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Europe
ECB takes landmark decision and agrees to buy Spanish and Italian debt;
Cost of borrowing drops for Italy and Spain but questions remain over long-term market stability
Following an announcement by the ECB last night, suggesting that it was willing to purchase Spanish and Italian government debt, markets rebounded this morning. The cost of borrowing for Spain and Italy Europe posted early gains. It is not clear whether the ECB’s decision gained unanimous support within the bank’s Governing Council, with Bundesbank President Jens Weidmann, and others, voting against the purchase of Irish and Portuguese bonds last week. The WSJ quotes Open Europe’s study showing that even before the purchases of Italian and Spanish debt, if the value of the ECB's asset holdings falls just 4.25%, "its entire capital base would be wiped out”.
Der Spiegel quotes German government officials suggesting that the eurozone bailout fund, the EFSF, will not be increased in size despite calls from EU officials and markets. Open Europe was quoted twice in the Sunday Times arguing that in order for the EFSF to act as an effective backstop for struggling countries, it would require loan guarantees amounting to at least 25% of each Triple-A rated country's GDP, adding “The choice that was always apparent is drawing closer. Appease the markets but run over the voters and create a full fiscal union - or break up the eurozone." Open Europe ’s Raoul Ruparel appeared on BBC News discussing the crisis, and was quoted on the BBC’s and Telegraph’s live blogs.
FAZ notes that the ECB’s explanation for purchasing Italian and Spanish bonds – to ensure the effective transmission of monetary policy – does not stand up given its calls on Italy and Spain to speed up their deficit cuts, highlighting that the real reason behind the purchases is to help prop up Italy and Spain, putting the ECB close to direct involvement in fiscal policy.
Meanwhile, following the announcement on Friday that the Italian government will speed up its deficit cutting plan, Il Corriere della Sera reports on a ‘secret’ letter sent by ECB President Jean-Claude Trichet and his designated successor Mario Draghi to Italian Prime Minister Silvio Berlusconi last week, effectively outlining the measures – including speeding up labour market reforms - to be implemented in order for the ECB to intervene with the purchase of Italian bonds.
La Repubblica reports that opposition parties in Italy Italy
Writing in the Telegraph, Chancellor George Osborne argues that “eurozone countries need to accept the remorseless logic of monetary union that leads from a single currency to greater fiscal integration. Solutions such as euro bonds now require serious consideration”. Osborne further suggests that even competitiveness reforms and bank consolidation would be only a temporary solution to the crisis without fiscal union.
Spanish Economy Minister Elena Salgado has announced that the government will this month approve new deficit reduction measures, reports El Pais. The government estimates that these measures will increase revenue by €2.5bn, while also saving €2.4bn of public spending.
FT CityAM WSJ Reuters Bloomberg ORF Repubblica Corriere della Sera ECB Statement FT 2 WSJ 2 EurActiv European Voice BBC Independent EUobserver Le Figaro Irish Times Telegraph Irish Independent Irish Times 2 FT 3 Telegraph 2 Telegraph 3 Mail Irish Independent 2 Guardian Guardian 2 Times Times 2 Times 3 El Pais El Pais 2 El Pais 3 El Pais 4 IHT FT 4 FT Weekend FT Weekend 2 Saturday’s Independent Saturday’s Telegraph FT Weekend 3 Saturday’s Telegraph 2 Saturday’s Independent 2 Saturday’s Times Saturday’s Express Saturday’s Telegraph 3 Saturday’s Telegraph 4 Saturday’s Guardian Saturday’s Mail FT 5 WSJ 3 WSJ 4 WSJ 5 Saturday’s Independent 2 Saturday’s Telegraph 2 Irish Times 3 Irish Times 4 IoS IoS2 Sunday Telegraph Sunday Telegraph2 Mail on Sunday Observer Observer2 FAZ WSJ Sunday Times Sunday Times: Ivens WSJ Sunday Times Markenpost Il Sole 24 Ore Reuters AFP SZ SZ FTD
An article in Die Presse looking at the potential for the UK to renegotiate its relationship with the EU, quotes Open Europe's Mats Persson saying, "Europe needs the UK - it's one of the three major economies, has an important financial centre, and is one of the biggest contributors [to the EU budget]. It has significantly more influence in the EU than even the British government would like to admit."
