europe needs to “take primary responsibility for its own defense.” The Monroe Doctrine and the disassociation with NATO expansion are linked. How so? Russia's foreign policy is for winning recognition as a Northern European Power with its own version of the Monroe Doctrine, being able to control its destiny in its sphere of influence. The way the Monroe Doctrine was implemented in 1823 was by a tacit recognition gained from Britain that it would support the US in its idea of no European colonial powers (France, Spain other ) being allowed to interfere in Latin America, in the western hemisphere. In 2025 the way the Monroe Doctrine is implemented with the DJT Corollary is that the US is tacitly gaining support from Russia/China for implementing the Monroe Doctrine so that no foreign powers will interfere in US sphere influence in the western hemisphere.  Where does this leave Europe and Ukraine? European Union and NATO expansion has now gone too far and NATO which was primarily for Cold War struggle between Communism and US/UK style democracies is over, but NATO has not been disbanded, or a new alliance setup with new goals. Instead as it lingers on it has created new problems such as NATO expansion to the borders of Russia, creating security risks for Russia. This has led to the war in Ukraine and the Republican administration under DJT seeks to defuse tensions and the Ukraine war by excluding NATO expansion, removing the US from European security by delegating that back to Europe (Germany and France, Italy, UK) and by acting as a moderating influence between Russia and Germany, France, that see Russia as a threat after it's attack on Ukraine. US also upholds the policy and principle of no nation invading another country, as Russia did with Ukraine, and in anticipation of the China threat to Taiwan. This part gets nuanced but the overall policy is coherent and Russia accepts this, China is gradually coming to the idea that it has to accept this situation with Taiwan to preserve its economic advances and its exports to the US and EU.  In practice once the interference of China or Russia is removed and European powers in addition, the US has freedom of action in the Western hemisphere and Latin America to prevent crises such as with drug trafficking gangs in Mexico and Venezuela, and unstable regimes sending people north to the US across the Mexican border as from Central America and Venezuela.   ...

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What is the right retirement age for health is an important question. Dana Smith points out that the number 65 that started with the system of social security started in US  by Bismarck in Germany in 1889 and Social Security in the US in 1935 by president Franklin Roosevelt has no basis on the grounds of health of the population and longevity. Since that time people live much longer to about 74 years and for 45% of the people in the US who are in the knowledge based work the ability to work continues past 65 or 67 years.  For the remaining people who are in professions involving physical work such as construction or in the restaurant industry the situation is quite different, requiring a category based retirement age that takes this into account. For these people health outcomes would deteriorate if they continued to work in stressful work for longer. Another factor to be considered is to ask what this means as a national goal. Would a nation aspire to give its citizens an opportunity to travel, broaden their minds and engage in other activities they would like to do which they could not do while working full time. In this situation these years after retirement could give people a chance to live happier lives. It is not to be taken lightly as the current protests in France show. Age discrimination in France also plays a part as there may be fewer years of work opportunity if employers stay away from people over 50 years or discriminate against women. With childcare and care for elderly, part time jobs, women work longer for smaller pensions than men, leading to a sense of unfairness. French protests show that the outcomes need to be weighed carefully from a health and national goal standpoint and the retirement age set accordingly with flexibility for harder work.  Following the pandemic years and the cost of living crisis the protests in France show the need to develop a national consensus on the issue of retirement age, and rules plus culture change in industry that ban age discrimination for workers. Special provisions for women and people in construction so that the system is seen as fair to all parts of the workforce. ...

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Questions raised in Germany whether Chancellor Merkel is losing touch with ordinary Germans with her statements on immigration. Merkel was critical of the Dresden protests on immigration saying the protestors had "prejudice, coldness, and even hatred in their hearts." This will present a new challenge to Merkel in 2015 as more ordinary Europeans question whether openness in immigration policies have gone too far.

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German chancellor, Angela Merkel's advisor, Uwe Corsepius, briefed European Union ambassadors on the draft document for EU economic integration, prepared by the German ministry. This document identifies six priorities: abolition of wage indexation systems, agreement on mutual recognition of education qualifications, creation of a common base for assessing corporate tax, adjustment of the pension systems, establishment of a national crisis management regime for banks and new legal measures to force countries to commit to tough fiscal policies through a "debt alert mechanism." Under the plan countries will be assessed agaist economic indicators and tracked by the European Commission. Other steps Merkel is proposing are coordinating retirement ages across countries. See the interview with Portugal's prime minister Socrates, where he supports the coordination of the retirement age. Socrates does not commit to taking out the adjustment of wages for inflation in that interview. The leaders of 27 countries of the EU meet February 4 in Brussels, and this document will be discussed at the meeting....

