David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Volcanic Macron Forces Germany to Come Clean on Its real EU Agenda

    Emmanuel Macron’s lightning conquest of France has put Germany in an awkward spot.

    Berlin may have to start fleshing out its European rhetoric and contemplate a Franco-German grand bargain on the future of the EU, or risk serious consequences down the road. Excuses are running thin.

    French voters have picked an apostle of Europe and an arch-defender of the Franco-German axis. While this is welcomed with jubilation by some in Berlin, it raises thorny questions that others would prefer left unanswered.

    Charles Grant from the Centre for European Reform says Mr Macron’s strategic gamble is to restore French credibility, and then to lever this to extract a “new concordat on the euro” from Germany.

    He plans Nordic labour reforms, easier collective bargaining rules, and the sort of tax shake-up that German leaders have long demanded. It is the French riposte to the Hartz IV reforms that - supposedly - lifted Germany from its sickbed a decade ago.  

    The quid pro quo is that Berlin must agree to eurozone fiscal union, and cut its corrosive current account surplus - now 8.6pc of GDP and in breach of EU rules.

    “If France is not reformed, we will not be able to regain the confidence of the Germans,”  Mr Macron told Ouest-France.  “After that Germany must ask whether its own situation is tenable. It is accumulating surpluses which are neither good for its own economy nor for the eurozone.”

    He wants a eurozone finance minister and budget, with joint debt, and a banking union with shared deposit insurance, all legitimized by a new parliament for the currency bloc. It implies a unitary eurozone superstate.

    This calls Berlin’s bluff. The German elites often argue that they cannot accept such radical proposals as long as other eurozone states scoff at budget rules and fail to put their house in order. Whether Germany’s real motive is to protect its mercantilist interests as a creditor power and run monetary union to suit itself is conveniently never put to the test.

    As French economy minister, Mr Macron was an acerbic critic of the austerity regime imposed on the eurozone by Germany. He decried the current half-way house of an orphan currency with no EMU government to back it up, and argued that was is folly to try to close the North-South gap in competitiveness by imposing all the burden of adjustment on the weakest high-debt states. Such a policy misdiagnoses the cause of the EMU crisis -  capital flows, rather than fiscal or moral failure - and leads to a deflationary vortex for the whole system.

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    Email of the day

    On the French push for UK financial services:

    Have you ever tried to make an international transfer through a French bank? Neanderthals Age.  It will be very difficult to beat London´s financial services. Macron will have to deal with unions and after that with a strong regulatory culture inserted in France.

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    Buying Spree Brings Attention to Opaque Chinese Company

    This article by David Barbozamay for The New York Times may be of interest to subscribers. Here is a section:

    Last week, HNA was the subject of wild online speculation after a fugitive Chinese billionaire said in a television interview that relatives of a senior Chinese leader, Wang Qishan, had a stake in the company. No proof was provided.

    The allegations leveled by the billionaire, Guo Wengui, who has ties to China’s former spy chief, is part of his broader war on the Chinese government. From his New York apartment, Mr. Guo, using his Twitter account and Google’s YouTube, has been making claims of widespread government corruption. China has requested his arrest, on separate corruption charges.

    As speculation swirled that HNA could be drawn into a political firestorm, shares of one of the company’s Hong Kong affiliates tumbled late last month. Soon after, critical news articles on the group began disappearing from Chinese websites, prompting concerns that government censors had handed down orders to delete unfavorable news about HNA.


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    Australia Presses for Nation Building But Forecast Doubts Linger

    This article by Michael Heath for Bloomberg may be of interest to subscribers. Here is a section:


    Morrison is changing the terms of the economic debate, from dire warnings on debt and deficit to a more politically astute one of prosperity and opportunity. His infrastructure plan aims to create a virtuous circle: such investment may trigger private-sector spending and increased household consumption that would boost the economy.

