1.
Fixing the Euro The Time to Act Is Now
Italy can only manage its current crisis with German
help. And Germany needs Italy to keep Europe stable. While there is no simple solution,
a new form of assistance could help.
Der Spiegel June 06, 2018
The
cornerstone for the political integration of Europe was laid just over 60 year
ago in Rome. Today, though, Rome is the source of political risk that has the
potential to inflict lasting damage on the European project, even more so than
Brexit. The danger emanating from the current, out-of-control situation doesn't just come
from the possible return of the euro crisis and its far-reaching consequences
for growth and prosperity. It also comes from the new,toxic atmosphere of distrust among
European peoples and nations. Many Italians believe the true
source of the crisis facing their country is to be found in Germany and in
"Teutonic austerity." Many Germans, meanwhile, view Italy and the
Italian debt trap as the most pressing threat to the euro and to European
economic stability. Such aren't particularly helpful when it comes to meeting
the challenges that are now coming into view.
At
2.3 trillion euros, Italy has the largest debt load of any country in the entire
European Union, and it is paired with the lowest rate of economic growth. Every
third Italian under the age of 25 is unemployed. Banks in the country are
struggling under the weight of a huge number of bad loans. In contrast to other
eurozone countries that have experienced crisis, Italy never experienced an
economic boom in the initial years of the currency union. Per-capita income has
stagnated for 20 years. And yet Italy has still managed to adhere to strict EU
deficit rules in recent years. From the Italian perspective, however, the
benefits of doing so have been nonexistent. Against that background, the
implosion of the country's political system can hardly come as a surprise.
No Simple Answer
Germany
will not be able to isolate itself from the problems in Italy. If the crisis
devolves further, a critical question will have to be asked: What is Germany
prepared to do to keep Italy in the currency union? The explosiveness of this
question is hard to overestimate. And unfortunately, it is already clear that
there is no simple answer.
Italy
needs more growth to be able to pay down its mountain of debt, and it also
needs more social equality, especially between the rich north and the struggling
south. The question as to how to achieve those goals, however, is a
controversial one - both in Italy and in Europe at large. Would it be better
for the country to leave the eurozone? Would it be helpful to abandon
austerity, or is an even more ambitious savings program needed? Should the
country restructure its debt? Should its debts be covered in a debt redemption
fund? Even among economists, there is no consensus on these questions. Calling
it helplessness would not be inaccurate.
One
thing is certain: Every single one of these measures would likely initially
lead to an additional crisis - either political or financial, either in Italy
or in the rest of Europe. That is why any rushed decision on Italy is both
naïve and dangerous.
Most
options, viewed soberly, aren't really options at all. Italy's departure from
the eurozone would plunge Europe into an even deeper crisis than the one we
recently left behind. A debt haircut like the one applied to Greece would
eliminate around a trillion euros in a single blow with uncontrollable
consequences for the European banking and insurance system - and thus for the
prosperity and social security of the people of Europe. A vast bailout package
for the Italian economy, one which would also have to prop up Italian banks, is
likewise unrealistic. Europe is simply unable to afford a bailout for the
world's eighth largest economy.
And
Mario Draghi? Could the European Central Bank stabilize the eurozone with a new
whatever-it-takes approach? I believe doing so would be dangerous. It is not
the central bank's job to solve political crises. And from a German
perspective, it would be cynical to continue relying on the ECB given the
intensity of the criticism that came from Germany when the ECB went to the
limits of its mandate to save the euro.
Italy
is too big to fail. But Italy is also too big to be saved. That is why
comparisons with Greece aren't helpful. To help Italy, it is necessary to
invent a new form of assistance. What is needed is a clear political strategy
to ensure progress toward economic stability in Italy while ensuring that
necessary reforms take place. Growth needs to lay the foundation for the
modernization of the economy - through reforms which the government must be
willing to then push through.
2.
Macron calls on
G7 members to confront Trump over trade
French president warned G7 members to resist a potential US drift toward
‘crude hegemony’ following Trump’s tariffs on allies
The Guardian 8 Jun 2018
Emmanuel
Macron attends at a joint press conference with Justin Trudeau in Ottawa,
Canada, on Thursday. Photograph: Ian Langsdon/EPA
Emmanuel Macron has called on other
members of the G7 to stand up to Donald Trump’s trade policies in the face of
what he described as the threat of a new US “hegemony”.
The
French president was speaking alongside the Canadian prime minister, Justin
Trudeau, who is hosting the G7 summit in Quebec amid sharp disagreements between the US
president and the six other leaders of industrialized liberal
democracies over trade, climate change and the nuclear deal with Iran.
Macron
called on other G7 leaders not to water down a joint communique at the
end of the summit, at the expense of shared values, simply in an effort to win
Trump’s signature, warning that a “G6 plus one” outcome was possible.
The
challenge brought a tweeted response from Trump, claiming Macron and
Trudeau’s governments were pursuing unfair trade practices at the expense of US
producers. “Look forward to seeing them tomorrow,” he signed off sardonically.
In a second tweet he said Canadian trade policy was “killing our Agriculture.”
Even
under the North American Free Trade Agreement, Canada and the US have had
long-running disputes about subsidies, tariffs and restrictive practices. In
particular the US has complained about access for its dairy products, and
Canada says the US imposes unfair tariffs on its lumber exports. Ottawa has
called for the disputes to be resolved by arbitration, and points out that
Canada is the biggest market for US agricultural exports, and second biggest
market for dairy exports.
