Thursday, 30 June 2011

Open Europe

Europe

Commission proposes 5% increase in next long-term EU budget and an extra €58bn in EU expenditure outside budget;
Pushes ahead with plans for EU tax

The European Commission unveiled yesterday its proposal for the next long-term EU budget, running from 2014 to 2020. Despite the UK, France and Germany demanding that EU spending rise by no more than inflation, the Commission’s draft envisages a 5% increase from the current budget period. The proposal also earmarks an extra €58bn for a number of projects and funds which are off the main balance sheet of the EU budget, which takes the total spending up to 1.11% of EU GNI. Speaking on NOS Radio, Dutch Europe Minister Ben Knapen has said: "The proposal as it stands now is very disappointing for us" adding that the real increase is higher, given that "some spending is actually outside the budget."

According to Treasury estimates, the Commission’s blueprint would add £10bn to the UK’s contribution to the EU budget over the seven-year period, and €100bn for all EU member states. A UK government official yesterday dismissed the proposal as “completely unrealistic.” German Foreign Minister Guido Westerwelle has said in a communiqué: “The Commission clearly exceeds the total volume of the budget which would be acceptable to the [German] government.”

As part of its blueprint for the next long-term EU budget, the European Commission has proposed cutting 5% of jobs in the EU institutions. However, administrative spending as a share of the budget has increased from 5.7% to 6.1%.

The Commission has also proposed introducing a tax on financial transactions and an EU-wide VAT which would be levied at a fixed percentage by EU member states and transferred directly to the EU budget. Open Europe’s Director Mats Persson is quoted in the Telegraph arguing: “Apart from lacking democratic legitimacy, the cost from [a tax on financial transactions] will not primarily hit bankers," as the burden would be passed on to consumers. According to the Guardian, EU Foreign Minister Baroness Catherine Ashton, who is also the UK’s Commissioner, told the other EU Commissioners that an EU-wide tax on financial transactions would not work unless it is also levied globally. The Commission also wants to simplify rebates through a new system of annual lump-sum compensations for the UK, Germany, Sweden and the Netherlands.

Greek government wins vote on austerity package but still faces many more challenges

The Greek government won yesterday’s parliamentary vote on the new austerity package, by 155 votes (151 required) to 138, with only one governing party MP voting against the measures despite widespread fears of dissent. However, the government still has to win today’s vote, on enabling the package, in order to secure the next tranche of original bailout funds from the EU/IMF. Protests continued in Athens throughout the day and became increasingly violent following the announcement of the result. To Vima calculated that the additional burden for an average family of four from the new austerity measures would be at €2,795 a year, about the same as one month’s income.

Meanwhile, discussions continue on the ‘French plan’ for private sector involvement in a second Greek bailout. German Chancellor Angela Merkel clashed with Josef Ackermann, Deutsche Bank CEO, at a conference in Berlin yesterday. Ackermann admitted German banks would probably take part in the plan but not as willingly as Merkel would like, according to the FT. Dutch Finance Minister Jan Kees de Jager suggested yesterday that a decision on a second Greek bailout could be delayed until after the summer.

Bloomberg cites Open Europe’s findings that each eurozone household currently underwrites €535 of Greek debt, but under a second bailout this could increase to over €1400. The findings are also cited by Czech financial daily Financni Noviny and Czech news site iDNES.cz. Open Europe’s Raoul Ruparel appeared on BBC News discussing the outcome of the Greek austerity vote and the future of the Greek crisis. The Telegraph quoted Raoul on the austerity vote, saying: "Although this may pave the way for a second bailout, a Greek default still looks inevitable in the longer term. Delaying tactics will only increase the cost of an inevitable restructuring, particularly for European taxpayers, who soon will own the majority of Greece's debt." Writing in Finnish paper Helsingin Sanomat Vesa Puttonen, Finance Professor at Aalto University, cited Open Europe’s findings that the ECB is holding €190bn in Greek assets.

Derek Scott: Germany does not reap huge benefits from the EMU

Writing in the FT, Open Europe’s Vice Chairman and former economic adviser to Tony Blair Derek Scott argues that it was only ever “partially true” that Germany reaped huge benefits from the Emu and “it is no longer true at all”. Scott continues: “German manufacturing has certainly benefited from Emu and earlier from the exchange rate mechanism, both of which were used to maintain the competitiveness of its manufactures. However, this was at the expense of German consumers and taxpayers…it reflected an implicit collusion between German manufacturers, bankers and politicians”.

Writing on his BBC blog, Robert Peston argues, “The moment that Greece reduces its primary deficit to zero - the moment that the government can fund itself from revenues levied on its own people - is the moment when Greece is most likely to decide to default on what it owes overseas investors and banks”.

Writing for Finnish financial magazine Suomen Kuvalehti, author Juuso Salokoski argues that the bailout “ is not about saving Greece, or avoiding failure of banks […], but about the Euro and Europe’s federal dream and Germany’s and France’s short-term political and economic benefits”.

Writing in the Spectator, Political Editor James Forsyth notes that two of David Cameron’s key advisors, Oliver Letwin and Steve Hilton, have been known to end meetings by saying “Well, the only solution is to leave the EU.” The article notes that at least two Cabinet ministers share their view.
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The FT reports that Andrea Enria, Chairman of the European Banking Authority, has said that national regulators in the EU should have “constrained discretion” to impose stricter capital requirements on the financial institutions they oversee once new EU laws implementing the Basel III capital standards are adopted. The article notes that some EU member states, including the UK, are calling for more flexibility to gold-plate the Basel III rules.

Iceland seeks speedy progress in EU bid

Iceland will seek to open all 35 chapters of accession talks with the EU within the next 12 months, reports European Voice. However, there could be significant delays given existing disputes with Spain over fishing rights as well as disputes with the UK and the Netherlands over the losses from the insolvency of Icesave bank in 2008.  

New on the Open Europe blog

Live blog EU super Wednesday: revisit our commentary from yesterday on the Greek austerity vote and the announcement of the EU budget


Posted by Britannia Radio at 14:37