Friday, 8 April 2011

Open Europe

Europe

Finnish Finance Minister warns of “tough” Portuguese bail-out conditions as trade unions plan strikes against austerity


Portugal submitted a formal request for a bail-out to the European Commission this morning. The details are yet to be confirmed however Economic and Monetary Affairs Commissioner Olli Rehn today suggested a bail-out of €80bn would be appropriate, in order to cover debt and deficit payments as well as to shore up the banking sector and provide financial support to state-backed enterprises. The German government has ruled out a bridge loan, Wolfgang Schäuble, German Finance Minister, said Lisbon’s request would trigger the “agreed procedure” of negotiations including the usual conditions.EUobserver quotes a European Commission spokesman arguing that if the caretaker government had the democratic legitimacy to request a bail-out, it also has the power to negotiate one. Reuters quotes Commission sources stating that it is “very likely” that the first bail-out payments will be made before the 5 June election. Open Europe Director Mats Persson appeared on BBC Newsnight and CNN Connect the World discussing the Portuguese bail-out, arguing that Portugal should restructure some of its debt.

Público reports that Finnish Finance Minister Jyrki Katainen has warned that the bail-out conditions will be “even more tough” than the last round of austerity measures, which were rejected by the Portuguese parliament. There is a risk that a Portuguese bail-out could be blocked by a new Finnish government following the elections.

The bail-out news has received a mixed response within Portugal, President Anibal Cavaco welcomed the move, announcing his support for caretaker PM José Sócrates and calling for “an attitude of responsible cooperation from the opposition parties”. Opposition leader Pedro Passos Coehlo said he supports the move, claiming it’s a way “to guarantee the national security and to preserve the reputation of Portugal abroad”. The National Federation of Trade Unions for the public sector will hold a strike on 6 May to get “the IMF out of Portugal”, reports Diário Económico.

Meanwhile, Chancellor George Osborne has flown to Budapest to join the discussions on the structure of the Portuguese bail-out. Open Europe’s findings that the UK could be liable for between €945m and €4.3bn in a €70bn Portuguese bail-out continues to receive coverage. Open Europe’s Raoul Ruparel was quoted in the FT saying: “We strongly believe that the UK government should make its participation in this bail-out conditional on some form of restructuring of Portuguese debt. Otherwise there will be little impact on the country’s long-term problems.” Raoul also appeared on BBC news and ITVnews and was quoted by the LA Times, Chicago Tribune and ABC News saying that Spain is in better shape than Portugal, but “is not out of the woods yet”. Open Europe’s research is cited by the New Statesman and Portuguese papers i Informação and Destak.

Despite intense speculation over whether the crisis would spread to Spain, the Spanish government was able to sell €4bn in bonds yesterday, and at a lower interest rate than last month. Most reports suggest that if Spain continues with its deficit cutting measures and labour market reforms, the risk of contagion will be minimised.
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ECB interest rate rise could be sign of more to come;
Fears over increased mortgage payments in eurozone periphery


The ECB yesterday became the first major central bank to increase interest rates, raising eurozone rates by 0.25% to 1.25%. The increase, largely a reaction to rising inflation in Germany, has been seen as a blow to the eurozone’s periphery economies. It remains unclear whether this is the first in a series of rate rises over the next year. ECB President Jean Claude-Trichet is quoted saying that the ECB’s 23-strong governing council had not yet decided “that it was the first in a series of interest rate increases”.

Writing in the FT, Deutsche Bank’s Chief Economist Thomas Mayer argues that, “a raise in rates could not have waited any longer, and more must now follow.” On her BBC blog, Stephanie Flanders writes, “The basic laws of economics are threatening to pull the eurozone apart, just as politicians are trying to pull it together. As usual, the ECB is stuck in the middle of the mess.” The FTD’s frontpage carries the headline "ECB becomes Bundesbank. No concerns for eurozone member states in crisis."

The WSJ notes that, in Spain, where more than 90% of mortgages are tied to short-term interest rates, a total 0.75 percentage point increase in ECB rates this year – as many analysts expect – would add almost €1,000 to the average Spaniard’s mortgage payment. The Irish Times and Irish Independent both carry stories looking at the increased costs of Irish mortgages.


Commission to propose EU carbon tax next week


The European Union next week will propose taxing transport and heating fuels according to their greenhouse-gas emissions as well as their energy content. The tax rate would be set at the EU level. The Commission will propose a minimum rate of €20 ($29) a metric ton of CO2 emitted by products like gasoline, diesel, natural gas and coal starting in 2013, a draft document obtained by Dow Jones Newswires shows. An article in FAZ carrying the headline “EU Commission plans to make diesel more expensive”, notes that the tax is a way for the EU to promote biofuels.


