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Merkel’s and Sarkozy’s backing for Greece signals likelihood of next tranche of aid being paid out
Following yesterday’s phone conference with Greek Prime Minister George Papandreou, French President Nicolas Sarkozy and German Chancellor Angela Merkel said in a joint statement that they were “convinced that the future of Greece is in the euro area”, in a further bid to dismiss talk of Greece being forced to leave the eurozone. On BBC Newsnight, Open Europe’s Director Mats Persson argued that, while the statement did not contain any new measures, it was “simply a commitment by Angela Merkel and Nicolas Sarkozy that even though Greece will not meet its austerity targets…[in reality] we will still give them the money.” Mats also appeared on BBC Manchester. European stock markets have been rising this morning following the two leaders’ comments, despite the European Commission predicting that economic growth in Europe may come to a standstill by the end of the year, reports the Irish Times.

FT Deutschland reports that the German government is preparing for a bank-bailout scenario in the event of a Greek default, noting that, behind the scenes, estimates are being made for how much the EFSF, the eurozone’s temporary bailout fund, should be increased on top of the agreed extension the German Bundestag will vote on at the end of the month. Separately, the Dutch Parliament has given Finance Minister Jan Kees de Jager until Friday to submit a briefing outlining various possible scenarios, including the impact of a Greek bankruptcy on the Netherlands.

Meanwhile, the European Commission yesterday proposed reducing the interest rate and extending the maturities of the bailout loans provided to Ireland and Portugal via the European Financial Stabilisation Mechanism (EFSM) – the €60bn bailout fund which all 27 EU member states are signed up to. The two proposals are expected to be endorsed by member states in the coming weeks, according to the European Commission’s press release.

EUobserver reports that yesterday three Austrian opposition parties – the far-right BZÖ and FPÖ and the Green party – blocked the Austrian parliament’s Finance Committee from scheduling a vote on the changes to the EFSF at the next plenary session on 21 September.

The Telegraph reports that Chinese Prime Minister Wen Jiabao has attached clear conditions to China’s offer to help the eurozone, as he said, “We have on many occasions expressed our readiness to extend a helping hand…We believe [EU countries] should recognise China's full market economy status.”
EUobserver BBC El País Independent FT WSJ Guardian Times Telegraph 2 Telegraph 3Independent Independent 2 EC press release Irish Independent El País 4 Times WSJEUobserver WSJ Mail El País 3 FT Telegraph Handelsblatt Welt Tagesschau FTD FAZ: Schaeffler Süddeutsche Zeitung FAZ NOS Elsevier: Wynia Nu.nl Volkskrant Gelderlander.nlDutchnews.nl BBC Newsnight Irish Times

Polish Finance Minister sees risk of war within ten years if eurozone collapses
In a speech to the European Parliament yesterday, Polish Finance Minister Jacek Rostowski recalled a recent conversation he had with an old friend, and said, "We were talking about the crisis in eurozone. He told me, ‘You know, after all these political shocks, economic shocks, it is very rare indeed that in the next ten years we could avoid a war’…I am really thinking about obtaining a green card for my kids in the United States.” After the speech, he told reporters that the prospect of war is not likely “within a four-year legislative time frame…But maybe over a ten-year time frame, this could place us in a context that is almost unimaginable at the moment,” notes EUobserver.
Coulisses de Bruxelles EUobserver

Clegg argues against renegotiation of UK-EU relationship
In a speech at the LSE yesterday, Deputy Prime Minister Nick Clegg signalled Lib Dem opposition to the repatriation of powers from Brussels, which Chancellor George Osborne and Foreign Secretary William Hague have reportedly begun planning for. “On a day like today, when people are talking openly about the possibility of Greek default, the key question is not how do we seek to renegotiate the UK’s place in the European Union in a treaty that hasn’t even materialised yet. The single most important question, the urgent question, is what role we can play in helping the eurozone avoid further turmoil,” said Mr Clegg. He added that, “In terms of the eurozone, the real failure has not been the original concept of monetary union. It’s that the rules were never applied stringently enough.”
Mail Times Independent New Statesman: Behr

UK sues ECB over threat to the City
The UK Treasury said yesterday it has begun proceedings at the European Court of Justice against the European Central Bank over the bank's policy to stop UK-based clearinghouses dealing with some euro-denominated financial products. An ECB policy paper, released in the summer, requires clearing houses to be based in the eurozone if they handle more than 5% of the market in a euro-denominated financial product. Britain will ask the courts to strike down the rule on the grounds that it restricts the free movement of capital and infringes on the right to establish cross-border businesses across the EU.
City AM BBC FT WSJ Telegraph

Eurozone banks lend US dollars from the ECB amid credit crunch fears
The ECB has been forced to provide US dollar loans to euro-zone banks for only the second time in six months, while new data has shown that bank deposits in eurozone periphery nations are falling, intensifying fears that Europe's debt woes may generate a credit crisis. ECB President Jean Claude Trichet said recently, “There is no liquidity issue for the banking sector of the euro area as a whole,” but the WSJ quotes Open Europe’s Raoul Ruparel warning, “At the start of euro-zone crisis a lot of people paid attention to averages, now it's almost a worthless tool. It's the details that count.”

