French Referendum: Italian Bonds Hit

What, you may ask, has Italian government debt got to do with the French ‘no’ vote: everything would be my answer. (If you want to know more about this, thumb down my euro posts). The lack of a convincing advance towards political union makes Italian government debt riskier, so they have to pay more interest. This is, at present just a small breach, but it is one which is widening, and I fear this is the point at which the euro dyke will eventually breach:

The euro hit a fresh 7-month low against the dollar and Italian government bonds came under strain on Monday after French voters gave a decisive thumbs-down to the proposed European Union constitution…………….The strains the French vote could have on the euro zone were reflected in government bonds. The spread on Italian BTP bonds over German debt touched 23 basis points, the highest level since November 2002, as so-called peripheral euro zone bonds suffered.”

The problem is that the markets have now ‘wised up’ to the problem, and will now be tracking Italian government debt as an issue in itself.

Mandelson Calls For Reflection

Wow, I seem to be agreeing with Mandelson. Hardly surprising, apart from all the sleeze rows, I have the feeling he is the most competent politician working out of Brussels:

Striking a different tone from European Commission President Jos? Manuel Barroso, Mandelson appears to be suggesting a ?plan B?.

He argues that should the French ?non? be an obstacle to the EU constitution Europe should seek a ?new consensus?.

EU leaders could set out a vision of Europe?s policy direction and then draw up a fresh institutional blueprint.

?I think that consensus on the centre ground is there to be mobilised. One that rejects the populism of left and right,? he said.

Mandelson noted that future ratifications ? including a British vote ? would depend on whether the EU constitution was still viable.

?There will be a period of reflection,? he said early on Monday morning.

?If there is a constitutional treaty to ratify, I am confident it will be put to British people in a referendum.?

Now For The Double Whammy

Actually with the critical ECB meeting looming on Thursday, it could in fact be more like a ‘trifecta’ than a ‘double whammy’. Anyway, however you classify things, on Wednesday it will be the turn of the Netherlands. My impression is that the politicians don’t know quite how to respond.

Incidentally, with so much news coming in so fast, we will be directing most referendum information posts to our other page: A Few Euros More.

According to De Telegraaf Dutch Prime Minister is ‘disappointed’:

Prime Balkenende “has been disappointed” by the French ‘ no ‘ against the European constitution. He stated he had rather expected a positive result on Sunday evening. Balkenende called Dutch voters to vote ‘yes’. We should not our laws to be made by the French.

draws our attention to an interesting post on the Dutch blog Steeph, and also writes:
Continue reading

Denmark, Sweden and Finland to Continue With Ratification

For now, at any rate, the Nordic countries are to continue with the ratification process. We will see how this eveolves as the days pass.

We naturally respect the decision of the French people but it is crucial that Danes be allowed make their own decision in the autumn,” Anders Fogh Rasmussen, Denmark’s prime minister said.

There would be no change of plans should Dutch voters also reject the treaty on Wednesday, he added


Goran Persson, Sweden’s prime minister, described the French result as “a severe setback for the treaty” but pledged to continue the Swedish ratification process.

Matti Vanhanen, the Finnish prime minister, said he would proceed with the ratification process and expressed hope that other EU states would do likewise.

Barroso Changing His Position?

This piece in the FT seems to suggest that Barroso may in fact be moving away from the ‘bsuiness as usual’ line:

The European Union was on Monday braced for a wave of possible No votes against the EU constitution, after French voters decisively rejected it.Officially EU leaders stuck to the line that all member states should ratify the treaty as normal, but privately there are growing doubts about whether that is possible.

José Manuel Barroso, European Commission president, admitted there was “a risk of contagion” with hostility to the treaty spreading to other countries. ….

The Economist On The Result

The Economist is more or less positive about the outcome, of course it probably didn’t favour the constitution anyway:

French voters have rejected the proposed European Union constitution by a decisive margin. The flawed constitution is now probably dead, though the EU will get by without it. For President Jacques Chirac, however, it is a crushing defeat

Incidentally the Economist is now putting virtually all the Glbal Agenda section. I don’t know what this portends for their online influence.

Here Comes the First ‘Issue’

The Chinese, as is often the case, are showing that they have an uncanny knack for putting their finger exactly on the sore spot:

Beijing on Sunday criticised the European Union’s plans to restrict imports of textile products amid heightened controversy surrounding the threat Chinese clothing exports pose to the world’s manufacturers.”

“A spokesman for the Ministry of Commerce, Chong Quan, said that the EU’s efforts to limit importsof some clothing products from China were rash and unfair…..It is an inaccurate assessment and an incorrect decision,? said Mr Chong of the EU’s latest move. ?It not only sends the wrong signal of trade protectionism to the European industry, but also seriously harms the rights that Chinese enterprises are allowed to enjoy in the global textile trade.?

Really I would say that the timing of this response from China is very much to the point. The EU has now to ‘interpret’ yesterday’s vote and answer. Do Europeans want more protectionism, or should we press ahead with a new and improved Doha round (including the reform of agricultural subsidies, which of course, will not be popular in France). After giving the Bush administration the runaround on currency reform over the last six months, it appears Beijing may now be about to give the EU a little more attention. The really interesting detail will be to see the response. I think this is what might give financial markets a first hint of where we are going.