As we have already foretold in the June issue, Spain is most likely to face yet the third voting round. Neither the December 2015 general elections, nor the second round in June 2016 brought about an agreement between political parties on forming a government.
The failed coup attempt in Turkey has had rather drastic consequences. Domestically President Erdogan goes about cleansing relentlessly with a tough hand, while Turkeys disregard of human rights has gained a new momentum with the declaration of the state of emergency; the demands for reintroducing the death penalty being only one aspect of how the alleged coup-plotters will be dealt with in the future. On the foreign policy agenda the controversial EU-Turkish refugee agreement struck in March 2016 warrants our mention. Visa-free travel for all Turks seems, under the circumstances, an illusion. In spite of the EU vital interest in a solution to the Syrian refugee issue, for Angela Merkel it is time to reconsider her prior position, particularly in light of ever stronger opposition faced domestically – notably from the Red-Red-Green coalition. Even though the recent terrorist attacks in Germany (Ansbach, Würzburg) may have nothing to do with Turkey, the very fact that the assassins had Islamist background would make the future unrestricted entry for Turks difficult to justify to the frightened German population.
Perhaps also Merkel’s welcome-culture towards the Syrian refugees has failed because of a handful of isolated cases. Should the end justify the means and the objective at hand be to combat the terrorist threat, the means chosen may well imply a substantially more restrictive refugee policy. However difficult to comprehend on humanitarian grounds they may be, politically there will be hardly another way. Politicians’ main objective is to be re-elected and, to this end, their primarily concern is the mood of their constituency, and after the attacks that mood has been as bad as ever.
Formal disciplinary procedures initiated by the Euro-finance ministers against Portugal and Spain for their years-long violation of the Maastricht debt limits will be swept under the carpet with impunity. However comprehensible the motives may seem – both countries have record-high unemployment – this decision is tantamount to a surrender of the compliance with the convergence criteria, and it was made in spite of the seemingly clear concept, that in a community of states with a single currency it is imperative that certain rules must be strictly adhered to.
The stress test of the European banks brought rather sobering results. The report published end of July shows how much capital is left to cushion banks against losses in an adverse economic scenario. That the oldest bank in the world, Monte dei Paschi di Sienna will be at the bottom of the list was well known in advance. In its case for the first time a state support solution was successfully evaded. Such support anyway would have been possible only with the involvement of private creditors (bond holders) – politically in Italy a solution unlikely to be executed. The so-called bail-in (i.e. the waiver by private investors) was first tested in practice in Cyprus, and to this day is considered a Pandora’s Box. If debt reduction of the beleaguered banks with the help of the private sector were to be made socially acceptable, sooner or later, the financially weak debtor countries (Spain, Portugal, Italy, etc.) would follow suit dipping into this honey pot.
Your Wealth at a Glance.