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Andrew Stuttaford's excellent review of a book on the hyperinflation of Weimar Germany. In early 2010, the out of print book, "When Money Dies," by Adam Fergusson was trading for four figure sums. It describes life under hyperinflation in Germany and the events leading to it, the efforts to find a solution, and the collapse of the German economy with the worldwide great depression. The book describes the death of the German mark, with 20 marks needed to buy one British pound in 1914, going to 310 billion in late 1923! The story starts with the onset of war in 1914, and the fateful German decision to fund the war effort largely through debt and the printing presses. What exacerbated the situation was the relatively shallow capital markets in Germany, the creation of 'loan banks' funded by a printing press used by the central bank, and the muffling of all information. The stock markets were closed during the war and foreign exchange rates were not published. The destruction of the war, revolution, protests, imposition of reparations by the victorious powers, and terrotorial occupation worsened the situation. The efforts of central bank president, Rudolf Havenstein, to prevent mass unemployment by devaluing the currency to keep exports competitive, worked only for a time. In the end, says Fergusson, the music stopped. Lacking a reliable pricing mechanism and faced with huge strains, including the onset of the worldwide depression, the whole German economy stopped functioning at even the most basic level. The whole economy was reduced to barter. Rent was payed with butter and lumps of coal were bartered for something else. The only time an economy was reduced to barter in recent times (in the last 2 decades) was the situation in Argentina after a sharp devaluation. The Russian economy also faced a trying period in recent years with the collapse of communism and a collapse of the currency. And the Asian economies faced a difficult period during the 1997 Asian financial crisis. But nothing compares with what happened in Weimar Germany. The book was originally written for a British audience at a time of rapid inflation in the 1970's, and it reminded readers of the connection between the quantity of money in circulation and price stability. Financial crises play out in different ways in different periods, but it is a sobering warning for the need for prudence in financial affairs, avoiding excesses, the need for global cooperation and a measure of peaceful coexistence in world affairs that enables financial systems to work. With excesses in asset bubbles of the stock market or housing kind, bad loans in the financial system, overleveraging in the financial system, lack of reserves, or huge trade deficits, posing the new types of risks in today's environment. Bad loans in the financial system caused problems in Japan in the past and pose risks in China today, overleveraging caused problems in the US in 2008, lack of reserves in S. Korea in 1997, a collapse of the currency in Russia in the 1990's, and a sharp devaluation with a lack of reserves in Argentina. Too much money in the system, as in China today with the sharp increase in bank lending as part of the stimulus following the 2008 crisis, can distort the functioning of the financial system with excesses in real estate speculation and overproduction. The nature of the crises are different but all have a common factor of tolerance for excesses over a long period and a lack of prudence, exacerbated by international tensions and wars that weaken a country's finances. The twin wars in Iraq and Afghanistan are estimated to cost a trillion dollars each and this can only exacerbate the finances in the US, when coupled with other factors such as bad real estate loans in the financial system, and huge trade deficits....

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The lack of trust in negotiations on the terms of spending cuts between Greece and EU ministers in February 2011. In difficult exchanges between German finance minister Schauble and Greece's finance minister Venizelos, Schauble criticized the Greek government for not beginning negotiations for reduction in the minimum wage. EU ministers at a meeting with Venizelos on Feb 10, 2012, showed a distrust of Greece's figures on austerity cuts and asked for an additional $428 million in cuts to make up for the refusal of Greece to cut supplemental pensions. In Greece five ministers in the Greek cabinet resigned in protest over the conditions set by the troika of the EC, ECB and the IMF, just as unions launched a 48 hour strike in Athens. Greece is in the fifth year of a recession with unemployment at over 20%, making sharp cuts more painful. A shrinking economy makes achieving budget defict targets even more difficult and worsening the debt situation.

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Russian planes fly very close to a U.S. destroyer in the Baltic Sea in 2016, sources say about 30 feet. The. U.S. protests the incident and this is discussed at a NATO-Russia Council meeting to avoid accidental flareup of tensions. Russia sees higher U.S. military presence near its borders as a threat. Russian response is to upgrade its nuclear submarine fleet and operate in the Baltic Sea, North Sea, Atlantic and Mediterranean. Russian intervention in Ukraine led to increased U.S. presence to protect the Baltic Republics and Poland, members of the NATO alliance. The U.S. and NATO is conducting Operation Atlantic Resolve to deter any Russian action. Chancellor Merkel called for a "persistent NATO presence in the Baltic States" during the Ukraine war in 2014, in a visit to Latvia. Germany led an early version of a Rapid Response Force of 5000 troops deployable in 48 hours setup in 2015.

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Spain's deficit as a percentage of GDP is expected to be 6.0 percent for 2011. The target set by the Rajoy government is for the deficit to be lowered to 4.4% in 2012. Newly elected prime minister, Mariano Rajoy, told parliament that the "outlook could not be darker," with the economy expected to contract in the fourth quarter and in 2012. Rajoy, plans to introduce emergency budget measures on Dec. 30, 2011, labor market changes in the first quarter of 2012, and a banking sector cleanup in the first half of 2012. Savings of 16.5 billion euros will be needed to meet the 4.4% of GDP deficit target for 2012. Rajoy is studying the situation before announcing budget cuts. He affirmed that pensions which were frozen in 2011, will be raised in 2012 in line with inflation. He enjoys the support of France's president Sarkozy and German chancellor Merkel, as all three leaders are heads of conservative parties in Europe, and has excellent rapport with them going back to the period when Rajoy led the opposition party in Spain....