Thursday, 18 August 2011

Open Europe

Europe


Shares fall on Merkel and Sarkozy’s proposal for financial transaction tax;
Berlin confirms it wants tax at level of EU-27


Stock markets fell across Europe yesterday after German Chancellor Angela Merkel and French President Nicolas Sarkozy on Tuesday announced their backing for a financial transaction tax. Reuters quotes Chancellor Merkel’s spokesman Steffen Seibert saying, “When you look at the measures the Chancellor and Sarkozy presented yesterday, many of them affect all 27 and that is the intention with the financial transactions tax.” A formal proposal is expected in September.

The Treasury has pointed out that the proposal would be subject to UK veto, with a spokesman adding, “Any financial transaction tax would have to apply globally – otherwise the transactions covered would simply relocate to countries not applying the tax,” according to the Times.


Eurozone governments give hesitant response to Franco-German proposals;
Westerwelle: There should be more “differentiated cooperation” in the eurozone


The fallout from Tuesday’s meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy continued yesterday, with markets and other eurozone leaders expressing their reservations over the Franco-German proposals. To cement their ideas, Merkel and Sarkozy sent a letter to European Council President Herman Van Rompuy, stressing the need for all 17 eurozone members to institute a constitutional debt limit by next summer and suggesting that in the future “payments from structural and cohesion funds would have to be suspended” if a country refused to take the recommended action to reduce a budget deficit. El Pais reports that Spain would lose the most under such a proposal as it’s the second biggest recipient of structural funds and is currently in break of the proposed deficit rules.

In response, Austrian Finance Minister Maria Fekter suggested an agreement on ceding control over economic and tax policy to the eurozone level “is very, very far away”, while Irish Finance Minister Michael Noonan reiterated his government’s long standing opposition to a consolidated corporate tax base. Finnish Finance Minister Jutta Urpilaninen said, “Finland successfully takes up its responsibilities for national debt with its government programme and there is no need to write [a debt limit] into the constitution.” It is also likely that instituting the debt limit in all 17 constitutions would necessitate referendums in Spain and Ireland, and General Elections in Belgium and the Netherlands.

The front page of FTD reports that German Foreign Minister Guido Westerwelle has said that any member states that don’t implement the Franco-German plans "shouldn't be allowed to stop the rest" from doing so, adding that "there should be more differentiated cooperation", highlighting the possibility of a two-speed EU.

Meanwhile, following Finland’s agreement with Greece, requiring Greece to put up collateral in exchange for the Finnish share of its bailout loans, Austria has suggested it should get the same guarantees as Finland. Separately, the German Ifo Institute has revised its estimate of the cost of Eurobonds to Germany up to an extra €47bn per year in interest payments, from €22bn. Open Europe’s Raoul Ruparel appeared on Yahoo Finance TV discussing the eurozone crisis. Open Europe’s Pieter Cleppe appeared on Bulgarian National Radiodiscussing this week’s meeting between Sarkozy and Merkel.


Eurozone comment round-up


Writing in El Pais, Chief Economist of Intermoney José Carlos Díez argues in favour of Eurobonds saying, “Merkel maintains perverse semantics. Her denial of Eurobonds is directed at her voters, but the investors already consider the emissions of the new EFSF fund to be like a Eurobond and they buy the bonds without differentiating them from German ones. The investors interpret Merkel’s story as incoherent and lacking political courage to resolve the crisis. Until the European politicians do not consider their voters the same as their investors, we will not be in conditions to stop the financial crisis”.

Writing in Les Echos, journalist Yves Bourdillon argues that the “golden rule” (the debt limit) is “not an invincible weapon against deficits”, adding that the proposal is controversial since it “reduces the sovereignty of the people” since “democracy is linked to the right to review the state budget”.

Writing in La Repubblica, journalist Barbara Spinelli argues that, “If the [European] continent is sick of populism then representative democracy is broken: more and more decisions are made âânot by elected representatives but by technicians who do not respond to a supranational government.”


European Voice reports that the European Commission has just approved the release of €1.4 million in social funds to help 680 former Portuguese workers find new jobs after they were made redundant from the shoemaking industry.


The IHT reports that the world’s biggest financial institutions yesterday warned against the EU’s proposed changes in capital rules, called Solvency II, stating that they could encourage insurance companies to invest in riskier assets like bank debt and sovereign bonds.


New on the Open Europe blog

The day after the night before: Franco-Geman proposals, already dead in the water?

Right said Fred: Swedish PM’s sensible reactions to this week’s meeting


Posted by Britannia Radio at 12:10