    “We continue to forecast a slower deficit consolidation than projected in the budget,” Marie Diron, associate managing director at Moody’s Investors Service, said in a statement after the release. “We assume that GDP growth will be somewhat slower than projected by the government, at 2.5-2.7 percent in the next few years. Productivity growth has slowed in Australia, like in other high-income economies. We estimate that this slowdown is partly related to long-lasting factors that will continue to weigh on growth.”

    Infrastructure projects include a new airport in Western Sydney; acquiring greater or outright ownership of the Snowy Mountains hydroelectric scheme and then expanding it; upgrading highways across the nation; and funding for a Melbourne-to-Brisbane inland railway.

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    Traders Stake $12 Billion on Dollar Extending Gains Versus Yen

    This article by Vassilis Karamanis for Bloomberg may be of interest to subscribers. Here is a section:

    Data from the Depository Trust & Clearing Corporation shows dollar-topside bets outweigh bearish views this week. That includes $700 million on the 115.00 level, another $600 million going through on 116.00 calls, and $140 million on the pair reaching 133.00 within the next year.

    Yen haven demand has also lost traction, as the French election result provided a market-friendly outcome, as shown by risk reversals, a gauge of market positioning and sentiment.

    While demand for dollar-yen puts over the next month still outweighs that for calls, it does so at the lowest in almost two months. Dollar puts trade on a 38-basis-point premium over calls on the one-month tenor, which compares to an average in the past year of 105 basis points.


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    Paris Will Be Hoping the 'Macron Effect' Can Strengthen its Planned City Scalp on Back of Brexit

    The sweeping victory of Emmanuel Macron in France opens the way for a radical shake-up of the country's antiquated labour code and punitive tax regime, greatly boosting the hopes of Paris as it tries to capture valuable business from the City of London.

    The French financial industry is seizing on the 'Macron effect' to step up its charm offensive in the Square Mile and Canary Wharf, convinced that the election of an ex-Rothschild banker in France has combined with a hard Brexit to create a perfect opportunity. 

    Officials have been criss-crosing London over recent days meeting sovereign wealth funds and bankers from the US, Japan, China, and other countries, selling the promise of a reformist revolution in Paris. What is faintly ominous for London is that they are pulling forward the timetable for what they believe to be the expected exodus. 

    "We think that the process will now accelerate because it looks like a hard Brexit, and we think it will happen within months," said Arnaud de Bresson, head of finance federation Paris Europlace.

    "Investment banks and asset managers now understand that they will have to move part of their euro activities, which was not the case in our earlier meetings when it was still business as usual," he told the Daily Telegraph.

    "We expect them to move some of capital market as well as fund management business to Paris in phases. We think we can gain 20,000 jobs, 10,000 directly. This is quite reasonable," he said, though he was coy about names. City advocates say such claims are wishful thinking.

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    French Annoyingly Retain Right to Claim Intellectual Superiority Over Americans

    Here is some satire from the Borowitz Report in The New Yorker, posted without further comment:

    PARIS (The Borowitz Report)—On Sunday, the people of France annoyingly retained their traditional right to claim intellectual superiority over Americans, as millions of French citizens paused to enjoy just how much smarter they were than their allies across the Atlantic.

    In bars and cafés across France, voters breathed a sigh of relief in the knowledge that arrogantly comparing themselves to the U.S. population, a longtime favorite pastime of the French people, would remain viable for the foreseeable future.

    Pierre Grimange, a Parisian café-goer, sipped on a glass of Bordeaux and toasted his nation “for not being so dumb as the United States after all.”

    “A lot was at stake today: the future of our liberal traditions and our democracy itself,” he said. “But by far the greatest loss of all would have been our right to look down on Americans.”

    “Grâce à Dieu, that has been secured!” Grimange exclaimed.

    But, sitting a few tables away, Helene Commonceau, another Parisian, admitted that she did not understand what all of the celebrating was about. “We are smarter than the Americans, true, but they have set the bar very low, no?” she said. 

