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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."...

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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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Matteo Renzi, recently elected chief of Italy's ruling Democratic party, is likely to be the next prime minister as current prime minister Letta resigns. Letta's administration had come under increasing criticism from business and public opinion about the slow pace of economic changes in Italy. Italy's 2 trillion debt, or about $2.7 trillion, at 130% of GDP, and the declining GDP with little or no economic growth, is a problem for the eurozone. At the current pace of economic change the IMF forecast estimates only 0.5% annual growth in GDP till 2018. Foreign direct investment 2005-2011 is about one third of the eurozone average, according to the IMF, and Italy has failed to attract foreign investment for the last two decades with its weak political system and lack of competitiveness. By comparison Spain has seen an increase in exports and increasing foreign investment as it positions itself for a recovery. The austerity measures adopted by the Monti and Letta adminstrations in 2011-2013 helped to improve confidence in capital markets and lower borrowing rates, however this is clearly not the answer to Italy's problems of slow or no growth in the economy for the last decade. This is the problem Matteo Renzi, the 39 year old Mayor of Florence, is pushing to tackle as the mood in the country calls for aggressive action. Renzi's economic advisor is Filippo Taddei, who has a doctorate from Columbia University. He says at the core the issues are about what kind of "productive identity" Italy should have. Taxation that promotes higher rates of business investment is needed to promote growth, and creating a business climate that encourages investment in human capital and new technology. Payroll and business taxes take up about two thirds of a company's earnings leaving less for investment. Renzi is planning to take the centre left Democratic party in a new direction, "the road less travelled," as he put it in a televised speech, with innovative solutions including pro-market approach. As a first step he negotiated a deal with former premier Berlusconi for electoral reforms that would give a party or coalition winning electoral support a strong mandate to make and execute policy, without being hobbled in the way previous administrations were in the post war period. Lucrezia Reichlin, former head of research at the ECB, and Lorenzo Bini Smaghi, a former member of the ECB executive council, are candidates to be the economics minister in the Renzi administration....

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President Obama proposes changes in taxes to fund programs to aid students such as free 2 years of community college, aid for student loans, and financial help for middle class families. Senate Majority Leader McConnell says the proposals to raise income taxes for high income Americans with $320 billion in new revenues over 10 years, reduced prospects for changes in the tax system. He said the Obama proposals were designed " to excite the base but not designed to pass." Obama says "the shadow of crisis has passed," and calls for "middle class economics," and improving incomes for anyone making the effort. The call comes as inequality widened during the long recession and some of the Obama administration's policies such as on homeowner foreclosure, and lack of focus on unemployment during the first term, may have actually worsened inequality. The call also comes late in the second term in Jan 2015- with presidential elections in 2016- after the Republicans gain control of both Houses of Congress, which is why Republicans dismiss this as mere political talking points for the base....

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The ECB is making plans to meet new staffing needs to act as the supervisor of 6000 banks in the 17 country eurozone. As part of its effort to meet its new role as banking supervisor starting in mid-2014 the ECB will hire about 800 new supervisory staff by that date. Additional personnel will be added following this first step, according to ECB officials.

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Even as huge losses continued at RBS bank bonuses remained high. After $15 billion in losses at RBS in 2013, banker bonuses were $960 million for the year. Banker bonuses declined from 679 million pounds in 2012 to 576 billion pounds in 2013. New CEO Ross McEwan, says "I need to keep people engaged." He announced another reorganization. He says RBS "is the least trusted company in the least trusted sector of the economy." This follows public criticism of RBS for not lending enough to small business and unfair treatment of customers. The new plan is for cost cuts to save 2.2 billion pounds by closing 16 corporate call centers and 11 offices in London. Sales and restructuring cuts are planned for 3.1 billion pounds in savings.

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The size of Matteo Renzi's win in the nationwide primary, with about 70% supporting him of 2.9 million voters, suggests the mood is changing in Italy for making changes to the old system. Renzi talks about changing education, the government health system, taking a new look at union positions, and coming into a consensus with conservative voters. Renzi and prime minister Letta are moderates from a younger generation in Italy from the same party and need to work together. Angelino Alfano of the centre right is also from the younger generation, marking a shift in Italy.

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Italy raised 18 billion euros in a record auction on Oct. 18, 2012, meeting its needs for the rest of the year. Italy's yield dropped to 4.64% on Oct 18. Spain raised 4.6 billion euros at 5.32%. Italy sold most of the BTP Italia bonds to Italian citizens with a 4 year bond linked to Italian inflation and designed for Italian retail investors with a new eBay type internet platform, including a loyalty premium of extra 40 basis points. Italian retail investors have 8 trillion euros in net private wealth and household wealth in Italy is more than 4 times the sovereign debt, according to the Bank of Italy. This is a big difference compared to Spain, because the interest on the bonds remains in Italy for consumption and investment. Spanish households are highly indebted after the housing bubble.

