UKIP "Last Best Hope for Britain"; May 2014 European Parliament Vote: What Shift is Taking Place? Political Earthquake?

One of the UK's wealthiest men has pledged "whatever it takes" to ensure the UK Independence Party triumphs in the 2014 European Parliament elections.

The BBC reports Tycoon Paul Sykes backs UKIP European election campaign

Eurosceptic Paul Sykes said UKIP was the "last best hope for Britain" and he would help fund its election campaign.

Mr Sykes, who has formerly backed the Conservatives, made donations to UKIP between 2001 and 2004. His latest funds will pay for UKIP's advertising. UKIP leader Nigel Farage said Mr Sykes' backing was a "significant boost".

Mr Sykes, who is estimated to have a fortune of around £650m, has given no indication of how much he is prepared to donate on this occasion, but said he believed the European elections were "the one last chance to stop the gradual erosion of our national independence".

"Nigel Farage and UKIP are the last best hope for Britain. I am prepared to do whatever it takes to propel them to victory next year."

He said he hoped success for UKIP at next year's election would lead to an early referendum on the UK's membership of the EU rather than "hanging about to 2017".

"I think it's time to step up and bring the referendum forward to 2015," he said.

May 2014 European Parliament Vote

To help understand what's at stake, Wikipedia reports the European Parliament Elections will be held in all member states of the European Union (EU) between 22 and 25 May 2014, as decided unanimously by the Council.

It will be the eighth Europe-wide election to the European Parliament since the first direct elections in 1979.

What Shift is Taking Place?

I asked reader Bernd from Germany for election comments. He replied ...

Hello Mish,

This is a difficult question.

The large number of Euro-skeptic or EU skeptic parties are considering a common platform, but there is a huge rift within the right.

Last week Geert Wilder’s Freedom Party of The Netherlands and Marine Le Pen’s FN agreed to form an “Alliance of the Right” for the coming EU elections.

Currently the following alliances on the right are existing already:

• “Alliance of European Conservatives and Reformists”
• “Movement for a free and democratic Europe”
• “European Democratic Party”
• “Alliance of European National Movement”
• “Free European Alliance”
• “European Alliance for Freedom”
• “Pirates of Europe”
• “Christian Political Movement for Europe”
• “EU Democrats”

All the above are subsumed under Euro-skeptics and have a total of 115 Seats in the EU Parliament.

To compare:

• Christian Democrats (European Peoples Party)   275 Seats
• Social Democrats (Party of European Socialists) 194 Seats
• Liberals (Alliance of Liberals and Democrats)      85 Seats
• Greens (European Green Party)                             56 Seats
• The Left (Party of the European Left)                   35 Seats

Already the Euro/EU-skeptics are the third largest group in the EU Parliament.

As measured by seat pickups, I anticipate that the Euro-skeptics will be the winner of the coming elections. However, the rift between the eurosceptics in general and the extreme right wing parties will be more evident and more significant.

Clearly UKIP from UK and AFD from Germany have very little common ground with Golden Dawn from Greece, Front National of France or Freedom Party of Holland.

The latter are clearly nationalistic, anti-Islamic and anti-Semitic, whilst the first two are only EU and Euro-skeptic, not willing to embrace the other, uglier values of right wing parties.

In Germany, in Austria, in France, in UK, in Holland and in Belgium – the countries I frequently visit and over which I claim some knowledge, the EU-Parliament is seen as a joke. It is a show Parliament, with no real power, introduced to give the appearance of Democracy to the EU.

Regardless, the established main stream parties will do everything in their power to prevent the Euro-skeptic block from growing. I expect to see the usual smear campaigns by the media, throwing Euro-skeptics and right wing extremists into one basket. This will work in many places, but not everywhere. For example, smear campaigns are unlikely to work in France and Holland, but very likely in Germany.

I expect that the Euro-skeptic block will grow substantially – however I don't expect the block to be number 2 in overall votes.

Thus, I doubt that the party mix in the EU-Parliament will have any bearing on EU Politics in the years to come. The agenda for the EU is set elsewhere and will be pushed through without regard to the will of the people.

Bernd

UK Prosper Outside EU

UKIP leader Nigel Farage claims Britain would prosper outside EU

Britain would flourish outside the EU, Nigel Farage has said, predicting UKIP will cause a "political earthquake" in European elections next year. Addressing the party's annual conference, he said leaving the union would "open a door to the world".

Political Earthquake?

I strongly agree with Farage that the UK is far better off outside the EU. But what about a "political earthquake"?

