The most recent data out of Europe has been getting noticeably better over the past few months. However, without electoral mandate, it is doubtful that any politician can even think about any meaningful reform even if they were interested. The economies of Europe have made a little progress, but it may remain just that-a little
After the long harsh winter of recession, the Eurozone is finally beginning to see signs of spring. The most recent gross domestic product (GDP) numbers for the European Union (EU) countries was published last Wednesday and it certainly looks like the worst is over.
Germany and France, the largest economies in Europe, did quite well. Germany has recovered from no growth in the last quarter to a respectable 0.7% or 2.8% annualized rate. France did especially well. Last quarter it was still contracting. This quarter it was expected to resume a 0.2% rate of growth. It beat market expectations and grew at 0.5%, a 2% annualized rate. Spain and Italy are still contracting but at a slower rate.
The real surprise was Portugal, which just began its recovery with a surprising 1.1% rate of growth for the quarter, beating its European partners. The combined growth for the Eurozone was 0.3% ending 18 months of recession about on a par with the US at 0.4%. So everything is fine right? Maybe. Maybe not.
Europe has one major problem. It has not solved its problems. The potential collapse of the Eurozone last summer seems to be in the far distant past, but the reforms that were promised at the time to steady the market are as far in the future as ever.
Central among the issues facing Europe are its banks. Many still have weak balance sheets. In order to comply with the new regulations under Basel III, Europe’s largest banks alone will have to cut €661 billion in assets and generate €47 billion in fresh capital over the next five years. Together the Eurozone’s banks will have to shed €3.2 trillion assets to comply. This burden falls heaviest on the Eurozone’s smallest banks. They will have to lose €2.6 trillion in assets.
In short, Europe still has too much debt. Before the recession, the private sector debt levels in Europe and the US were similar. The difference has been that the US is better at liquidating the debt often through foreclosures or bankruptcies. These processes are often avoided in Europe, so many of the bad debts remain on bank balance sheets especially in peripheral countries like Spain and Italy.
The easy money policies of the European Central Bank (ECB) avoided disaster, but did not solve the problem. They just made it easier for insolvent companies and households to roll over or extend their debts without the slightest possibility of ever paying them off. With the banks shedding assets, new loans are out of the question especially to the medium and small businesses.
Banks, especially smaller banks, might have better access to capital markets and make more loans if the reforms promised last summer had come into effect. The major reform would have been a region wide banking regulator and deposit insurance system. This would have meant that the stronger financial systems would have helped support the weaker ones. The risk would have been spread across the entire region.
While much discussed, it never occurred mostly because of the objections by the people who might have to foot the bill, Germany. German taxpayers are certainly not interested in guaranteeing other countries’ savings and they are likely to express their strong preferences at the polls at the end of September.
The unbalanced nature of debt exacerbates another problem. The debts are heavier in peripheral countries and in smaller banks. Loans in Southern Europe are harder to come by and more expensive than in Germany. This exacerbates the second drag on growth, unemployment. Unemployment across Europe remains at a record high of 12%. In countries like Greece and Spain it is twice that.
Europe’s entrenched interest favours older, more entrenched often government workers at the expense of the young. There have been a few reforms, but there is not a sufficient level of crises in Italy or France to dismantle the sclerotic labour regulations, which perpetuates the inequality. The growth that has been achieved is not sufficient to allow entry of younger workers into the labour market nor awful enough to stimulate reform.
The welcome growth causes a third problem: government deficits. The austerity programs have been successful in reducing deficits in Spain and Belgium, but not in the Netherlands. In Italy it has increased. Economic growth could exacerbate the problem. Greece’s level of debt decreased to 160% of GDP, but is likely to shoot up again to 180% this year. Italy, Portugal and Ireland deficits will all remain above 120% of GDP, which is considered unsustainable.
The basis of Europe’s economic growth is also cause for concern. Europe is highly dependent on exports for growth. The European Union is the world’s largest exporter. The US economy relies on exports for only 12% of its GDP. The German economy exports 47% of its GDP outdoing even the workshop of the world, China, whose exports amount to 30% of its economy.
It is not only the reliance of the European economy on exports, but also who they are exporting to. Their largest trading partner is the US, but the top ten includes the BRICs. As growth slows in the emerging markets, so will European exports.
The final threat to the European recovery is probably the most dangerous of all, the Federal Reserve. Last week economists working for the San Francisco branch of the Federal Reserve published a paper pointing out that the policy of quantitative easing or QE had only a mild effect on the economy, not the cure promised by Ben Bernanke. Worse, the Fed has belatedly realized that the program does have unintended consequences which are distorting the market.
Just the rumour, that the program would be cutback, has had a dramatic impact on US interest rates. They have almost doubled since May. This rise has been reflected at least in Germany where the rates for the German Bund are up 63%. Thankfully, it has not been devastating for large peripheral countries like Spain and Italy. So far, they are still sheltered by the European Central Bank’s president Mario Draghi’s promise to “do whatever it takes”. But if the trend continues they may be in deeper trouble. At the very least, the higher rates will have an impact on growth and hit hardest where the economies are weakest.