Meanwhile, Reuters reports that an internal report drafted for tomorrow’s informal meeting of eurozone finance ministers in Poland warns of the danger of a new credit crunch, stressing the “risk of a vicious circle between sovereign debt, bank funding and negative growth.”
WSJ FT Reuters Le Monde

In the Telegraph, Conservative MP Dominic Raab argues, “In the wake of the euro crisis, we should press for a multi-speed Europe that would complete the single market and allow us to opt out of regulation, retain our justice system and forge an independent foreign policy.”
Telegraph: Raab

Fitch downgrades five Spanish regions ahead of bond auction;
Protesters clash with police ahead of final vote on Italy’s second austerity package
Expansión reports that yesterday Fitch downgraded the credit rating of five Spanish regions, including wealthy Catalonia, due to fears over their ability to cut their deficits. Separately, El Paísreports that Spanish banks’ demand for ECB funding reached €69.9bn in August, 34% higher than the previous month. Spain will today try to sell between €3bn and €4bn worth of ten-year bonds.

Meanwhile, yesterday the lower house of the Italian parliament gave its final approval to the €53.3bn austerity package aimed at achieving a balanced budget by 2013. Ahead of the vote, hundreds of protesters clashed with police outside the Italian parliament building.
Expansión CityAM El País Bloomberg La Stampa Corriere della Sera FT WSJ

City AM reports that Justice Secretary Ken Clarke yesterday described European Commission plans to harmonise contract law across Europe as “unnecessary, disproportionate and damaging.”
City AM

EUobserver reports that yesterday Russian Finance Minister Alexei Kudrin confirmed that Russia is at an advanced state in negotiations with Cyprus over a rescue package with “no strings attached.”
EUobserver

Eurozone comment round-up
In the FT, Quentin Peel notes that the “Free Democratic party, the junior member of [Chancellor Angela Merkel’s] coalition that has seen its support collapse in a series of state elections, is flirting with the temptation of walking out and reinventing itself as a eurosceptic champion.”

Bild’s Editor Hugo Müller-Vogg argues, “Just imagine if politicians were held liable for their decisions with their own money. It would have become very expensive for Socialist and Green [German] MPs, who let Greece into the euro in 2000…Chancellor Merkel would have to worry too. Only a year ago she was hoping that Greece would only need financial support once and then all would be fine.” A separate comment piece in the paper depicts the ECB’s headquarters in Frankfurt as partly in ruins, under the headline, “This ruin once was the proud ECB: What happened to the guardians of the euro?”

In an interview with the Spectator, former Lib Dem Leader Lord Ashdown has said he doesn’t think the euro can survive in its current form, adding, “The most likely outcome is probably a core euro. A euro that has Germany, Austria, Finland and the Benelux countries in it – you’d have to have France in there for political reasons even though economically they wouldn’t come up to the mark precisely – and maybe Sweden.”
Bild Bild: Müller-Vogg BBC: Mason BBC: Hewitt Telegraph: Warner Telegraph: ReeceIndependent: Kumar Independent: Whittam Smith FT: Peel Times: Manolopoulos WSJ: MartinWSJ: Meltzer FT: Short View FT: Sachs FT: Fitoussi & Weil FT: Editorial FT: Editorial Le Figaro: Saint-Paul El País: Vidal-Folch Corriere della Sera: Franco Il Sole 24 Ore: Bufacchi BBC: Today

Ahead of today’s Danish general elections, the polls show that the centre-left bloc is poised for victory, with the leader of the Social Democrats, Helle Thorning-Schmidt, likely to become the country’s first female Prime Minister.
Politiken Berlingske

MEPs adopt report calling for “fewer and better” pieces of EU legislation
A key demand of the report, authored by Conservative MEP Sajjad Karim and endorsed by MEPs last night, is a “one-in, one-out” rule for new European legislation, requiring the EU to scrap at least one old and defunct piece of legislation if it wants to make way for any new piece of law.
Open Europe research The Parliament EP

In response to EU Energy Commissioner Günther Oettinger’s proposal to put the flags of high-debt eurozone countries at half-mast on EU buildings, 151 MEPs have sent a letter to European Commission President José Manuel Barroso, calling for Oettinger to retract his words or resign, reports EUobserver.
EUobserver

Belgian daily Het Laatste Nieuws reports that research from Radboud University in Nijmegen, commissioned by Dutch Socialist MEP Dennis de Jong, has concluded that more than 40 EU agencies are operating in a non-transparent way.
HLN

New on the Open Europe blog

A light-hearted illustration of how Greek debt evolved over the last two years
Open Europe blog

What does the Dutch Finance Minister say in private about a Greek default?
Open Europe blog