If "political earthquake" means policy shifts within the EU, then I would side with Bernd in that nothing much will change in European parliament, adding (but the voices, the debate, and the finger-pointing will all get more intense as Germany and France slide back into recession).

If, "political earthquake" means more UK awareness and eurosceptcism, with an increased likelihood of an up-or-down vote on UK membership in the EU, Farage may very well be correct, and I hope he is.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

EU "Ayatollahs Killing Italy’s Recovery Chances" Says Italy's Prime Minister; Italy Attempts Another "Quick Fix"

The European budget debate stepped up a notch today as Italy, Spain Warned on Budget.

After Italy rebuffed warnings about its budget, euro-area finance ministers late Friday agreed to give the country additional opportunities to show it can make savings and bolster revenue.

The tensions over Italy’s budget grew after Enrico Letta, the country’s prime minister, warned on Friday that “ayatollahs” in Europe were seeking to promote austerity even though it was killing Italy’s chances of recovery.

The meeting here came a week after Olli Rehn, the European Union’s commissioner for economic and monetary affairs, warned that Italy and Spain faced debt and deficit problems under their current spending plans for 2014. The main topic on the agenda was whether the verdicts by Mr. Rehn, who has gained authority to review national spending plans, should be followed.

On Friday, Mr. Rehn dryly rebutted Mr. Letta’s “ayatollahs” comment, rejecting any suggestion that he was too tough on Italy. “I trust Mr. Letta meant the negotiations on the Iranian nuclear program,” Mr. Rehn told a Finnish broadcaster. “It is very important that all E.U. member states, including Italy, aim at the stability of their public finances.”

But the meeting of ministers and European officials avoided, for now at least, a full-blown fight with Italy by agreeing to give Rome a chance to meet its budgetary targets with additional measures to raise revenue and trim spending.

No Quick Fix

Eurointelligence accurately comments about Italy's Quick Fix proposals to meet EU targets.

Instead of solving the underlying problem of an unsustainable growth trajectory, the Italian government continues to be preoccupied with quick-fix measures to chase after some official fiscal target, which have become the be-all and end-all of economic policy. The Italian government yesterday agreed on a privatisation programme, which should net some €10-12bn in 2014 (it would reduce debt-to-GDP from a number of above 130% of GDP by some 0.6pp to a number still above 130%). The sales include a 3% stake in Eni, the energy company, plus stakes in seven companies in total. In two of them, the government would be selling the controlling interest.

Politically, the announcement came under immediate attack by Matteo Renzi, the mayor of Florence and the presumptive next leader of the PD. It said the sale comes at the wrong time, when the economy is still weak, and when the government is not in a position to attract good prices for its holdings, as this fire-sale is heavily tilted in favour of the buyers. The benefit this sale would bring in the short term, comes at the expense of the medium-term, he said.

Corriere della Sera writes in its front page article that Enrico Letta wanted to conquer Brussels with this manoeuvre after the European Commission raised doubts that Italy may not make sufficient progress on debt reduction in 2014.

There is no quick fix and no recovery either. Europe is back in recession, not that it ever left in the first place.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Expect "Dramatic Slowdown" in Germany: Saxo Bank Analysis

Saxo Bank chief economist Steen Jakobsen had some interesting comments on Germany and German exports given a slowdown in China and a rising Euro.

To help put things in perspective, here is a chart on the Euro.



Technical analysts will point out this is a bearish break of the trendline, thus the euro may be headed lower.

Fundamentally, the chart reflects an unexpected rate cut by ECB president Mario Draghi as well as statements by various ECB members regarding the possibility of negative interest rates.

Let's continue the fundamental view as presented by Steen Jakobsen.

Expect Dramatic Germany Slowdown

Via email, Steen writes ...

The German economy is heavily exposed to global growth which we see dramatically slowing down - the strong EURO will impact export 5-7 month from now which creates dramatic slow-down where we even could see the German economy going below 1% growth and come close to recession.

Our Economy-Physics models sees slow-down for the next three to six-month then small rebound before dramatic slow-down in tail-end of 2014 - overall the German GDP will be challenged.

German industry and its consumer is increasingly becoming uncompetitive through one of the worst energy policies in Europe. Right now German companies (Read: BMW and Daimler) are either already moving or about to move jobs to mainly the US due to steep rises in energy cost.

The new coalition furthermore wants to pursue less flexible labor market model to "reset" inequality. Nice top line effort wrong method.

Finally, the European economy is almost perfect symmetrical in its peaks and valleys:  (Source: Bloomberg LLP & Citigroup CESI Index)

Eurozone Symmetry



I agree with the viewpoint stated by Steen.