    Andy Borowitz is the New York Times best-selling author of “The 50 Funniest American Writers,” and a comedian who has written for The New Yorker since 1998. He writes the Borowitz Report, a satirical column on the news, for newyorker.com.

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    The World Is Not Ready for the Next Pandemic

    My thanks to a subscriber for this sobering article by Bryan Walsh for Time.  Here is the opening:

    Across China, the virus that could spark the next pandemic is already circulating. It's a bird flu called H7N9, and true to its name, it mostly infects poultry. Lately, however, it's started jumping from chickens to humans more readily--bad news, because the virus is a killer. During a recent spike, 88% of people infected got pneumonia, three-quarters ended up in intensive care with severe respiratory problems, and 41% died.

    What H7N9 can't do--yet--is spread easily from person to person, but experts know that could change. The longer the virus spends in humans, the better the chance that it might mutate to become more contagious--and once that happens, it's only a matter of time before it hops a plane out of China and onto foreign soil, where it could spread through the air like wildfire.

    From Ebola in West Africa to Zika in South America to MERS in the Middle East, dangerous outbreaks are on the rise around the world. The number of new diseases per decade has increased nearly fourfold over the past 60 years, and since 1980, the number of outbreaks per year has more than tripled.

    Some recent outbreaks registered in the U.S. as no more than a blip in the news, while others, like Ebola, triggered an intense but temporary panic. And while a mutant bug that moves from chickens in China to humans in cities around the world may seem like something out of a Hollywood script, the danger the world faces from H7N9--and countless other pathogens with the potential to cause enormous harm--isn't science fiction. Rather, it's the highly plausible nightmare scenario that should be keeping the President up at night.

    The U.S. Centers for Disease Control and Prevention (CDC) ranks H7N9 as the flu strain with the greatest potential to cause a pandemic--an infectious-disease outbreak that goes global. If a more contagious H7N9 were to be anywhere near as deadly as it is now, the death toll could be in the tens of millions.

    "We are sitting on something big with H7N9," says Michael Osterholm, the director of the Center for Infectious Disease Research and Policy at the University of Minnesota and a co-author of the new book Deadliest Enemy: Our War Against Killer Germs. "Any one of these cases could trigger something big. By then it'd be way too late."

    Too late because even as the scientific and international communities have begun to take the threat of pandemics more seriously, global health experts--including Bill Gates, World Health Organization director Dr. Margaret Chan and former CDC director Dr. Tom Frieden, to name just a few--warn that nowhere near enough is being done to prepare, leaving the U.S. scarily exposed. That's because the system for responding to infectious disease is broken. So broken that it recently prompted Gates and his wife Melinda to put their weight behind a major public-private initiative called the Coalition for Epidemic Preparedness Innovations (CEPI). The Gates Foundation alone will devote $100 million over the next five years to CEPI, which will help speed the development of vaccines against known diseases, like MERS, while also investing in next-generation technologies that can counter future threats.

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    Email of the day

    On Sapiens and Barry Ritholtz’ interview of Yuval Noah Harari:


    I remember one of your comment about the book and how much it impressed you.

    I take every morning the time to listen to something new or recurrent that makes me (hopefully) think (hopefully) differently…

    One podcast that I usually follow loosely is Barry Ritholtz: Masters in Business.

    Today I listened to the interview of Yuval Noah… I recommend it.

    Just one comment: around minute 43 he noted that the new religion will be happening in Silicon Valley. I cannot figure out if he was positive or not about it, but if so (The new religion), what consequence does it has on our self determination and freedom, the cherished prize of democracy if you go to ‘’church'' everyday of your life when you open any connected device.

    This will define our (new) times as much as war defined our time not too long ago (my father as Navy officer spent 12 years of his life doing so and it must have influenced the following next 25 years of the rest of his life) 

    Enjoy, and all the best,

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