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Spanish pension reforms increase strains within coalition

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Tensions have escalated within Spain’s government over pension reforms that Brussels expects to form a vital part of reform commitments Madrid must meet in return for billions of euros of coronavirus aid.

Podemos, the radical left junior partner in Pedro Sánchez’s Socialist-led government, insists it will not support changes to the calculations for payments that it says will reduce future pensions for millions of contributors.

But, in an interview with the Financial Times, José Luis Escrivá, Spain’s social security minister, said his pension plans had been mis-characterised. He argued that the broader reforms were crucial not just for winning the backing of Brussels, which is due to disburse some €140bn in recovery fund grants and loans to Madrid over the next six years, but also to address longstanding problems within the Spanish economy.

“These are reforms that had to be done in any case, even if there were no EU funds,” he said of Spain’s overall proposals to the European Commission. “The commission’s recommendations are a reasonable reflection of problems in Spain with bottlenecks to growth and fiscal sustainability.”

Frictions within the coalition over the issue are a sign of potential problems for the EU as it seeks to ensure that central and southern European countries — the main recipients of coronavirus recovery funds — embrace reforms as a quid pro quo for recovery fund cash. 

The EU €750bn recovery fund is intended to prevent economic imbalances within the eurozone from getting still worse. It has been hailed as a game changer for countries such as Spain and Italy, which have been particularly hard hit by the pandemic while also having to wrestle with high public debt or deficits.

Proposed grants for EU member states to counter Covid-19 recession, top ten (€bn)

But northern EU member states have emphasised the need for accompanying reforms to deliver lasting improvements to the growth prospects of the recipients. 

“This is not only about investments in the economy — it is about reforms necessary to make sure all of us in Europe can handle the next crisis much better,” said one EU diplomat.

If countries fail to deliver on reform plans agreed with the commission, it could trigger delays to the disbursements of cash scheduled for coming years.

Mr Escrivá highlighted Spanish proposals that range from tax, spending and administrative reforms to plans to increase the ease of doing business, as well as a bid to reduce the country’s reliance on temporary work contracts.

But the most contentious issue is the state pension. Spain’s social security system has been in deficit for a decade and pension payments, which at present account for 12 per cent of gross domestic product, are set to increase as the Spanish population ages. While last year people over 65 accounted for just under one in five of the population, by 2050 the proportion will be almost one in three.

Pablo Iglesias, the Podemos leader and Spain’s deputy prime minister, recently said his group would not support what he depicted as a proposal by Mr Escrivá and Mr Sánchez to increase the period of time used to calculate the value of state pensions from 25 to 35 years. Since people usually start their working lives at lower salaries than they end up with, such a change could reduce retirement pensions.

“Podemos is not going to vote in favour of a pension cut in Spain,” Mr Iglesias told Spanish television, adding that he owed his position to his grouping’s 2019 coalition agreement with the Socialists, which committed the two parties to increasing the purchasing power of the lowest pensions. “Anyone planning such an action is going against . . . a contract we have made with the citizens.”


66


Spain’s statutory retirement age. The proposals remove disincentives for people to work up to and beyond 66

Mr Escrivá countered that the main thrust of his pension proposals consisted of other measures — notably removing disincentives for people to work up to and beyond the statutory retirement age of 66. He added that the social security system’s deficit had largely been eliminated by shifting unfunded transfers of €14bn a year to the general government budget. But he acknowledged that the retirement of baby boomers was set to produce a new deficit from around 2025 to 2048.

The minister dismissed the debate over the pension calculation period as “a completely minor issue”. He said his ministry had as yet made no firm proposal on extending the period but was following up on a recent cross-party agreement to strengthen contributions to the social security system: “This has led us to start looking at longer periods for calculating pensions, beyond 25 years . . . not for 35 years but for a few more years.”

He also argued that in some instances — such as when people’s earnings have dipped — pension payments could increase as a result of such a step.

Nevertheless, the tension between the two coalition partners on the issue highlights growing strains between the Socialists and Podemos that could complicate Spain’s reform programme more generally. 

Last month, Mr Sánchez’s government finally won parliamentary approval for its budget, an accomplishment that bolstered the coalition’s hold on power but allowed antagonisms between the two parties to resurface.

The new Spanish budget also allows the government to borrow €27bn against future grants from the EU recovery fund months before the bloc begins paying out — a move that could reduce the effectiveness of any bid by Brussels to link grants to structural reforms. 

Valdis Dombrovskis, one of the EU’s executive vice-presidents, said this week that recovery fund disbursements would be subject to the achievement of “specific and measurable milestones” and that there remained “a lot of work ahead”. Some member states needed to be more precise in setting out exactly what events would trigger payments, he added.