For further discussion and analysis, please see ...

• China's 3rd Plenum Means Slower Growth; Australia's "One Trick Pony" is Biggest Loser; What About Canada?
 
• Eurozone Flash PMI Shows Slight Growth, France Back in Contraction

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

California Business Owner with 600 Employees Chimes in on Obamacare Effect; Clown to the Left, Jokers to the Right, Musical Tribute

Yesterday I received an email from a California Business Owner with 600 employees. Let's tune in to how Obamacare affected him, as well as his employees.

Dear Mish

My company, based in California, employs 600. We used to insure about 250 of our employees. The rest opted out. The company paid 50% of their premiums for about $750,000/yr.

Under Obamacare, no one can opt out without penalty, and the rates are double or triple, depending upon the plan. Our 750k insurance for 250 employees is going to $2 million per year for 600 employees.

By mandate, we have to pay 91.5% of the premium or more up from the 50% we used to pay.

Our employees share of the premium goes from $7/week for the cheapest plan to $30/week. 95% of my employees were on that plan.  Remember, we used to pay 50% now we pay 91.5% and the premiums still go up that much!!

The  cheapest plan now has a deductible of $6350! Before it was $150. Employees making $9 to $10/hr, have to pay $30/wk and have a $6350 deductible!

They can't afford that to be sure. Obamacare will kill their propensity to seek medical care. More money for less care? How does that help them?

Here is the craziest part. Employees who qualify for mediCAL (the California version of Medicare), which is most of my employees, will automatically be enrolled in the Federal SNAP program. They cannot opt out. They cannot decline. They will be automatically enrolled in the Federal food stamp program based upon their level of Obamacare qualification. Remember, these people work full time, living in a small town in California. They are not seeking assistance. It all seems like a joke. How can this be the new system?

Pelosi, pass the bill to find out what's in it? Surprise! You've annihilated the working class.

California Business Owner

In a followup email, I asked what would happen if he dropped coverage altogether. Here is his reply ...

Our calculus suggests that the penalties could be worse because it is per employee per year. There are different kinds of penalties too. One for not offering a qualifying plan and one for when an employee signs up for an exchange in the absence of a plan at work. However, more importantly than the money is the unions.

If I drop my health plan, we would be exposed to union maneuvering.

As Steve Miller said, "clowns to the left and jokers to the right"

Clown to the Left, Jokers to the Right

I offer the following musical tribute, by Stealers Wheel.



SongFacts comments on Stuck In The Middle With You by Stealers Wheel.

Also known simply as "Stuck In The Middle", this Stealers Wheel classic was co-written by the group's guitarist Gerry Rafferty and keyboard player Joe Egan.

In his obituary of Rafferty for the January 5, 2011 issue of the Daily Telegraph, Martin Chilton said of this song that it was
"Written as a parody of Bob Dylan’s paranoia, it ridiculed a music industry cocktail party, with the lyrics:

'Clowns to the left of me,
jokers to the right,
here I am, stuck in the middle with you.'

To Rafferty's utter disbelief his parody, composed as little more than a joke but with a catchy pop arrangement, struck gold, selling more than a million copies. The song reached a new generation of listeners when Quentin Tarantino used it in the notorious ear-slicing scene in his 1992 movie Reservoir Dogs.

Unions and Obamacare

As an interesting footnote, unions were the biggest Obamacare proponents, but now they too are upset with it.

Obama to the rescue ...

On November 7 the New York Post commented Rule lets unions avoid ObamaCare tax ... "Buried in the new rules is a proposal to exempt 'certain self-insured, self-administered plans' from the fee in 2015 and 2016. That description applies to many union plans, according to experts."

On November 17 the Wall Street Journal commented on such a ruling in great detail in its article ObamaCare's Union Favor.

The Affordable Care Act's greatest hits keep coming, and one that hasn't received enough attention is a looming favor for President Obama's friends in Big Labor. Millions of Americans are losing their plans and paying more for health care, and doctors are being forced out of insurance networks, but a lucky few may soon get relief.

Earlier this month the Administration suggested that it may grant a waiver for some insurance plans from a tax that is supposed to capitalize a reinsurance fund for ObamaCare. The $25 billion cost of the fund, which is designed to pay out to the insurers on the exchanges if their costs are higher than expected, is socialized over every U.S. citizen with a private health plan. For 2014, the fee per head is $63.

