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Argument in favour of Portuguese restructuring gaining support;
Portuguese media: €75bn bail-out is being prepared
Open Europe’s estimate that a Portuguese bail-out of between €60bn and €70bn could leave the UK liable for between €810m to €4.3bn in loan guarantees to the country continues to receive widespread coverage on broadcast and in print media. The front page of Correio da Manhã reports that Portugal only has enough money for two months and that a €75bn bail-out is being prepared by EU officials.

The New York Times notes that more economists are coming around to the view that rather than continuing to bail out struggling eurozone countries, a better approach would be to restructure existing debt instead of piling more of it on. Open Europe’s Raoul Ruparel is quoted arguing that, “The banks are obviously putting pressure on Europe to not restructure. But there is no real reason to impose such a cost on taxpayers when investors and banks have the ability to absorb these costs.” Similarly, leading economist Barry Eichengreen is quoted saying: “When you reduce the incomes of the people who service the debt but you don’t reduce the incomes of the bondholders, you won’t reduce the level of debt”.

On the Spectator’s Coffee House blog, Open Europe Director Mats Persson argues that, despite not having a veto over a potential bail-out, “the UK should look to make its participation in any bail-out conditional on restructuring. It’s about time that the UK develops a coherent eurozone strategy.”

The Sun, Mail and Express note Open Europe’s calculation that if the entire European Financial Stability Mechanism fund, over which the UK has no veto, were used to bail out peripheral economies such as Portugal, Britain’s liabilities would be roughly €5.1bn, via the EU budget. This is, however, unlikely to happen in the case of a Portuguese bail-out.

Mats appeared on Newsnight and Sky News last night noting that the growing concern among EU citizens about their potential liabilities in eurozone bail-outs is leading to the rise of eurosceptic parties such as the True Finns in Finland, traditionally a country regarded as “model Europeans”. Open Europe’s Pieter Cleppe told Russia Today, “It has not happened in the west since the Second World War, but the longer you postpone the necessary evil [of restructuring], the more costly it is going to be.”

Open Europe’s research also featured on Channel 4 News, in City AM Editor Alistair Heath’s column, by Spanish dailies El Pais and El Mundo, Portuguese business daily Diario de Noticias, Belgian dailies HLN and De Morgen, German news agency DPA,Dutch financial news site Z24, Slovak news sites TASR andActualne, Stephen Pollard in the Express, Dan Hannan’s Telegraph blog Conservative Home, and several newspapers and news sites across Europe.

Meanwhile, problems continue to mount in Portugal with Standard & Poor’s cutting the country’s credit rating by two notches yesterday. Portuguese President, Aníbal Cavaco Silva, will host an emergency meeting with leading Portuguese political figures in an attempt to find a solution to the political crisis. The uncertainty over whether an interim government would have the legitimacy or power to negotiate a bail-out package and impose the necessary austerity measures has caused borrowing costs to skyrocket and left the financial future of Portugal unclear.

The Portuguese crisis has also raised concerns over the spread of contagion to the Spanish economy, though there has been no increase in Spanish borrowing costs. However, markets seem to be focusing their fears on Portugal with little increase seen in the Spanish cost of borrowing. Reacting to the Portuguese crisis, Spanish opposition leader Mariano Rajoy, has asked President José Luis Rodríguez Zapatero to call early elections, reports El Pais.
Open Europe research Open Europe press release Newsnight Mail Sun Conservative Home Spectator Coffee House: Persson Channel 4 El Pais El Mundo DNNew York Times HLN Z24 De Morgen TASR Origo Express: Pollard John Redwood's Diary Telegraph FT FT 2 FT: Editorial WSJ WSJ Opinion European Voice FT 3 FT 4 FT 5 FT 6 FT 7 WSJ 2 Independent Le Monde BBC 2 Le Figaro Le Monde 2 Les Echos EUobserver Irish Times Irish Times 2 Irish Times 3 El Pais El Pais 2 El Pais 3 El Pais 4 El Pais 5 El Pais 6 Economist Express Express: Pollard IHT 2 Diário de Notícias Times Diário de Notícias 2 Correio da Manhã Jornal de Negócios Jornal de Negócios 2 Jornal de Negócios 3 Expresso RT Investor.bg BNT

Germany gets its way on funding of permanent euro bail-out fund;
French Finance Minister: “There must be no fiscal competition” in eurozone
Eurozone leaders have bowed to Germany’s last-minute demands on the funding of the European Stabilisation Mechanism (ESM), the eurozone’s €700bn permanent post-2013 bail-out fund. Under the deal reached last night, eurozone governments will have to pay in their share of capital over five years, rather than four. FT Deutschland quotes Carsten Schneider, German opposition Social Democratic Party’s budget expert, saying that contributing €22bn to the fund will also cost Germany €500m-€600m in interest.

Leaders agreed a package of measures to strengthen economic governance in the eurozone, including wage increases linked to productivity and greater coordination of tax policies. European Council President Herman Van Rompuy branded the deal the “Euro-plus pact”, with six non-eurozone countries – Denmark, Poland, Latvia, Lithuania, Bulgaria and Romania – pledging to join it.