Member states are due to submit final versions of their so-called recovery and resilience plans by April, setting out both their request for EU funds and proposed investments and economic reforms. 

Mr Dombrovskis said that 11 member states have now presented first drafts of such plans, which are guided by country-specific recommendations previously made by the commission.



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Did US hiring accelerate in February?

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Did US hiring accelerate in February?

US hiring picked up markedly in February from the previous month, economists have forecast ahead of the monthly employment report that is due to be released on Friday.

After the country lost 227,000 jobs in December, hiring rebounded in January — albeit with a modest gain of 49,000 jobs — as the rise in coronavirus infections abated and vaccinations accelerated.

Economists polled by Bloomberg anticipate that the US will add 145,000 jobs in February, pushing the unemployment rate 1 percentage point to 5.3 per cent. If that forecast holds, it would mark the strongest pace of hiring since November.

The prospect of a resurgence was bolstered by data released last Thursday showing that filings for first-time jobless benefits fell to a three-month low in the week ending February 20.

The labour market stumbled in the final stretch of 2020 under the weight of the pandemic’s upswing in the autumn, which prompted tighter restrictions on businesses and social activity across the US.

The leisure and hospitality sector alone shed 597,000 jobs in December and January, according to labour department figures, whereas the January payroll gains were concentrated in government employment and professional and business services.

However, the outlook is brighter for the coming months, particularly with the expected passing of the Biden administration’s $1.9tn stimulus plan, which last week won the support of a large group of senior Wall Street executives, and further vaccination progress.

“US households appeared quite febrile at the end of 2020 as the cocktail of a worsening health situation, weakening employment and expiring fiscal aid weighed on private sector confidence and restrained mobility,” analysts at Oxford Economics said. “Fortunately, we see hope on all three fronts.” Matthew Rocco

Will eurozone inflation continue to rise?

Eurozone inflation hit its highest level since the start of the coronavirus pandemic in January, after five months of falling prices. On Tuesday the bloc’s statistics body will publish a preliminary estimate of February’s level, which is expected to continue the upward trend.

Many economists are predicting a steady rise over the spring on the back of higher energy costs, continuing supply chain disruptions that have raised costs for retailers and manufacturers, and the reversal of a VAT tax cut in Germany.

“For eurozone inflation, the only way is up,” said Carsten Brzeski, economist at ING, who forecast that headline consumer price inflation in the bloc would reach 1.3 per cent in February, from an 11-month high of 0.9 per cent in January.

Claus Vistesen, chief economist at Pantheon Macroeconomics, said a further increase in the price of oil — international benchmark Brent crude is up more than 30 per cent this year — could be the biggest driver of inflation in coming months.

A change in the inflation basket of goods and services is also at play. The 2021 basket reflects that people are consuming more food, where prices are rising, and less recreation activity, where prices are generally falling.

The European Central Bank has forecast that price growth will rise to 1.5 per cent in the fourth quarter this year before dipping to 1.2 per cent a year later — still under its target of below but close to 2 per cent.

“The ECB will not contemplate raising its policy rates until eurozone inflation expectations and wage inflation have increased substantially and persistently,” said Andrew Kenningham, economist at Capital Economics. “That is probably several years away.” Valentina Romei

Line chart of By date of forecast, % showing Economists revise up their eurozone inflation forecast for 2021

Can the copper bull run continue?

If, as the commodity market adage goes, the cure for high prices is high prices, where does that leave copper?

The world’s most important industrial metal, used in everything from electric vehicles to power cables, has risen more than 100 per cent from its pandemic lows in March last year.

Last week it hit a 10-year high above $9,500 a tonne before falling back as speculators piled in and a Chinese brokerage amassed a $1bn long position on the Shanghai Futures Exchange. 

A growing number of banks and brokers believe the bull run will continue and copper will go on to surpass its all-time high of $10,190 reached in February 2011. 

Citi and Goldman Sachs are both predicting big supply deficits for 2021 that would further drain already-low stockpiles of the metal, citing strong demand from China but also the rest of the world as the economic strain from the coronavirus pandemic eases. 

Unlike previous cycles, a dearth of “shovel-ready” copper projects means a flood of supply is not going to hit the market and send prices tumbling. If anything, even higher prices might be needed to spur production of low-grade ores in far-flung parts of the world where it is difficult to build a mine.

“It takes 15 years from discovery to navigating approvals to ultimately getting a development up and running in our industry,” Anglo American chief executive Mark Cutifani said. “So you can’t just wiggle your nose. It does need high prices, but it also needs time.” Neil Hume



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Europe’s AstraZeneca stockpile mounts as citizens snub jab

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After battling with AstraZeneca over shipment delays, and even casting doubt over its Covid-19 jab’s efficacy, EU countries are seeing stocks of the company’s shots pile up — unused.