The unions hate this reinsurance transfer because it takes from their members in the form of higher premiums and gives to people on the exchanges. But then most consumers are hurt in the same way, and the unions have little ground for complaint given that ObamaCare would not have passed in 2010 without the fervent support of the AFL-CIO, the Teamsters and the rest.

The unions ought to consider this tax a civic obligation in solidarity with the (uninsured) working folk they claim to support. Instead, they've spent most of the last year demanding that the White House give them subsidies and carve-outs unavailable to anyone else.

There's no conceivable rationale—other than politics—for releasing union-only plans from a tax that is defined as universal in the Affordable Care Act statute. Like so many other ObamaCare waivers, this labor dispensation will probably turn out to be illegal.

Illegal? Yes, but who cares if it buys union votes. Certainly not president Obama.

And everyone else pays the price.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Spain Household Income Drops 10% to 2005 Level

Those touting the "recovery" in Spain need to step back and ponder this headline story translated from Libre Mercado: household income falls 10% and back to 2005 levels.

Interim results from the Living Conditions Survey released Wednesday by the National Statistics Institute (INE) show that the annual average net income per household in Spain stood at 23,123 euros in 2012, a decrease of 3.5% compared the previous year. Meanwhile, the average per capita income reached 9,098 euros, 2.4% lower than in the previous year.

The average income of Spanish households has fallen by 9.5% during the crisis, which translates to about 2,400 euros less per year between 2008 and 2012, as shown in the following table.

According to the survey, 16.9% of Spanish households had "great difficulty" making ends meet in 2013, the highest percentage recorded throughout the period of crisis. In 2012, households that expressed much difficulty to reach end of the month was 13.5%, ie 3.4 points lower than those found in this situation this year. In 2007, households that arrived at the end month with great difficulty were 10.7%, which rose in 2008 (12.8%) and 2009 (14.8%) and decreased in 2010 (14.2%) and 2011 (10.6%) to return to pick up the record level reached 16.9% this year.

The statistics also revealed that 40.9% of households are not able to handle unforeseen expenses, a proportion that has been declining compared to 2012, when households in this situation reached 41.4%. In addition, the INE notes that the number of households that could not go on holiday at least one week a year this year stood at 45.8%, also a record for the crisis, and far greater to the 37% recorded in 2007.

Spanish Recovery? With declining income? At record levels?
Really?!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Eurozone Flash PMI Shows Slight Growth, France Back in Contraction

The rosy eurozone growth estimates of a few months ago have bitten the dust already with the possible exception of Germany.

The Markit Flash Eurozone PMI signals slowing growth for second successive month in November, with France leading the way.

• Flash Eurozone PMI Composite Output Index at 51.5 (51.9 in October). Three-month low.
• Flash Eurozone Services PMI Activity Index at 50.9 (51.6 in October). Three-month low.
• Flash Eurozone Manufacturing PMI at 51.5 (51.3 in October). 29-month high.
• Flash Eurozone Manufacturing PMI Output Index at 52.8 (52.9 in October). Two-month low.

At 51.5, down from 51.9 in October, the flash estimate of the Markit Eurozone PMI ® Composite Output Index remained above the 50.0 no-change level for a fifth successive month in November, but signalled a modest easing in the rate of expansion for the second month running.

Output growth in manufacturing stabilised at a robust rate and remained stronger than service sector expansion, which eased to the weakest since August. Trends were also varied by country. The composite PMI covering both manufacturing and services in Germany rose to its highest since January, signalling increasingly robust growth and a seventh successive monthly expansion.

In contrast, the comparable index for France fell to its lowest since June, signalling a renewed decline after just two months of fractional growth. Elsewhere across the region, output rose for the fourth month in a row, but the rate of increase was the weakest seen over that period.

Private sector employment in the eurozone fell for  the twenty-third consecutive month, with the rate of job losses accelerating marginally for the second successive month. Manufacturers reported the smallest drop in payroll numbers since July, while employment in the services sector fell at the strongest rate since August . By country, staffing numbers rose for the third time in five months in Germany, but fell at the steepest rate for six months in France. Elsewhere, the rate of job shedding eased to the second-lowest seen for over two years.

Chris Williamson, Chief Economist at Markit Comments

Some encouragement must be gleaned from the PMI signalling expansion of the eurozone economy for a fifth successive month in November, but the average reading over the fourth quarter so far is signalling a very modest 0.2% expansion of GDP across the region, and it looks like momentum is being lost again.

