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Eurozone crisis sends global stock markets into free fall;

Barroso calls for rapid increase of eurozone bailout fund

European and global stock markets plunged yesterday, while the cost of borrowing for Italy and Spain continued to rise, despite interventions by the ECB and crisis meetings between European leaders. The ECB resumed its bond buying programme for the first time since March, by purchasing Irish and Portuguese bonds, however, markets and officials around Europe were at a loss to explain why they didn’t purchase any Spanish or Italian bonds. The ECB also announced the reintroduction of medium term emergency liquidity for banks, but neither measure did much to calm the markets. Market jitters were worsened by reports that Jens Weidmann, President of the German Bundesbank, opposed the renewal of the bond buying programme, along with other members of the ECB Governing Council. Additionally, the ECB acknowledged the slowdown in the European economy and the increasing risk of contagion, suggesting that it will not increase rates in the near future.

Italian and Spanish yields fluctuated wildly yesterday but have continued to increase to record highs again this morning. The spread of Belgian and French borrowing costs over German bunds also reached record highs. French President Nicolas Sarkozy will hold an emergency teleconference with German Chancellor Angela Merkel today and Spanish Prime Minister José Luis Rodríguez Zapatero later this afternoon. Open Europe’s Mats Persson was quoted in the LA Times saying, "In terms of a way out for the eurozone, it looks very, very tricky, because none of these countries – particularly Italy – have any strategy for growth and competitiveness".

European Commission President José Manuel Barroso sent a private letter to eurozone leaders which urged for “a rapid re-assessment of all elements related to EFSF [the eurozone’s temporary bailout fund]” and suggested leaders should quickly assess “how to further improve the effectiveness of both the EFSF and the ESM [the eurozone’s post-2013 permanent bailout fund] in order to address the current contagion.” This has been widely reported to imply that the overall size of the EFSF should be increased, to allow it to cover Italy and Spain. In a slightly ironic attach, Barroso blamed “undisciplined communication” from eurozone leaders for making the crisis worse. The letter was heavily criticised by German Vice-Chancellor Philipp Rösler and the German Finance Ministry, with both saying the debate came at a bad time and that adequate measures had only recently been agreed.

Meanwhile, the WSJ reports that the FSA has asked British banks to reveal their exposure to Belgium, highlighting fears that the crisis could spread beyond the eurozone periphery, although the FSA stressed it was just precautionary and was a suggestion not a requirement. Separately, RBS has reported a loss of £733m on its holdings of Greek government debt, after marking the bonds to market value.
Open Europe blog Open Europe blog 2 FT BBC EUobserver Independent Guardian Guardian 2 Guardian 3 Mail FTD Times Times 2 Irish Times Irish Times 2 Irish Independent FT 2 CityAM FT 3 WSJ CityAM 2 EUobserver 2 Independent 2 Le Monde FT 4 WSJ 2 La StampaRepubblica El Pais El Pais 2 El Pais 3 WSJ 3 EurActiv FTD 2 FT 5 EUobserver 3 Irish Times 3 Irish Independent 2 Telegraph Focus WeltWelt 2 SZ FT 6 WSJ 4 La Tribune WSJ 5 CityAM 3 BBC 2 BBC: Today LA Times

Le Figaro reports that EU Economic and Monetary Affairs Commissioner Olli Rehn has today said that the Commission will present a study on Eurobonds after the summer.
Le Figaro

Il Corriere della Sera reports that Italian prosecutors yesterday seized documents from the Milan offices of credit rating agencies Moody’s and S&P, as part of an investigation into the impact of evaluations on Italy made by the two agencies over the last weeks on the current financial markets turmoil.
Corriere della Sera Telegraph

Robert Mundell: Europe should get prepared to bail out Italy

In an interview with La Stampa, Nobel prize winner economist Robert Mundell has said, “Italy is not yet in the same situation as Greece, but almost. As Europe can’t afford to be caught unprepared if faced with the necessity to intervene, it would be good if the necessary plans and resources were prearranged now.”

In Il Sole 24 Ore, columnist Carlo Bastasin looks at the ECB’s decision to resume its bond-buying programme and warns, “The ECB can buy time, at most. It can’t remedy Italy’s deficit of political initiative, which appeared evident also during the parliamentary debate on Wednesday. On that occasion, the Prime Minister [Silvio Berlusconi] blamed the markets for misjudging Italy. The answer from yesterday is clear: the markets can misjudge for longer than Italy…can remain solvent.” In El País, economic analyst Juan Ignacio Crespo argues that the measures announced by the ECB yesterday “are too little, too late.”

Writing in the FT, Investment Editor James Mackintosh argues, “By administering medicine – more liquidity and the resumption of Irish and Portuguese bond purchases – [the ECB] warned the patient of the dangers, while failing to provide enough anaesthetic…But it is time for the ECB president to realise Europe’s leaders are incapable of timely action. The ECB must use its strongest medicine.”

Meanwhile, in a separate article in the paper, Gillian Tett draws parallels between the eurozone crisis and the 2008 financial turmoil in the US, concluding, “Nobody can deny that there is a rising sense of déjà vu, to use a phrase from France, the core of the eurozone. The Gods of Finance might chuckle. Then weep.”

In Handelsblatt, columnist Thomas Hanke criticises European Commission President José Manuel Barroso for his recent declarations on the eurozone debt crisis, arguing, “Barroso could have chosen a better time to boost his ego…We have to ask ourselves if this is still about the eurozone or about Barroso’s fears of being ousted as [European Council President Herman] Van Rompuy’s competences will probably be extended.”
Handelsblatt: Hanke Le Monde: Editorial La Stampa: Emmott Corriere della Sera: Manca La Stampa: Mundell Il Sole 24 Ore: Bastasin Il Sole 24 Ore: Forquet Repubblica: Mauro Economist FT: Tett FT: Editorial Telegraph:Warner Telegraph:Evans-Pritchard CityAM: HeathEconomist Economist 2 Economist 3 Le Figaro: Fischer El Pais: Crespo Times: editorial Times: King WSJ Heard on the Street WSJ: Mattich BBC: Peston BBC: Flanders FT: Mackintosh

In an interview with Le Monde, Iceland’s Economy Minister Arni Pall Arnason has said that, with EU membership, “We would, above all, benefit from a stronger currency. The euro would give us an infinitely greater stability.”
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European Voice reports that the European Commission has launched an investigation into the planned merger between Deutsche Börse and NYSE Euronext, two stock exchange groups, due to concerns that it would reduce competition in a number of areas, especially in the field of derivatives trading and clearing.
European Voice

The Express reports that they have now received 75,000 signatures backing their online petition for a referendum on Britain’s EU membership.
Express

The Express reports on a study by Civitas claiming that EU green energy subsidies could see 30,000 jobs lost in the UK.
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World

Lagarde to undergo criminal investigation
A French court yesterday ordered an investigation into IMF Chief Christine Lagarde to uncover whether she was "complicit in the misuse of public funds" for approving a €400m legal settlement to controversial businessman Bernard Tapie in 2008, when she was France's Economy Minister. The charge could carry a fine of up to €150,000 and a 10-year prison sentence. Lagarde told the IMF board she will waive diplomatic immunity, awarded by her position, reports the WSJ.
Independent Le Figaro WSJ El País El País 2

EUobserver notes that at a meeting of the EU’s Political and Security Committee yesterday, some EU countries raised the idea of future sanctions on Syrian oil and gas, but the proposal failed to gather broader support for the moment.
EUobserver

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