As of Friday, France had administered 16 per cent of the 1.1m doses of the two-injection vaccine it received since the first delivery in early February, according to health ministry data. As of Thursday, Germany had given a little over one-fifth of the 1.45 million doses, about the same proportion as Italy, which has received over 1m doses. Spain has used just under a third of a total of 808,000 doses as of Friday.

The situation has prompted several European leaders to talk up the Oxford/AstraZeneca vaccine in recent days, with one French health ministry official even calling for a “collective rehabilitation campaign” to improve its reputation.

France has used little of its Oxford/AstraZeneca vaccine supply. Chart showing Total doses of Oxford/AstraZeneca vaccine in France vs doses administered.5.5% of the Oxford/AstraZenecadoses have been used as of Feb 24

German chancellor Angela Merkel acknowledged that there was “an acceptance problem with the AstraZeneca vaccine at the moment” that was slowing the jab’s rollout. In an interview with Frankfurter Allgemeine newspaper on Thursday, she urged people to keep an open mind about it: “All the authorities tell us that we can trust this vaccine.”

The tone is a change from only weeks ago when European politicians were engaged in an acrimonious battle with AstraZeneca over its deliveries and when French president Emmanuel Macron suggested the vaccine was “quasi-ineffective” on older individuals. Now that they have doses, however, EU governments face a sceptical public, in addition to logistical challenges and restrictions of their own devising.

Health experts have warned that the continent’s already sluggish rollout could be further hampered if uptake of the Anglo-Swedish company’s vaccine is not improved. The EU had inoculated only 6.82 per 100 people by Friday, compared with 28.6 in the UK, 20.4 in the US, and 91 in Israel, according to Our World in Data.

Chief among the reasons for the lower acceptance of the Oxford/AstraZeneca vaccine was a policy choice made by many countries to restrict its use for older people until more data on its efficacy became available. In France, that meant the shot is being offered only to people aged between 50 and 64 with comorbidities and healthcare workers, while Spain has advised it not be used on those older than 55 years old. Germany and Italy are offering the jab to everyone younger than 65. 

Health experts say negative headlines have damaged the vaccine’s reputation, bolstering the perception that it is a lesser option to BioNTech/Pfizer and Moderna jabs, which both rely on so-called mRNA technology and boast higher protection rates. A study suggesting the AstraZeneca vaccine was less effective against the variant that has emerged in South Africa caused healthcare workers’ unions in several European countries to demand that their members get the mRNA-based vaccines instead. 

The Oxford/AstraZeneca jab showed efficacy of between 62 and 70 per cent in clinical trials last year. That compares with more than 90 per cent effectiveness for the BioNTech/Pfizer and Moderna jabs. But all of them offer nearly full protection against hospitalisation and deaths.

“I don’t have anything against the AstraZeneca vaccine,” said Jérôme Marty, who heads a French doctors’ union. “But healthcare workers are often exposed to high viral loads in the hospital so they need the most effective vaccines that we have.” 

In France, which has for years had the world’s highest vaccine hesitancy, there were reports of hospital workers missing shifts and suffering strong side effects such as fever and muscle pain after being inoculated with the Oxford/AstraZeneca vaccine. It is often younger people who experience such side effects with the AstraZeneca shot since their immune systems mount a stronger response than older people, health experts say.

Weeks after the French president’s dismissive comments on the jab, France’s top vaccine adviser Dr Alain Fischer has been extolling its virtues on television, social media and webinars for hospital staff. 

France’s top vaccine adviser Alain Fischer: “For reasons that I find profoundly unfair, this vaccine has gotten relatively bad press in France” © Stephane de Sakutin/POOL/EPA-EFE/Shutterstock

“For reasons that I find profoundly unfair, this vaccine has gotten relatively bad press in France,” the paediatric immunologist told the press on Thursday. “It is effective. It is safe. It should be used without a second thought and without delay.” 

Fischer also referred to the results of a new study from Scotland, which has not yet been peer-reviewed, showing the Oxford/AstraZeneca shot lowered the chance of hospitalisation from four to six weeks after vaccination by 94 per cent after one shot. “If confirmed, these results would be excellent news”, he said, and could lead France to expand the usage to those aged over 65. Logistical problems in France have also meant doctors only started inoculating patients this week.

Spain is reviewing new data continuously to decide whether to change age restrictions on the jab. Health ministry official Silvia Calzón said on Thursday: “We are waiting for there to be more evidence so that we can make a decision with all the guarantees.”

Even Macron has become a convert. “In view of the latest scientific studies, the efficacy of the AstraZeneca vaccine has been proven,” he said after a virtual gathering of EU leaders. “If that’s the vaccine that’s offered to me, I will take it, of course.”

This story has been amended to use health ministry data on the French vaccination campaign rather than data compiled by the website Covidtracker.fr.