The
pointed exchange between the leaders highlighted deep divisions that were
already clearly evident before Friday’s summit. Trump is expected to arrive at
mid-morning on Friday, and hold closed-door meetings at La Malbaie, a summer
resort on the St Lawrence river. He is due to hold bilateral sessions with
Trudeau and Macron, and met the Japanese prime minister, Shinzo Abe, in
Washington on Thursday. The president has no plans to see Theresa May or Angela
Merkel, with whom his relations are even frostier.
Trump
is due to leave the summit several hours early on Saturday morning, to fly
direct to his next engagement, a summit with the North Korean leader, Kim Jong-un in
Singapore.
In
their remarks to reporters, Trudeau and Macron emphasised the importance of
maintaining dialogue and courtesy in relations with Trump, arguing the meeting
was an essential forum for finding common ground and resolving differences.
“The
G7 is an opportunity to meet to have frank and open discussions between
countries that are longtime allies and friends,” Trudeau argued.
Both
men, however, voiced anger over Trump’s imposition of steel and aluminum
tariffs against close allies, supposedly on “national security”
grounds. The EU and Canada have imposed reciprocal sanctions on US goods and
have taken their complaint to the World Trade Organisation.
Trudeau
described the tariffs as “unilateral and illegal” and the national security
pretext as “risible”. He added that Trump’s “unacceptable actions are going to
harm his own citizens”.
“It
is American jobs that are going to be lost because of the actions of this
administration,” the Canadian prime minister added.
Macron
was even more emphatic, calling on the other G7 members to resist what he
warned was a potential US drift towards “further isolationism and “crude
hegemony”.
“The
six other countries of the G7 represent a market which is bigger than the
American market,” the French president said. “I believe in cooperation and
multilateralism because I will resist hegemony with all my strength. Hegemony
is might makes right. Hegemony is the end of the rule of law.”
Macron
said he would do everything in his power to help Trudeau’s presidency of the G7
to succeed and produce a joint statement on Saturday that can be signed by all
seven members.
However,
he argued that other countries should be ready to have a “G6 plus one” outcome,
sticking to a text that enshrines their common values, even if Trump does not
sign it.
3.
Bayer to Buy
Monsanto, Creating a Massive Seeds and Pesticides Company
The
megamerger is likely to face intense regulatory scrutiny
German
drugs and crop chemicals company Bayer has won over U.S. seeds firm Monsanto
with an improved takeover offer of around $66 billion, ending months of
wrangling after increasing its bid for a third time.
The
$128 a share deal, up from Bayer's previous offer of $127.50 a share, is the
biggest of the year so far and the largest cash bid on record.
The
deal will create a company commanding more than a quarter of the combined world
market for seeds and pesticides in the fast-consolidating farm supplies
industry.
However,
competition authorities are likely to scrutinize the tie-up closely, and some
of Bayer's own shareholders have been highly critical of a takeover plan which
they say risks overpaying and neglecting the company's pharmaceutical business.
The
transaction includes a break-fee of $2 billion that Bayer will pay to Monsanto
should it fail to get regulatory clearance. Bayer expects the deal to close by
the end of 2017.
The
details confirm what a source close to the matter told Reuters earlier.
Bernstein
Research analysts said on Tuesday they saw only a 50 percent chance of the deal
winning regulatory clearance, although they cited a survey among investors that
put the likelihood at 70 percent on average
"We
believe political pushback to this deal, ranging from farmer dissatisfaction
with all their suppliers consolidating in the face of low farm net incomes to
dissatisfaction with Monsanto leaving the United States, could provide
significant delays and complications," they wrote in a research note.
Bayer
said it was offering a 44 percent premium to Monsanto's share price on May 9,
the day before it made its first written proposal.
It
plans to raise $19 billion to help fund the deal by issuing convertible bonds
and new shares to its existing shareholders, and said banks had also committed
to providing $57 billion of bridge financing.
At
1140 GMT, Bayer shares were up 2.2 percent at 95.32 euros. Monsanto's were up
0.2 percent at $106.3 in premarket trade.
ONE-STOP SHOP
Bayer's
move to combine its crop chemicals business, the world's second largest after
Syngenta AG, with Monsanto's industry leading seeds business, is the latest in
a series of major tie-ups in the agrochemicals sector.
The
German company is aiming to create a one-stop shop for seeds, crop chemicals
and computer-aided services to farmers.
That
was also the idea behind Monsanto's swoop on Syngenta last year, which the
Swiss company fended off, only to agree later to a takeover by China's
state-owned ChemChina.
Elsewhere
in the industry, U.S. chemicals giants Dow Chemical and DuPont plan to merge
and later spin off their respective seeds and crop chemicals operations into a
major agribusiness.
The
Bayer-Monsanto deal will be the largest ever involving a German buyer, beating
Daimler's tie-up with Chrysler in 1998, which valued the U.S. carmaker at more
than $40 billion. It will also be the largest all-cash transaction on record,
ahead of brewer InBev's $60.4 billion offer for Anheuser-Busch in 2008.
Bayer
said it expected the deal to boost its core earnings per share in the first
full year following completion, and by a double-digit percentage in the third
year.
Bayer
and Monsanto were in talks to sound out ways to combine their businesses as
early as March, which culminated in Bayer coming out with an initial $122
per-share takeover proposal in May.
Antitrust
experts have said regulators will likely demand the sale of some soybeans,
cotton and canola seed assets as a condition for approving the deal.
Bayer
said BofA Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC and JP Morgan had
committed to providing the bridge financing.
BofA
Merrill Lynch and Credit Suisse are acting as lead financial advisers to Bayer,
with Rothschild as an additional adviser. Bayer's legal advisers are Sullivan
& Cromwell LLP and Allen & Overy LLP.
Morgan
Stanley and Ducera Partners are acting as financial advisers to Monsanto, with
Wachtell, Lipton, Rosen & Katz its legal adviser.
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