And Over to You, Too, Mr Socrates

Portuguese Prime Minister José Sócrates Carvalho Pinto de Sousa will need all of his namesake’s wisdom, and none of his taste in last drinks, as he takes over the rotating presidency (careful, the page has an annoying soundtrack) of the European Council this weekend.

Chancellor Merkel’s quiet persuasion has brought the EU much closer to a renovation of its institutions than seemed likely at the beginning of 2007. The governments now have a mandate to negotiate the details and prepare, by the end of the year, a treaty revision that can be ratified in 2008, or at the very latest in early 2009.

This half-year will also be a test of the “trio” approach to the rotating presidency. Starting this year, groups of three presidencies will work together to present a common agenda for the 18 months of their collective tenure. Anything increasing continuity in an office that countries can expect to hold about once every two decades (a far cry from the period when the rotation principle was established) is good news. Germany, Portugal and Slovenia worked together to set things up; now is the first actual transition within a trio.

The Portuguese don’t plan on wasting any time, and the intergovernmental conference will begin in late July. Coming just three weeks after the mandate, this is something like record time for the EU. And the plan is to wind it up by the end of the year. Given that past IGCs have tended to sprawl over about 18 months, this would be quite the accomplishment as well. Coming up with a Treaty text will, of course, be no small task, even with the former constitutional draft to serve as a basis.

On the other hand, there’s this “In addition, other priorities urgently deserve our attention.” That’s the horse’s nose under the tent. There follows a long list of things Portugal wants to do, including summits with Africa and Brazil, to say nothing of following up on the Lisbon Agenda (which to my thinking is what one should say at this point). The country’s leadership has limited personnel and resources. Taking their collective eye off the ball of institutional reform is asking for trouble on the Treaty front. It’s an accident of the calendar that Portugal has ended up with this responsibility for the Union, and that its more self-interested topics ought to take a back seat, but on the other hand, it’s an opportunity for a small state to have a historic achievement. Word to the wise, Mr S.

OECD on Portugal with a touch of Eurozone criticism

In case you were wondering about the Portuguese economy a recent OECD survey tries to steer you in the direction and although the OECD are undobtedly right in many of their observations the case of Portugal also mirrors how being a member of the Euro does not necessarily help you to achieve those honourful demands of convergence.

Let us see what OECD has to say about Portugal’s economy.
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The Czech Growth Engine?

Interesting news from the Czech Republic in this week:

The Czech republic has joined Slovenia among new member states with higher levels of wealth per capita than old member Portugal, according to European Commission statistics.

The central European country enjoyed gross income per capita of 73 percent of the EU 25 average last year compared to 71 percent in Portugal, according to the latest estimate by the commission’s statistical wing, Eurostat….

The results have left Slovenia and the Czech republic chasing Greece, on 83 percent, as the next old member state to overtake, with Slovenia set to draw level with Greece by 2007 and the Czech republic to narrow the gap further in the next two years, the study predicts.

This now raises some interesting questions. How will Slovenia’s future growth compare with that of the Czech Republic (remember Slovenia is about to join the eurozone on 1 January 2007 while the Czech Republic is in no particular hurry to join)? What is the relation between Portugal’s low-growth and eurozonemembership? Will the Czech Republic now overtake Greece?

We can also, I think, see more clearly some appropriate comparisons for testing the ‘euro has been a spectacular success’ hypothesis: we can look at the UK vs France, Finland vs Sweden and Denmark, and we can look at the Czech Republic vs Portugal.

And speaking of Eurovision

Just a quick update on Croatia’s EU candidacy.

Eight countries have signed a letter to British PM Tony Blair supporting Croatia’s membership. The letter was presented to Blair — who currently holds the rotating EU Presidency, and will until January 1 — in the recent confence at Newport, in Wales.

The signing countries were Austria, Greece, Italy, Latvia, Luxembourg, Malta, Slovakia, and Slovenia.
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Portugal Given Three Years

Portugal has been given three years (till the end of 2008) to resolve its excess deficit situation. Portugal, like Italy only with less press attention, is in the midst of a serious economic slowdown. The decision to give Portugal slightly more time may be the result of a number of factors: it may be that they are perceived to be doing more to correct the situation than the Italian government is, the accumulated deficit in Portugal (68% GDP) is much less than the Italian one (106% GDP), and again, being a little less strict with Portugal counters the ‘you only chase small countries’ argument.