Any improvements were largely confined to Germany, where the PMI has notched up the best growth since mid - 2011 so far in the fourth quarter, signalling a 0.5% increase in GDP. France, on the other hand, showed further signs of being the 'sick man of Europe' with output showing a renewed decline and raising the risk that GDP could fall again in the fourth quarter, constituting a renewed recession. Meanwhile growth outside the 'big two' slowed to near-stagnation.

Core vs. Periphery Output


Core vs. Periphery Employment



Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

China's 3rd Plenum Means Slower Growth; Australia's "One Trick Pony" is Biggest Loser; What About Canada?

Here's some interesting analysis from Steen Jakobsen, chief economist of Saxo Bank, regarding implications of China's 3rd plenum.

Before presenting the viewpoint of Jakobsen, some readers may be wondering "What is the 3rd Plenum?"

Business Insider explains ...

BI: What is the 3rd Plenum?

Bill Bishop: A Plenum is a meeting of the Communist Party’s Central Committee. This Central Committee has 205 full and 167 alternate members, chosen at the First Plenum of the 18th Party Congress in November 2012. Each Party Congress lasts for 5 years, and with the exception of the first year there is usually one Plenum held per year. The Politburo, comprised of 25 members, meets more regularly, and the Standing Committee, made up of 7 members, meets even more frequently. Xi Jinping is the General Secretary of the Party and also holds the top posts in the State (President) and Military (Chairman of the Central Military Commission)

Third Plenums are seen as important because the First Plenum introduces the new leadership, the Second Plenum tends to be personnel- and Party construction-focused, while the third one is usually seen as the first plenary session at which the new leadership has basically consolidated power and can introduce a broader economic and political blueprint.

BI: Why is it significant?

BB: Not all Third Plenums are that significant, and plenty of reforms have happened outside of a Third Plenum, But, the Third Plenum of the 11th Party Congress in December 1978, held just two years after the death of Chairman Mao, the end of the Cultural Revolution and the arrest of the gang of Four, launched “reform and opening” and put China on its current path.

Steen Jakobsen on 3rd Plenum Growth

3rd Plenum historically means SIGNIFICANTLY lower growth.



My take on politics remains the same: It's about consolidating the party's power not reform. They are increasing security and control at all levels. Do not forget the simple math of China. The local governments have 80% of all expenditure & expenses, but only 40% of tax receipts.

What now? Uniform sales tax? Yes.....but not reform in the western world meaning of the word.

The 3rd plenum will "cost" growth - and - China model needs to be recalibrated – both of which means lower growth probably 200-300 bps in total. From 7.5% official growth to 5.5% over next two-three year.

Australia's "One Trick Pony" is Biggest Loser

The biggest loser: Australia. The most direct link is commodity expansion and now slowing global demand.

RBA wants lower AUD according to their latest Minutes. I agree.

The equilibrium price for AUD is probably around .9000 but a .8500/.8200 is needed to kick start an economy which over the last decade not only became a "one trick pony" but also a country of expensive unit labor cost and strong unions.

It's time for Australia to undo its "Lucky One" illusion. Luck can only get you so far.

What About Canada?

I agree with Steen that Australia is likely to be the biggest loser. And if the overall thesis is correct, commodity exporters in general are in trouble.

This puts Canada squarely in the spotlight. Emerging markets, especially those dependent on Chinese growth, are also in for a tough time.

I have been talking about this for a long time actually. For example, please see my September 2012 post By 2015 Hard Commodity Prices Will Collapse; Australia's Mining Boom Dies (and the Official Denials Start)

Additional Thoughts on Chinese Growth

• April 16, 2012: 12 Predictions by Michael Pettis on China; Non-Food Commodity Prices Will Collapse Over Next Three to Four Years; Nails in the Hard Landing Coffin?
 
• March 30, 2012: The Dating Game: Michael Pettis Challenges The Economist to a Bet on China 
 
• March 23, 2012: Excellent Document on Decoupling and Global Supply Chains by ECRI; Why BRIC, and U.S. Decoupling Won't Happen
 
• February 29, 2012: World Bank Warns of Economic Crisis in China; Only 3% Growth for Decade Says Michael Pettis
 
• September 21, 2011: Misleading Indicators - China's Growth Won't Last; Chanos on Chinese Property Bubble and Growth
 
• August 22, 2011: Michael Pettis on Long-Term Outlook for China, Europe, and the World; 12 Global Predictions

If anything, Steen's call for China GDP to slow "significantly" to 5.5% is actually on the optimistic side. 3% average for the rest of the decade is more like it.

Meanwhile, watch the Australian dollar as the Reserve Bank of Australia (RBA) becomes the next player in the central bank competitive currency devaluation game.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com