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New Open Europe briefing: €444bn exposure to weak eurozone economies risks bankrupting the European Central Bank
The FT features Open Europe’s new report, published yesterday, highlighting that the ECB has €444bn in exposures to Spain, Italy, Portugal and Ireland, as well as Greece. The article quotes the briefing, which argues, “Hefty losses for the ECB are no longer a remote risk,” with Greece likely to default within the next few years – even if it gets a fresh bail-out package from the EU and IMF. According to Open Europe’s estimates, the ECB’s exposure to the Greek state and Greek banks stands at €190bn. Should Greece restructure half of its debt – which is needed to bring down the country’s debt to sustainable levels – the ECB is set to face losses of between €44.5bn and €65.8bn. The report concludes that by propping up insolvent banks and governments, the ECB risks widening the scope of the crisis in the long-term.
According to the ECB’s rules, any losses it suffers will be shared out between itself and the 17 national central banks of the eurozone, which share their balance sheets with the ECB. But how this would work in practice is unclear. Open Europe Director Mats Persson is quoted in the IHT saying, “Huge risks have been transferred from struggling governments and banks onto the ECB’s books, with taxpayers as the ultimate guarantor.” The research is also cited by the Telegraph, FAZ, FT Adviser, City AM, Belgian daily De Morgen and several financial newsites.
The Irish Times quotes Hans-Werner Sinn of the Ifo Institute for Economic Research in Munich, arguing that the ECB should unwind its operations in peripheral eurozone economies. “The longer the cheap money drug is indulged in, the more painful the withdrawal. Wait too long and no cure will be possible,” he said. In an interview with Wirtschaftswoche, Sinn also said: “If the pace of credit transfers to countries in crisis, which is measured by the target-balance and was recently €100bn per year, is kept at the same level, the ECB will be finished within two years."
At a debate in Amsterdam yesterday, outgoing Dutch Central Bank Governor Nout Wellink warned of the consequences of a Greek restructuring for the ECB, noting that “Restructuring causes big problems for the ECB. It won't be able then to pursue its regular liquidity operations."
Open Europe press release Open Europe research FT FAZ IHT Telegraph Kathimerini Express.be Corporate FXGFS News FX StreetFT Adviser Irish Times Wirtschaftswoche
Handelsblatt: Second Greek bail-out could be delayed until next autumn;
Greek PM considers referendum on new austerity plan
Handelsblatt quotes a high-ranking European diplomatic source saying that EU finance ministers may not agree on a second bail-out package for Greece when they meet on 20 June, due to growing resistance from some EU governments. The article notes that Slovakia – which refused to take part in the first Greek bail-out – is opposed to using the eurozone’s temporary rescue fund, the €440bn European Financial Stability Facility (EFSF) to provide further financial support to Greece. The UK is resisting the use of the €60bn European Financial Stabilisation Mechanism (EFSM), for which it is liable.
The FT reports that political divisions are growing in Greece as the government and EU officials put together the new bail-out and austerity programme. About 30 socialist MPs from the governing party have threatened to resign rather than vote through measures to cut thousands of public sector jobs, increase taxes again and dispose of €50bn of state assets, according to party insiders. Les Echos reports that Greek Prime Minister George Papandreou said yesterday that he may call a referendum in order to “achieve the largest possible consensus” on the new austerity package.
Bloomberg reports that ECB President Jean-Claude Trichet has signalled for the first time that the ECB could back the voluntary extension of Greek debt held by private creditors. “That is not a default,” he said yesterday. However, Reuters reports that officials from credit rating agencies have made clear that they may classify a “rollover” of Greek debt as a default.
Meanwhile, the Telegraph quotes John Lipsky, the acting head of the IMF, saying that the UK’s economic recovery is dependent on the eurozone bail-outs working, “The UK economy trade with the eurozone is vital – especially with Ireland,” he said. “We all have an interest in the [bail-out plans] working.”
An article in El País notes that credit rating agency Moody’s has warned that the excessive deficit of Catalonia could make it more difficult for the Spanish government to bring its deficit below the planned 6% of GDP by the end of the year.
FT Zero Hedge Bloomberg WSJ Irish Independent Irish Independent 2 EUobserver Telegraph Irish Times Irish Times 2 Irish Times 3 Handelsblatt El País Les Echos Les Echos 2 Yle Expresso Jornal de Negocios Reuters
German CSU demands transfer of powers back to member states in response to Trichet’s comments
FAZ reports on a memorandum drafted by Alexander Dobrindt, Secretary-General of the CSU, the Bavarian sister party of German Chancellor Angela Merkel's CDU, which argues in favour of transferring powers back to Germany from the EU. The memorandum responds to ECB President Jean-Claude Trichet's proposals last week to set up a single EU finance ministry, which according to Dobrindt would "reduce democracy and threaten sovereignty". He argues that "we should stop the automaticity by which Brussels constantly gains more power." He further criticises the role of the ECB in the eurozone crisis saying, "it should be questioned whether the purchasing of government bonds is in line with the legal statute of the ECB".
