Despite Moody’s downgrading Italy’s credit rating, further details of Spain’s austerity measures emerging and civil servants taking to Madrid’s streets in protest of pay cuts and longer work hours (plus plans for public sector workers to strike in September) — not to mention news of possibly more than $7 billion pre-tax losses at JP Morgan which traders may have intentionally tried to mask — European markets closed the week on a positive note with all stock indices up. The Dow Jones also rose.
The reason that global markets shrugged off some less than stellar developments in a week when the euro fell to a two-year low was that China’s second quarter gross domestic product was 7.6 percent, a slowdown (the slowest in three years) but something that was expected.
Also perhaps not unexpected: The troika of the International Monetary Fund, the European Commission and the European Central Bank has found that Greece has missed 210 of its 300 targets to show that it is on track in making structural changes to its finances, in order to receive bailout funds. Greece’s government has been seeking to extend the timeframe in which it must meet such targets but the likelihood of this is fading. The phrase “the risk of Greece leaving the euro zone” is again being heard.
France is moving forward with austerity measures with Socialist President Francois Hollande and his officials taking a “downgrade” in “luxuries” from the so-called “bling-bling” tone of his predecessor, Nicolas Sarkozy:
- Hollande has taken the train (instead of the state jet) to Brussels and ordered his ministers to do the same and, when possible, to fly coach class on commercial airlines.
- Muscadet (termed an “affordable” white wine) is being served instead of Champagne at receptions.
- The presidential Citroën C6 has been traded in for a not exactly modest Citroën DS5 diesel hybrid. (But, a hybrid nonetheless and housing minister Cécile Duflot has ordered four official bicycles.)
- Ministerial salaries have been cut by 30 percent (so the President receives $18,000 a month from $26,000).
These cuts are, for the most part, symbolic, as Valérie Pécresse, the budget minister under Sarkozy, has pointed out. France’s total debt is nearly 90 percent of its GDP and far more stringent steps must be taken.
But Hollande’s government is using the cuts to give a taste of more to come, including a new law that would cut the pay of the bosses of state-owned companies “to about 20 times that of the lowest-paid employee, or about $550,000 a year.” So Henri Proglio, the chief executive of Électricité de France, could receive about a third of the $1.9 million he reportedly makes a year (his current salary is some 64 times that of the company’s lowest-paid employee).
Imagine if CEO salaries all had to be “about 20 times that of the lowest-paid employee.” Yes, complete fantasy but after you hear about the new fraud inquiry at JP Morgan and the false reporting of rates by Britain’s Barclays Bank, it is not hard to think that some kind of change to the system is in order.
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