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French Greens given a grilling over meat-free school lunches

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Grégory Doucet, mayor of Lyon, said he had no inkling that the school lunches served up in the French city this week would put him at the centre of a political storm. 

But the decision by the environmentalist mayor that children should be offered just a single lunch option — one without meat — prompted immediate denunciations from French government ministers, and protests by farmers who responded by releasing herds of cows outside city hall. 

The ruling — which Doucet said he took for a limited period to avoid long queues for multiple menus that would bunch pupils close together during the Covid-19 pandemic — has set carnivores against vegetarians, town against country, and right against left. 

“It touches a lot of topics deeply rooted in French political culture,” said Vincent Martigny, politics professor at the University of Nice. “Everybody knows we should be eating less meat, but we’re still a very traditional food culture in France, quite conservative. If you don’t eat meat and drink wine, you’re not very French.” 

Doucet and his Europe Ecologie-Les Verts (EELV) , which took Lyon from the centre-right in local elections last year, say the row has more to do with June’s regional elections and the presidential and legislative polls due in 2021. 

“They’re targeting the ecologists because we’re the biggest threat,” Doucet told the Financial Times. 

Farmers released herds of cows outside Lyon city hall to protest against the removal of meat from school lunches
Farmers released herds of cows outside Lyon city hall to protest against the removal of meat from school lunches © Olivier Chassignole/AFP via Getty Images

Even so, a mini-campaign by some ministers in President Emmanuel Macron’s government to curry favour with conservative voters and paint the Greens as crazed ideologues quickly spun out of control and exposed divisions in the cabinet.

Gérald Darmanin, the hardline interior minister, denounced the Lyon Greens for what he called a “moralistic, elitist policy” to deprive working-class students of meat. Julien Denormandie, who holds the agriculture portfolio, leapt to the defence of farmers, calling the decision “shameful” and saying: “Let’s stop putting ideology on our children’s plates!”

Environment minister Barbara Pompili, however, said she was sorry to hear a “prehistoric debate” full of clichés about the supposed nutritional inadequacies of vegetarian food. Macron eventually had to tell them to stop disagreeing in public as he called for an end to the “idiotic” argument. 

The school meals controversy is the latest manifestation of a long-running debate in France and abroad over the environmental sustainability of meat consumption by an increasingly wealthy and numerous world population, given the land taken up by cattle and their greenhouse gas emissions. 

Doucet, a “flexitarian” who said he tried to limit his intake of meat and fish, has campaigned to reduce consumption of animal protein and provide more vegetarian meals in schools, but he said his immediate priority was to ensure the meat served comes from local farmers.

He also pointed out that Gérard Collomb, his centre-right predecessor as mayor, had made exactly the same decision for a single, no-meat menu acceptable to the largest number of school pupils during an early phase of the pandemic — and there had been no political backlash. 

“When we took the decision, we didn’t think for one minute it would lead to a political polemic,” Doucet said. 

Somewhat later than neighbouring countries such as the UK, France is in any case gradually coming to accept vegetarianism. The Michelin Guide this year for the first time awarded one of its prized stars of approval to a French vegan restaurant called ONA — for Origine Non Animale

“People used to be treated as the village idiot if they were vegetarian,” said Jean-Pierre Poulain, a sociologist specialising in food at the University of Toulouse. “That’s no longer the case.” 

The change was slow in coming, said Poulain, but as in other urbanised societies, French city dwellers anthropomorphised pets, idealised wild animals and no longer automatically accepted the legitimacy of killing animals to eat them.

As mayor of Lyon, Doucet has also found himself at the heart of another contemporary debate — this time a particularly French one — about the role of schools and other state institutions in shaping the values and ideals of the nation’s youngest citizens.

Macron and his ministers, who are currently promoting legislation designed to curb Islamist “separatist” ideology and lifestyles, are demanding strict adherence to French secular values. As such they are reluctant to see the state’s prerogatives usurped by local governments with their own priorities.

Conservatives have already fulminated about the Green mayor of Bordeaux rejecting a public Christmas fir because he did not want to celebrate around a “dead tree”. Other Green civic leaders have refused to host the Tour de France cycle race in their towns because of the carbon footprint of all the accompanying motor vehicles.

On the right, the loss of meat as a choice for school meals is sometimes portrayed as another step towards the forced dismantling of the French way of life, but politicians wary of pointless conflicts are more phlegmatic about the affair.

“I don’t think the children of Lyon are going to die of anaemia in the days ahead, but I also don’t think this will do much to reduce greenhouse gases,” Roland Lescure, an MP with Macron’s governing La République en Marche! party, was quoted as saying in Le Parisien.

“Everyone is playing politics,” he added, “including the mayor of Lyon.” 



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