The most recent data out of Europe is certainly a welcome change. It has been getting noticeably better over the past few months. Still the time dearly bought by the external commercial borrowing (ECB) has been wasted by the politicians. Perhaps only Chancellor Merkel of Germany is sure of an electoral victory. Most European leaders and parties are heartily disliked and probably could not be re-elected. Italy barely has a functioning government. Without electoral mandate, it is doubtful that any politician can even think about any meaningful reform even if they were interested. The economies of Europe have made a little progress, but it may remain just that, a little.
(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first-hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages.)
The Central Information Commission (CIC), while allowing an appeal, directed the Public Information Officer (PIO) and Superintending Engineer of Municipal Corporation of Delhi (MCD), to provide information about an unauthorised construction to the appellant.
While giving this judgement on 19 August 2011, Shailesh Gandhi, the then Central Information Commissioner said, “In the instant case, it is apparent that the property is unauthorized construction for which a Court has ordered removal. MCD officers appear to be not following the Court orders and in fact appear to be colluding in getting it regularised and thereby putting the cloak of legality on this.”
New Delhi resident Raja Ram, on 28 March 2011, sought from the PIO information about documents submitted by Tulsi Ram Yadav, the owner of the property located at T-450, Gali No21, Durga Mohalla, Baljeet Nagar, Anand Parbat, New Delhi. Here is the information he sought under the RTI Act...
"I, the undersigned Applicant being the Attorney had contested the Case bearing No2418/2008 titled as Sukhdev Singh v/s Tulsi Ram Yadav & others, for getting removed the illegal and unauthorized construction raised after making encroachment on public land and the property is known as T-450, Gali No.21, Durga Mohalla, Baljeet Nagar, Anand Parbat, New Delhi and the said case has been decided vide orders dated 29 September 2010 thereby ordering for removal of the illegal and unauthorized constructions in the said property.
It is, therefore requested that the Copies of the documents as mentioned at Serial No1 to 6 in the application dated 29 October 2010 may kindly be provided to me under the Right to Information Act 2005."
The PIO denied providing the information citing it as related with third party. "The documents filed by Tulsi Ram Yadav in regularization file of PNo 450, Gali No21, Durga Mohalla, Baljeet Nagar, New Delhi relates to third person and cannot be provided under S (e) & (3) of RTT Act, 2005," the PIO said in his reply.
Ram, citing unsatisfactory information given by the PIO, filed his first appeal. While disposing the appeal, the First Appellate Authority (FAA), in his order said, "Appellant stated that he has not received the reply of his RTI application (while the) PIO clarified that reply was sent to the RTI applicant (Ram). Perusal of appeal application filed by the appellant reveals that a copy of the reply has been attached with it by the appellant. However, afresh photocopy of the reply is handed over to the appellant. The appeal is disposed off."
Citing unsatisfactory information given by the PIO and unsatisfactory order passed by the FAA, the appellant (Ram) approached the CIC with his second appeal.
During the hearing, Mr Gandhi, the then CIC noted that the appellant sought information about a property that was termed as unauthorised and asked to be removed by the Court. However, the owner (of the property) appears to have submitted an application for regularisation and MCD officers appear to be colluding in flouting the orders of the Court.
The Bench said, "The PIO has refused to give the information stating that this is third party information and he has not even bothered to justify his denial of information by quoting any exemption clause of Section 8(1) of the RTI Act. It appears to the Commission that the denial of information was clearly unreasonable and perhaps malafide."
While allowing the appeal, Mr Gandhi directed the PIO to provide information to Raja Ram before 30 August 2011.
The CIC found the PIO guilty of not furnishing information within the time specified under sub-section (1) of Section 7 by not replying within 30 days, as per the requirement of the RTI Act. "It appears that the PIO's actions attract the penal provisions of Section 20 (1). A show cause notice is being issued to him, and he is directed to give his reasons to the Commission to show cause why penalty should not be levied on him," Mr Gandhi said in his order.
CENTRAL INFORMATION COMMISSION
Decision No. CIC/SG/A/2011/001795/14167
Appeal No. CIC/SG/A/2011/001795
Appellant : Raja Ram,
Respondent : Suresh Chandra
PIO & Superintending Engineer
Municipal Corporation of Delhi,
O/o The Superintending Engineer,
Karol Bagh Zone, Nigam Bhawan,
DB Gupta Road, Anand Parbat,
New Delhi - 110005
In response to a letter written by the financial services secretary to the labour secretary, retirement fund body EPFO said it disagrees with the finance ministry’s proposal to encourage its subscribers to shift to New Pension System (NPS) and said that the NPS does not provide better returns than its Employees Pension Scheme-1995. “If we take return of EPS as indicative return on the fund managed under EPS, then the annualised return for the period May 2009 to May 2013 will be 10.47%, which on the face of it, is higher than the return declared by NPS in its scheme for the central government,” EPFO said.
The finance ministry had written to the labour ministry, “The subscribers of EPS may be given an option to either remain with EPS or join NPS with the same contribution as NPS is self sustaining pension system, a good substitute for EPS and would be beneficial for subscribers as they would get decent returns and adequate pension wealth. The government would be free from any open ended and financially unsustainable liability of EPS.”
EPFO disagreed saying that the EPS scheme provides social security for lower-income group in their old age and pension to dependents, in case of death of the subscriber. Subscribers can withdraw their contribution towards pension while withdrawing their EPF money. There is a lock-in period of 15 years in NPS.
Moreover, EPS subscribers get bonus of two years on completion of 20 years of service and there is provision of commutation or part withdrawal also. That is not available in NPS.