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India and China agree to a legally binding deal on climate change and emissions that would be drafted by 2015, and take effect in 2020. This would bring them in line with or symmetrical with the U.S. and European countries for controlling emissions.

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Spain's prime minister Mariano Rajoy repeats his request that the $125 billion from the European Financial Stability Facility (EFSF), the eurozone rescue fund, be sent directly to recapitalize Spanish banks, instead of being sent to the Spanish government. Capital markets did not respond positively to the aid announcement and Spain's 10 year bonds yields were close to 7%, one point higher than before the aid announcement. Rajoy told the other leaders at the G-20 summit in Los Cabos, Mexico, that it is necessary "to break the link between risk in the banking sector and the sovereign risk," according to a Spanish official. The European Commission and some EU governments support this, but Germany remains opposed to such a move. Spain paid higher rates on 3.04 billion euros in short term debt financed on June 19, 2012. Spain plans to sell 2 billion euros of two, three and five year bonds on June 21. Part of the problem for investors is the lack of clear accounting and transparency of the total debt of regional governments in Spain, and bad loans at banks, which it is feared could be much larger than the $125 billion in rescue funds from the EFSF. This is a result of the housing and asset bubble in Spain of the last two decades since joining the EU. The $125 billion would take Spanish debt to GDP ratios to 90%, which is lower than Italy's but comes at a time of unemployment at over 25% and a declining GDP, increasing investor uncertainty....

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India's central bank chief, Raghuram Rajan, points to the risks for developing economies from changes in monetary policy of the U.S. Federal Reserve. The Indian rupee lost about a fourth of its value in 2013 as the U.S. Fed announced plans to withdraw from its quantitative easing policies. Large depreciations in other developing economies, Indonesia, Turkey and Brazil, happened at the same time. Rajan and India's Reserve Bank increased the interest rate by half a percentage point in 2013 to deal with the impact on inflation as a result of the large depreciation of the rupee. The volatility of capital flows and sudden reversal in inflows of capital to developing economies leaves these countries exposed to sharp declines in economic growth. India's growth has slowed to 5%, larger than expected from the slower growth in the global economy in 2013, largely as a result of decreases in direct foreign investment and capital outflows.

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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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Britain's Chancellor of the Exchequer says Britain plans to introduce laws by 2015 to separate investment banking from retail banking. As proposed by the Independent Commission on Banking, led by John Vickers, the investment banking and retail banking would be separate legal entities and would be financed separately.

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Elizabeth Rosenthal looks at Obamacare's contribution to cost containment in 2013-2014. Rosenthal says its is a kind of delicate maneuvring at the edges, because serious work needs to be done. The fee-for-service and many of the drivers for increases in medical costs, the old system of pricing, are still in place. In 20 years at the current rate and after Obamacare health care will still take 25% of the U.S. budget if nothing is done. Healthcare costs are about half that of the U.S. in some of the advanced European countries. She calls Obamacare a trickle down theory of cost containment becaue it leaves most of the drivers for cost increase in place and works at the margins. Princeton economist Uwe Reinhardt calls it an ugly patch on a somewhat ugly system. Rosenthal cites the armies of consultants anticipating every move to reduce prices, and working on "strategic billing'' to increase revenues for hospitals and doctors. For those who say the prices are now up more slowly than in the past, Michael Chernew of the Harvard Medical School, has this to say- its like a diet, reminding us that that we haven't even lost weight, just gaining weight slower than before. ...

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U.S. auto sales including cars and light trucks reached 17.5 million in 2015, a 5.7% increase over 2014. Larger vehicles including pickup tucks and SUV's account for about half of all auto sales in 2015, with gas prices below $2.00 a gallon in Jan 2016 in most parts of the U.S. The average transaction price was up to $34,428, according to Kelley Blue Book. Auto incentives were up to $3063 per vehicle compared to $2809 ten years earlier, according to Kelley Blue Book. Analysts say automakers will reduce margins to subsidize zero interest loans in 2016 to increase sales. Lower sales are forecast after 2017 as the market will have caught up with much of the pent up demand by then. A plus for the automakers is the lower cost of steel and other material costs, and the better cost structures after bankruptcy, and renegotiated lower union pay scales. Additional plus is new management at U.S. automakers and at Toyota, and the technological advances this management is pushing, including fuel efficiency. Ride sharing, and other services developed by Google, are seen as disrupting the traditional car model to a limited extent. Countering this new development are millenials who are accounting for a quarter of Toyota sales in the last quarter of 2015, according to a Toyota executive....