Eurozone comment;


Economist: We’ve had the bail-outs now it’s time for a debt restructuring
An editorial in i Informação notes that Portugal’s elections will be a referendum on bail-out arguing, “The future is far from happy. The results in Ireland and Greece are disastrous…While Europe maintains its suicidal trajectory, we cannot hope for anything more. Only in the day when Spain falls…will Europe be able to wake up”.

Handelsblatt reports that leading German economist Hans-Werner Sinn has called for an end to the bail-outs, because "to throw good money after bad is not a very good idea" as it gives perverse incentives to the recipients. Sinn also warns that politicians "are putting our pensions at risk". FAZ Editor Werner Mussler argues, "Spain is in a better position than Portugal… [But] It is clear that the risk of contagion hasn't reduced with the Portugal emergency call. And the EFSF is not enough to satisfy a possible Spanish request."

On Swedish Radio, Swedish Finance Minister Anders Borg said, “We have reason to be very critical of the Portuguese government. This is a decision that should have been made in November, December. It’s been obvious for a long time that this country can’t stand on its own two feet”.

The Economist argues that now that all three struggling eurozone periphery countries have been rescued, European politicians have to start organising debt restructuring; this is a prerequisite for drawing a line under the European debt crisis. In the Telegraph, Peter Oborne writes, “last week, in a commentary of first rate importance, the think tank Open Europe asked a deadly question: is the ECB becoming a bad bank? The answer unfortunately is yes”.


5,870 companies in Andalusia accused of misusing €23 million of EU aid


El Pais reports that 5,870 companies in the Spanish region of Andalusia are accused of allegedly misusing €23 million of EU aid granted for jobs creation. In order to qualify for EU grants worth between €1,500 and €3,000, these companies were expected to offer a jobseeker a permanent contract and keep them on the payroll for at least four years. However, according to Spain’s Guardia Civil investigators, in at least 3,790 cases the new employees were fired as soon as the grant was paid out.  


Italian Interior Minister: If France doesn’t want migrants, it should leave Schengen


Tensions between Italy and France are increasing following the Italian government’s decision to give temporary residence permits to over 20,000 Tunisian migrants, currently in Italy. Il Corriere della Sera quotes Italian Interior Minister Roberto Maroni saying: “Tunisians who will be given the temporary residence permit have the right to move [within the EU’s border-free Schengen area]. There is only one way to avoid this: that France leaves Schengen or suspends the agreement.”


EU banking supervisor insists on tough definition of core capital for stress tests, troubling German banks


FT Deutschland reports that Andrea Enria, Head of the new European Banking Authority, has rebuffed German demands to include “silent capital” in the EBA’s definition of core capital which will be used in the eurozone’s banking stress tests. Silent capital is the category of capital through which Germany’s federal states hold stakes in the regional banks.
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EU Commission plans to make diesel more expensive


FAZ reports that the Commission’s upcoming Energy Tax Directive will seek to make diesel more expensive relative to gasoline by taxing not only the quantity of fuel used but also its energy content - diesel fuel contains more energy than gasoline. The article notes this is a way for the EU to promote biofules which have less energy content than conventional fuels.


An editorial in El País looks at MEPs’ refusal to use economy class for trips under four hours and argues: “Such attitudes further undermine the reputation of EU institutions and politicians, the same people who then tear their hair out because of the high levels of abstention at European elections.” Meanwhile, an article in El Mundo notes that four “typical” MEPs – from Spain, France, Italy and the UK – could save up to €2,789 altogether every time they travel to Brussels if they flew economy rather than business class.


Open Europe’s Stephen Booth is quoted in the Express saying that MEPs’ demands for an EU tax are “completely unrealistic,” adding that, “The focus should be on reducing the size of the EU budget, not finding more ways to fund it.”


Writing in the New Statesman, Labour peer Baroness Helena Kennedy argues: “The European Arrest Warrant as currently drawn is a blunt instrument. It is based on a blind faith in the criminal justice system of other European countries, but fundamental rights do not receive the same level of protection in all countries. My concern is that, in seeking to integrate law enforcement, we surrender safeguards that are essential to liberty and human rights.”
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UK Home Secretary Theresa May is pushing for an expansion of an EU-wide proposal to create a network of travel databases to record the movements and personal details of air travellers, which she hopes will be backed by European justice and home affairs ministers when they meet on Monday, according to the Guardian.


Het Nieuwsblad reports that the EU funded "Asset Road" program has developed a new traffic enforcement camera, which, in addition to speeding, can monitor tail gating, using a phone while driving and seatbelt use.


Former European Commission President Jacques Delors has told EurActiv that German Chancellor Angela Merkel and French President Nicolas Sarkozyonly maintain a "superficial" alliance.



Senior judge Lord Neuberger has said Britain has the right to ignore Human Rights rulings from Europe, such as prisoner’s votes case, reports the Express.


New on the Open Europe blog

Dog Eat Dog World

 

Some straight talking from Borg


The Portuguese bail-out: Another one bites the dust


Posted by Britannia Radio at 13:47