A front page leader in FAZ by Editor Holger Steltzner titled “transfer union” argues that the eurozone “doesn’t work”. He writes, “Permanent crisis aid doesn't solve the core problem of the eurozone. There is only one currency with one central bank interest rate for seventeen countries, which have a different economic development. That doesn't work.” In an interview with CNBC, investor Warren Buffet warned that a collapse of the single currency is not “unthinkable”. “You can't have three or four or five countries that are in effect free-riding,” he argued. Writing in the Telegraph, Chief Political Commentator Peter Oborne argues that we’ve reached “the moment when the peripheral eurozone countries refuse to take orders any more from the centre”.

Meanwhile, the Nouvel Observateur reports that French Economy Minister Christine Lagarde has said that Ireland must raise its corporate tax rate after the eurozone “closed ranks” to rescue Dublin. “There must be no fiscal competition between [eurozone] member states,” she added. The Irish Times reports that Ireland’s Taoiseach Enda Kenny will wait for the results of the new round of bank stress tests before attempting to negotiate lower interest rates on Ireland’s bail-out loan.

In a letter to the FT, Scott Thiel, of BlackRock, argues that “the real long-term solution [to the eurozone crisis] involves the banking sector taking some real pain. Banks and other financial institutions need to realise their losses on peripheral obligations and then recapitalise themselves.” Writing on Eurointelligence, Wolfgang Munchau argues that due to the political constraints in Germany and the fact that debt crises rarely correct themselves, “the probability of a [eurozone] break-up is anything but tiny”.

A leader in the Guardian argues, “Never before has the EU's political elite been so far apart from its citizens, or so fragmented.” EUobserver notes that yesterday anti-austerity protests outside the European Council summit in Brussels turned violent after the police used water cannons and pepper spray against rock-wielding demonstrators.
FT WSJ EurActiv European Voice FT 2 BBC EUobserver 3EUobserver Irish Times Welt FAZ FT Deutschland CNBC Eurointelligence FT letter FAZ BBC: TodayIndependent: Leader Le Figaro: de Capèle Economist: Charlemagne’s blog Economist: Charlemagne’s blog 2 El Pais: Vidal-Folch Irish Independent: OliverGuardian: Leader Telegraph: Oborne Carswell blog Dan Hannan blog Eurointelligence: Munchau FT: Lex

The Irish Independent reports that Irish PM Enda Kenny is calling for the ECB’s programme of short-term loans to eurozone banks to be replaced by longer-term support loans. The Guardian notes that Ireland’s ten-year borrowing costs have broken the 10% barrier with economic data showing a 1% contraction in the country’s economy last year.
Irish Independent Irish Independent 2 Irish Independent 3 Irish Independent 4 Irish Times Irish Times 2 Beesley: Irish Times Guardian Nouvel Observateur

London faces £300m fine for air pollution
The Evening Standard reports that London is facing £300 million of EU fines because it is in danger of missing clean air targets set by Brussels, which limit the number of "bad air days" permitted. London Mayor Boris Johnson has claimed larger European pollution episodes can account for up to 75% of London’s air pollution.
Evening Standard

Nato agrees to enforce no-fly zone over Libya;
EU agrees to extend sanctions to Libyan oil and gas
Nato has agreed to enforce the no-fly zone over Libya, the role of the US still remains unclear, while the role of a new 'political committee' to include Arab countries is to be determined in the next few days, reports EUobserver. EU leaders have also agreed to adopt new oil and gas sanctions on Libyan Leader Col Gaddafi.

Meanwhile, at the EU summit yesterday, Nicolas Sarkozy said, “Every ruler, and in particular, any Arab ruler must understand that the reaction of the international community and Europe will from now on be the same each time”, reports Welt. EurActiv France quotes French Foreign Minister Alain Juppé saying, “In the eyes of many of our partners, the EU is a humanitarian NGO. This is not our view…[the EU must be] capable of using military means”.

Speaking to DLF about Germany’s abstention in the UN vote on a Libyan no-fly zone, German-born UK Labour MP Gisela Stuart said, “I think that if Germany says it wants a permanent UNSC seat and wants to be a significant partner on the global level, then the decision to abstain completely was isolationist and a bit clumsy”.
DLF New Statesman EurActiv.fr Stephen: Irish Times Times FT: Stephens WSJ Brussels Beat EurActiv European Voice Guardian Telegraph New Statesman 2New Statesman 3 Telegraph: Rifkind Tijd Times: Rifkind Independent EUobserver Focus Stern EUobserver 2 Focus Welt OE blog

The European Parliament's Budget Committee voted yesterday to increase the Parliament’s budget by 2.3% next year, despite the Commission’s call for budgetary restraint, arguing that given the EU’s overall inflation rate of 2.7%, the amount represents a cut in real terms.
EUobserver OE blog

The Commission has released a green paper and launched a major public consultation into online gambling, which could see the introduction of EU legislation in the area. The industry is expected to be worth €12bn across the EU by 2013.
Irish Independent Parliament Irish Times

The Times reports that the Commission is considering ordering restrictions on pets entering the UK to be lifted, after they expire at the end of this year. The UK imposed the restrictions to contain a disease, carried by dogs and transmitted to people, which killed hundreds of people across mainland Europe over the past decade.
Times

New on the Open Europe blog

Eurozone restructuring: Don’t fear the R-word
Open Europe Blog

A guide to the different figures flying round on the Portuguese bail-out: Splitting the difference between the tabloids and the BBC
Open Europe Blog