A new Dutch poll by pollster Maurice De Hond shows that 55% of Dutch are opposed to increasing the size of the eurozone bailout fund, the EFSF, to help countries such as Italy and France, with only 27% in favour and 18% undecided. 64% think that the eurozone will either break up or lose some members, 32% think it will survive, 4% are undecided.
Mats Persson: “The Coalition better start planning for all eventualities”
Writing on Conservative Home, Open Europe Director Mats Persson discusses what the UK can do to influence the eurozone crisis and argues that the UK should push for “A write-down of Greek, but also possibly Irish and Portuguese debt, which would actually deal with these countries' debt burden rather than increase it, as well as spreading some of the burden from the weary shoulders of taxpayers”. He also warns that “Eurobonds would involve a very high political cost, but with very little economic benefit…Any move towards a full fiscal union in the eurozone would soothe markets in the short-term. But the trade-off is that Europe is setting itself up for a potentially massive political fall-out in the long-term, as voters and taxpayers in weaker and stronger countries alike grow increasingly impatient”. “The Coalition better start planning for all eventualities”, he concludes.
In an op-ed in Sunday’s Corriere della Sera, former Italian EU Commissioner Mario Monti argued, “The [Italian] government and the majority, after asserting their autonomous ability to solve the country’s problems…have substantially accepted, over the last few days, a ‘government of technocrats’…based between Brussels, Frankfurt, Berlin, London and New York.” In Il Sole 24 Ore, Fabrizio Galimberti argues that Italian households’ relatively high propensity to saving money, which is usually mentioned as a reason why Italy’s economic system is more solid than it seems, is not what the country needs to return to growth quickly, since bigger injections of private spending would be required instead.
In the Independent on Sunday, Gordon Brown argued for a recapitalisation of eurozone banks, enlarged bailout funds, a “European debt facility (perhaps for up to 60% of national GDPs)” and a growth agenda. He concluded that, “Without action on the lines I suggest, no one can assume that Europe 's historic strength is enough to prevent the most punishing of future outcomes.” In an interview with Spiegel, economist Kenneth Rogoff argues, “People asking for a fiscal stimulus are looking at the wrong model. They think this is just a big, but typical, recession. But it is not. Policymakers need to focus on relieving overextended private balance sheets in the short run, and stabilizing public debt in the long run.”
Independent on Sunday: Brown Conservative Home: Persson FT: Peel FT: Atkins FT: Roubini WSJ: Stelzer WSJ Real Time Brussels Spiegel: Rogoff BBC: Peston BBC: Mason Independent: O’Grady El Pais: Leonard Times: Emmott Telegraph: Osborne Corriere della Sera: Alesina Corriere della Sera: Monti La Stampa: Ricolfi La Stampa: Lepri Il Sole 24 Ore: Galimberti
Euractiv reports that national parliaments in several eurozone countries are expected to cut short summer holidays to endorse the changes to the EFSF agreed by eurozone leaders at last month’s meeting.
The Express reports that, according to a senior aide to David Cameron, there will be no referendum on EU membership because Britain
Saturday’s Mail reported that the Commission on a Bill of Rights is being criticised for failing to address the future of the UK
The Guardian reports that the European Commission will investigate European airlines’ controversial practice of displaying low ticket prices and then later adding on extra charges for baggage, airport check-ins and credit card fees, among other things.
The Express notes that the Government has estimated that the EU’s Temporary Agency Workers Directive will cost the UK
On Twitter, Belgian PM Yves Leterme suggested that “the use of the word ‘think tank’ ought to be regulated”, after Belgian think-tank Itinera criticised politicians for being on holiday in the midst of financial turmoil. Leterme later deleted his tweet.
Cypriot economist Kikis Kazamias was appointed as the head of Cyprus
EUobserver reports that the controversial arrest of former Ukrainian Prime Minister Yulia Tymoshenko has been condemned by EU officials and is expected to complicate the relations between Ukraine
World
Standard & Poor’s downgraded the US from AAA to AA+ and put it on a negative outlook on Friday evening, citing the recent political disputes over the debt ceiling increase and the fact that the deficit cuts do not sufficiently stabilise US
UK Foreign Secretary William Hague and his German counterpart Guido Westerwelle have a joint op-ed in FAZ outlining several areas of cooperation between Germany and the UK in foreign policy. They note that following withdrawal of their troops, "we won't let Afghanistan down (...) The EU will engange in a long term partnership with Afghanistan
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