Monday 25 July 2011

Open Europe

Europe

Osborne: We will be “alert for opportunities” to use eurozone integration to further British interests
In the Sunday Telegraph, George Osborne wrote, “It is not yet clear how far or how fast eurozone countries will want to go on fiscal integration, but as they decide, this Government will constantly be alert for opportunities to protect and advance our national interests.” However, the FT Weekend reported that David Cameron’s allies were on Friday trying to quell growing hopes in the Conservative party that the Prime Minister might use the eurozone crisis as a chance for an early transformation of Britain’s relationship with the EU.

Meanwhile, Saturday’s Telegraph argued, “The Government must exact a significant price for any agreement to a new treaty by insisting upon a loosening of the regulatory and financial straitjacket that full membership entails. The question of a referendum will also arise, inevitably pitching the Coalition partners against each other.” In the Independent on Sunday, Shadow Chancellor Ed Balls wrote that using a new EU treaty as the “chance to renegotiate the terms of British membership…is a disaster waiting to happen.”

Moody’s downgrades Greece on the back of bailout agreement
Moody’s credit rating agency downgraded Greece again this morning by three notches, putting it one notch above default, but stated that default was also a near certainty. Moody’s cited the likelihood of a distressed debt exchange as the reason for its downgrade, but added that the bailout package agreed last week could lead to future downgrades across the eurozone. “For creditors of such countries [Greece, Portugal and Ireland], the negatives will outweigh the positives and weigh on ratings in future,” Moody’s said.

Meanwhile, most estimates put the level of debt reduction for Greece under the deal at €26bn, around 7.5% of Greek debt, while Greece needs a debt reduction of between 40%-50% for its debt to become sustainable. The FT reports that some major banks, such as RBS, Germany’s DZ and LBBW banks as well as Austria’s Erste bank, are yet to sign up to the plan for private sector involvement increasing fears that not enough private investors will take part.

Bundesbank President Jens Weidmann spoke critically of the bailout deal saying, “The euro area [has] made a big step toward a collectivisation of risks in cases of unsolid public finances and economic mistakes…That's weakening the foundations of a monetary union founded on fiscal self-responsibility.” Widespread support for the package within Angela Merkel's coalition government still looks unsure. The deal may be ratified with the support of the opposition SPD party, but without unified coalition backing there would be widespread calls for a general election.

Chancellor George Osborne announced on Friday that the UK would decrease the interest rate charged on its bilateral loans to Ireland to match those agreed by eurozone leaders under the second Greek bailout package. Open Europe’s Raoul Ruparel appeared on US radio station NPR discussing the bailout deal, and is quoted in Der Standard saying, “The problem [of Greece’s massive debt burden] has only been delayed.”

Mats Persson: EU summit agreement “rests on some heroic assumptions”
Writing in the Sunday Telegraph, Open Europe Director Mats Persson argued, “Eurozone leaders took some decisive action this week to save their currency. But while the deal agreed at Thursday's EU summit looks decent on paper, it rests on some heroic assumptions…For starters, the deal is a huge political gamble on the willingness of taxpayers throughout the eurozone to continue to underwrite other countries' debts. This package also amounts to another step on the slippery slope towards debt union in Europe…So where does all of this leave Britain? Well, the UK remains exposed to future problems in the eurozone, not least via its banking system. Additionally, the new deal leads to cuts being made too far and too fast – necessary for the long-term – it could trigger a pretty nasty economic downturn in the eurozone in the short-term. Given the trading volumes between the UK and the eurozone, this could have a hugely negative impact.”

In the Telegraph, Edmund Conway argues that the deal struck by eurozone leaders last week “is dripping with moral hazard. Not only has a eurozone member been allowed to default, it has been promised a package of economic aid measures to set it back on the road to prosperity (and, one presumes, profligacy).” Italian economist Francesco Giavazzi writes in Il Corriere della Sera, “The message conveyed to debt-laden countries is: you need to make sacrifices, but don’t strive.”

Writing in the FT Weekend, Europe Editor Tony Barber argued, “Sooner rather than later, politicians must address the problem of legitimacy. The paradox is that the debt crisis is driving Europe’s leaders towards closer integration while simultaneously sapping the public’s faith in that same goal.”


Writing in the Telegraph, columnist Ambrose Evans-Pritchard argues, “They never wavered in their faith that EU states would yield sovereignty to save the euro if push came to shove, that monetary union would force the pace towards joint EU government. So it proves to be, for now. But let us not forget that Europe's ideologues have achieved this only by pushing the world to the brink of catastrophe and holding parliaments to ransom with their great gamble.”

The FT reports that almost two-thirds of those responding to the Investment Management Association’s annual survey said post-trade transparency for trades in UK equities had deteriorated in the wake of the introduction of the EU’s Mifid Directive in 2007.

The FT reports that, as one of the implementing measures of the new Basel III rules for the banking sector, the European Commission has proposed that banks disclose data to the European Banking Authority on the number of individuals earning more than €1m per year.

An article in Saturday’s Guardian noted that as Serbia gets closer to qualifying for EU membership, public opinion is becoming increasingly sceptical of EU accession.

Following a vote in the European Parliament in which most Conservative MEPs voted against raising the EU’s 2020 carbon emissions targets, Energy Secretary Chris Huhne has ordered a private inquiry into the vote, as new research by the Guardian and Greenpeace reveals that Tory MEPs held more than four times as many meetings with fossil fuel companies, carmakers and others, than with green businesses in 2010.

EUobserver reports that the Commission is today due to unveil proposals aimed at helping parents get child maintenance payments from a parent who has moved to another member state.

New on the Open Europe blog

Dust settles after eurozone summit: Europe and UK in for a nasty short-term ride

Sarkozy and Merkel face criticism at home on Greek debt deal: A long summer ahead

Dutch government and Commission disagree over real size of second Greek bailout: Bailing out and proud

Posted by Britannia Radio at 17:19