“We are proposing giving the Portuguese government three years to correct its deficit,” Amelia Torres, a spokeswoman for EU monetary affairs commissioner Joaquin Almunia, told reporters on Wednesday.

As a member of the 12-nation eurozone, Portugal is bound to hold its annual public deficit to under three percent of output under terms of the 1997 Stability and Growth Pact.

Sovereign Bond Yields

The FT this morning discusses the state of the bond markets for the ‘weaker’ eurozone economies: Italy, Greece, Portugal. As expected interest differentials between government debt in these countries and German debt is widening, but only slowly. Italy is being evaluated at present as the weakest member. As the FT points out the temperature of the water will be tested again this week when Portugal issue a new batch of debt:

The expected launch next week of a new 10-year benchmark bond by Portugal, whose credit rating was recently downgraded by Standard & Poor?s, is set to test investors? appetite for debt issued by weaker eurozone members.

Portugal, which on Friday appointed bankers to manage the syndicated bond sale, will be competing for demand against France, which enjoys the highest credit rating available and plans to auction a new 10-year bond of its own next week.

Bond spreads of Portugal, Italy and Greece – the three weakest countries in the eurozone – widened marginally on the back of this. On the week, the spreads of bonds of Portugal, Italy and Greece, widened by just 1.3bp, 0.5bp, and 0.5bp, to stand at 8.3bp, 21.5bp, and 24.5bp, respectively against Bunds.

But they have been widening for several months. Spreads of Italian 10-year paper, for instance, have doubled from 11bp to 21.5bp against the Bund in the last four months.

Portugal and the SGP

With all the fuss about Italy, I’ve obviously been neglecting poor little Portugal, but Joaquim Almunia hasn’t forgotten about them. According to Business Week:

The European Union’s head office told Portugal on Wednesday to cut its burgeoning budget deficit and public debt, saying the country’s economic slowdown was no excuse for violating euro-zone rules on sound finances.

Portugal follows Italy and Greece in facing a formal complaint from the European Commission for running up government borrowing way above the limit of 3 percent of gross domestic product set for countries using the euro.

The Head Office eh? I presume they mean the Commission. You can find the relevant document from the Economics and Financial Affairs department here.

China Trade With EU

I’m not very happy with the ‘US Trade Figures‘ post I put up last Friday. I think it’s a glorious mess. The key to the problem is that I tried to deal with two – interrelated but disinct – topics at once: the euro and China trade. So today lets ignore the euro (which has once more resumed the downwards drift, even as I write) and take a bit of a closer look at where we are – in trade terms – with China. (Btw: the planet has finally returned to its orbit, and Brad Setser has an analysis of the US trade data here).

The big item in this weekend’s news is, of course, the agreement reached with Beijing on textiles. The EU textile industry will now have three years to adapt, but since textile manufacturers don’t appear to have taken too much advantage of the ten previous years, it is hard to know whether this will serve any useful purpose. Doubly so, since it is not yet clear how the calculations will be made, and I have the distinct impression that much of the recent surge in imports will now, in effect, be consolidated.

Be that as it may, what about the broader issue?
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Methinks We’re On The Slippery Slope

OK you may be in for a bout of solid over-posting. There seem to be some signs in the air that push may be about to come to shove. Tomorrow I will try and do something on financial architecture and the euro. Meantime this is a ‘light’ warm-up post. The efficient cause is today’s news from Portugal, which suggests that the supposed Harrod-Balassa-Samuelson free-lunch-honeymoon (which has to count as one of the worst pieces of ‘justifying what there is simply because it is’ pieces of quackery where there should have been solid science known to recent history) may be about to come to an end. One of those darned ‘catch up’ economies may have just caught up so hard that’s it’s come to a dead halt. The Bank of Portugal has predicted growth of only 0.75% this year, and even that only if there is the anticipated growth in global demand (which I doubt extremely). Those who have read my Parmalat post will have seen that I am already begining to speculate about whether we are about to see the end of growth in the Italian economy, well just remember Portugal is lined up nicely in the queue to see where lunch is going to be served.
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UEFA: Home of the cliche

Earlier today, the draw took place for next year’s European Football Championships (Euro 2004), placing the sixteen teams into four groups:

Group A: Portugal, Greece, Spain, Russia
Group B: France, England, Switzerland, Croatia
Group C: Sweden, Bulgaria, Denmark, Italy
Group D: Czech Republic, Latvia, Germany, Netherlands

The BBC Sport website has a good page detailing all the fixtures for the tournament.
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