Europe
Initiator of German lawsuit against eurozone bail-outs warns ECB is becoming a “bad bank”;
“The euro will fail, it’s better to face that”
Speaking in Brussels at an Open Europe seminar yesterday, German Professor Markus Kerber, the initiator of a lawsuit at the German Constitutional Court against the Greek and Irish bail-outs, criticised the European Central Bank’s policy of buying government bonds. He said that “if the ECB keeps on buying worthless government bonds, it will become a bad bank” and called for the European Court of Justice to restrain it.
On his lawsuit, he commented that the bail-outs were a “cardinal violation of EMU rules”. He explained that “in the German Parliament, a majority has approved the bail-out, but a constitutional majority was needed. That is our most manifest argument: that the fundamental veto right of the German Parliament has been ignored by the German government. Unless the German Constitutional Court ignores its own rulings it will agree.”
He referred to the Maastricht ruling by the German judges, arguing that it stated that “the German government is allowed to abandon its own currency, but only under the condition that the new currency will be as stable as the D-Mark. If that is not the case, the German government has the duty to leave the monetary union, it is explicitly stated.” He said that the EU treaties’ ban on bail-outs “extends to both the European Commission and the member states and sets the cornerstone principle that everyone is liable for its own risks. This is the ratio legis of the ‘no bail-out clause’ and it should be interpreted in this way. I'm sure that the Court will follow this reasoning.”
Kerber predicted that “the euro will fail, it’s better to face that”. He proposed that some countries leave, noting that “Portugal probably needs a devaluation”. He said that investors with stakes in struggling eurozone countries have to “understand that sometimes there is risk with a profit, and sometimes there is risk without a profit.”
Commenting on the EU’s Franco-German ‘political motor’, he said that, “Most German politicians have no inside knowledge of French policy. France sees the EU as the extension of France. It always wants an exception.” He said that France was “the great obstacle” to reforming the EU and the single currency. “With France, the reform of EU is impossible,” he said. The event was covered by Belgian business magazine Trends, Dutch broadcaster NOS, RTE, RTV, and Euractiv.
Open Europe events Euractiv NOS Trends
EU leaders discuss increasing the European Financial Stability Facility;
Público: “The IMF can wait”
Discussions are underway in Brussels today on whether the €440bn European Financial Stability Facility should be increased and given new powers. The Telegraph reports that France and Germany are rejecting calls to increase the EFSF. However, the front page of Handelsblatt claims that German Chancellor Angela Merkel is preparing to do a u-turn, as the German government is coming under pressure to give up its resistance to increasing the size and scope of the EFSF. Merkel is quoted saying that Germany will do “what is necessary.”
The move comes after yesterday’s relatively successful bond auction in Portugal. Portuguese Prime Minister Jose Socrates is quoted by EUobserver saying, "We don't need that help [from the IMF] […] We only need confidence, the confidence that markets have shown today”. The front page of Portuguese daily Público carries the headline, “The IMF can wait”. However, Jornal de Notícias quotes Nobel Prize winning economist Paul Krugman saying that the rate of interest on yesterday’s bonds are “ruinous” and warned that if there are more of these “the European periphery will be destroyed”. Diário de Notícias reports that debt repayments will cost Portugal €3,900 per person in 2011.
According to Dow Jones, China bought €1.1bn of Portuguese government debt last week in a private sale. Figures released yesterday by Portugal’s Central Bank reveal that Portuguese banks have increased their reliance on the European Central Bank for funding, reports the FT. Bloomberg reports that, according to estimates from Nomura, the ECB spent between €1bn and €1.5bn in eurozone government bonds – mostly Portuguese – in the two days preceding yesterday’s auction of Portugal’s debt.
The Commission yesterday unveiled its first annual list of growth targets as part of the ‘European Semester’. In an interview with the Times, French PM François Fillon said: “The question is: is the UK ready to accept or encourage greater integration of the eurozone or is the UK distrustful of that and will it create obstacles and make it more difficult to happen?” Meanwhile, Irish Finance Minister Brian Lenihan said yesterday that it may be possible to negotiate a lower interest rate on the country's €85bn bail-out, reports the Irish Independent.
