The defenestration of Prague

Last week, the ECJ passed an interesting judgment in the case C-343/08 EU Commission vs Czech Republic. The Czech Republic argued that there wasn't any point in transposing a number of provisions of the directive as IORPs were not provided for in the Czech retirement system which only knows the first and the third pillar. The Court however did not share that existentialist line of argument and took the constructivist view that a second pillar may be introduced at any time, in which eventuality the rules required by the directive already need to be in place.

While the Czech position appeals to a layman's common sense rather better than the somewhat fundamentalist approach taken by the Court, one important aspect has escaped IPE's attention: The judgment includes a thinly veiled hint (paragraphs 63, 64) that the Court may find the Czech prohibition on IORP establishment in the country in breach with the Treaties' rules on free circulation. That in itself is a valuable signal.

It has barely begun

On Thursday, I attended a Goldman Sachs investment conference in Lucerne. Jim O'Neill, the firm's chief strategist, gave the keynote presentation containing an outlook for the world economy, which was surprisingly optimistic (this year's global growth rate is expected at 4.4% vs 3.9% consensus). To my question where deleveraging was in that picture, he answered that it wasn't because there is no reliable information about leverage available, and that we shouldn't trust anyone who claims to have it.

It appears to be more than a little cavalier to ignore a presumably major phenomenon simply because it is hard to measure. It is therefore very timely that MGI has just published a major report on debt and deleveraging. MGI looks at the buildup of debt at a per country and per sector level and distills four archetypal deleveraging scenarios from past episodes: Austerity, Inflation, Default and Growth. Unsurprisingly, they find that deleveraging has only just begun in a quite moderate way, as private sector debt reduction is compensated by increasing public sector debt.