Meanwhile, EU Internal Market Commissioner Michel Barnier has said that it is necessary to “go further in creating a unique post of European Finance Minister.”
Bloomberg Market Watch AFP
Der Spiegel reports that 4,500 dead Greek government employees continued to receive their retirement payments up until now, causing an estimated waste of €16m per year.
Bild Spiegel
Juncker: “I have received death threats from Greece”
Le Monde reports that yesterday Eurogroup Chairman Jean-Claude Juncker told MEPs that he receives “a lot of letters from the Greeks, including some death threats.” Meanwhile, Bild reports that, during a visit to Greece in May, a delegation of German MPs were threatened by Greek socialist MP Maria Skrafnaki, who told them: “If you don't support our country…then your countrymen will know the same fate as those during World War II in Crete.”
Bild Le Monde
An article in the FT examining entrepreneurship across the world cites Open Europe’s calculations on regulation noting that “between 1998 and 2008 the cumulative cost of regulation introduced to the countries of the EU was €1,400bn”.
Open Europe research FT
Yle reports that Finland’s National Coalition leader Jyrki Katainen will need the True Finns’ support to achieve a majority in the Finnish parliament, after the Green Party refused to take part in a government with the National Coalition and the Centre Party.
Yle Helsingin Sanomat Helsingin Sanomat2
Reuters reports that, despite opposition from several member states, EU Economic and Monetary Affairs Commissioner Olli Rehn has said that the European Commission “is willing to study the option of eurobonds.”
Reuters 1 Reuters 2
In an interview with Les Echos, Portuguese Prime Minister elect Pedro Passos Coelho has said that he is prepared to “go beyond” the conditions attached to the EU/IMF €78bn bail-out, as he intends to create an “independent budgetary authority” with “very broad powers” to supervise the implementation of the government’s austerity plan.
Les Echos: Passos Coelho FTFT: Editorial El País Guardian: Cramme and Diamond
The FT reports that Jochen Sanio, head of Germany’s bank watchdog BaFin, has criticised the European Banking Authority for acting “without legal authority…or legitimacy” in setting the rules that define bank capital for this year’s round of EU-wide stress tests.
Open Europe research FT FT: Jenkins
Writing in the FT, Harvard Professor Kenneth Rogoff argues: “As currently construed, the euro is looking very much like a system that amplifies shocks rather than absorbs them…Having a smaller number of currencies is a phenomenon that makes a lot of sense economically, economising on transactions’ costs and leveraging economies of scale. The real question is whether common currency is sustainable politically.”
FT: Rogoff Le Monde: Pisani-Ferry Coulisses de Bruxelles FT: Alphaville
Croatia will take a big step towards becoming the EU’s 28th member state when it wins approval this week from the European Commission for accession, with a target date of July 1 2013, reports the FT.
EUobserver FT
US Treasury Secretary Timothy Geithner yesterday called for better coordination between the US and the EU on financial regulation in a bid to create “common rules”, reports El Pais
El Pais
An editorial in the FT argues that the EU “is right” to include airlines in its emissions trading scheme. Die Welt notes that the International Air Transport Association (IATA) has criticised the EU for distorting competition.
FT: Editorial Welt
The Mail reports that, after holding talks with her French counterpart Claude Guéant yesterday, Home Secretary Theresa May said that “Britain will not be accepting large numbers of North African migrants. Instead we will be working with other European countries to get these people safely back to their home countries.”
Mail Independent
Spain will demand “100%” compensation for damages suffered by its farmers over unfounded accusations that they were the source of the E. coli outbreak in Germany, reports the FT. Rosa Aguilar, Spain’s environment and rural affairs minister, said the demand would be put to a meeting of EU farm ministers in Luxembourg today.
FT SVD Express Irish Times Euractiv European Voice AFP BBC EUobserver
The WSJ notes that a proposal that would force companies to display “Made in” labels on goods sold in the EU has “split the bloc's southern manufacturing base from big, mostly northern, multinational companies that sell items imported from abroad.”
WSJ
The Commission yesterday unveiled proposals aimed at monitoring corruption in the EU which will see the publication of an ‘EU Anti-Corruption Report’ every two years starting from 2013 and the establishment of a network of anti-corruption correspondents.
EUobserver Sveriges Radio Euractiv Commission press release Commission press release 2
New on the Open Europe blog
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