FT FT 2 FT 3 FT 4 FT 5 FT 6 FT 7 El Pais El Pais 2 El Pais 3 El Pais 4 Jornal de Noticias Publico Jornal de Noticias 2 Diario de Noticias Diario de Noticias BBC EUobserver 3 IHT Guardian WSJ Independent Irish Times European Voice City AM Diario Economico EUobserver EUobserver 2 Euractiv Irish Independent Irish Times AFP AFP 2 Telegraph Irish Times Le Figaro France 24 La Tribune La Repubblica Mail Express WSJ Publico WSJ Reuters Times Times: Fillon Handelsblatt Welt Handelsblatt Bloomberg
European Parliament visitors’ centre yet to open and two times over budget
European Voice reports that the planned European Parliament visitors’ centre is behind schedule and over budget. The centre is to showcase the Parliament to the general public and was supposed to be completed before the June 2009 European elections. A second deadline, to open it during the last quarter of 2010, was also pushed back, and the Parliament is now hoping to open the centre in October. The European Parliament has set aside €31.6m for the project since 2007, of which €23m has been spent so far. The EP had initially set aside €15.3m for the project.
European Voice
Reuters reports that Dutch regulator Steven Maijoor has been chosen to head the EU’s powerful new securities watchdog ESMA. Portuguese regulator Gabriel Bernardino will chair the EU’s new insurance supervisory authority EIOPA, while Italian Andrea Enria has been appointed as head of the London-based banking authority, the EBA.
Il Sole 24 Ore Reuters Reuters 2 Open Europe research
Eurozone comment round-up
A leader in the Times responds to French Prime Minister François Fillon’s calls for the UK to back deeper European integration in order to save the euro. The article argues: “It would not be in Britain’s interest to participate in such an enterprise. By staying out of the euro, Britain has retained control of interest rates and the flexibility to weather the financial crisis. It would be equally wrong for Britain to condone such a massive attack on the independence of nation states.”
In the FT, Harvard Professor Kenneth Rogoff argues: “Which currency will succeed in hugely underperforming in 2011? Recognising the near impossibility of predicting exchange rates, my ‘money’ is still on the euro […] There is a small chance of large catastrophe. But the eurozone, by contrast, has a high chance of a medium-size meltdown. The single currency may win the race to the bottom after all.”
A leader in FAZ asks why German Chancellor Angela Merkel does not realise that the standpoint expressed by Commission President José Manuel Barroso – that the single currency has to be protected at any cost – has created a situation in which eurozone creditworthy members such as Germany have become a “hostage of financial institutions which want to shift their risk burden onto taxpayers.”
In the WSJ, Terence Roth argues: “Few are fooled into believing that Portugal's trials are over. The ECB's saturation purchasing won't durably hold down high yields if investors worry about default.” An editorial in El País argues that expanding the capacity of the €440bn European Financial Stability Facility and allowing it to buy weaker eurozone countries’ bonds “are steps in the right direction, but still distant from the objective that should be achieved: the European economic government.” In the Irish Times, Arthur Beesley notes: “Giving the EFSF the capacity to buy sovereign bonds would mirror powers already deployed by the European Central Bank […] How that would go down with German opponents of bail-outs can only be guessed.”
On her blog, BBC Economics Editor Stephanie Flanders argues: “If the markets are right, a Lisbon bail-out is a matter of time. But after Portugal, it becomes more difficult to draw a line in the sand.”
Times BBC: Hewitt BBC: Flanders Coulisses de Bruxelles European Voice: King Independent: Leader WSJ: Roth Irish Times: Beesley Irish Independent: Oliver FT: Rogoff El Pais: editorial Jornal de Noticias: Nobre Handelsblatt: Sinn FAZ: Leader
The European Commission has suspended financial aid of €86m to Estonia’s largest road construction project because of a police investigation into public tenders for all main highway plans.
Bloomberg
A comment piece in Elsevier looks at the revelations by Maarten Engwirda, a former Dutch member of the European Court of Auditors, and suggests that "now the knife should go into the ECA", adding that "situations like this endanger trust of European citizens in the EU institutions. No propaganda can cope with that."
Elsevier Telegraaf
EUobserver reports that Hungary’s decision to install a ‘history carpet’ featuring a map of ‘Greater Hungary’ in the Council’s Justus Lipsius building in Brussels is likely to spark new controversy.
EUobserver
European Voice reports that, following the dioxine scare in Germany, the European Commission is considering strengthening EU food hygiene rules.
European Voice
World
Die Welt reports that Turkish Prime Minister Recep Tayyip Erdogan has called on Turkey and other Arab states to put aside their historical differences and work together to build up a union that could help to shape global events in the future.
Welt
Posts
