Monday, 26 September 2011

Open Europe

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Europe

Eurozone leaders consider increasing bailout fund to cover a Greek default;
German leaders lash out at idea of topping up fund through ECB leveraging

The Telegraph reports that a plan emerged over the weekend between eurozone and global leaders to increase the size of the EFSF, the eurozone’s bailout fund, to €2 trillion, possibly using a leverage scheme through the ECB. It is thought the increased fund would act as a backstop to allow for a Greek default – possibly involving a 50% write-down of Greek debt – and a recapitalisation of European banks, although the Greek government still insists it will not default. Though some media reports claim that a deal could be announced “within days”, German Finance Minister Wolfgang Schäuble seemed last night to reject the proposal, saying “We won’t come to grips with economies deleveraging by having governments and central banks throwing – literally – even more money at the problem. You simply cannot fight fire with fire.” Jens Weidmann, Bundesbank President, called the plan a “dangerous path”, while the Secretary-General of junior coalition partners FDP, Christian Lindner, called on the German Chancellor Angela Merkel to rule out “very quickly that there are no changes to the rules for EFSF” via the backdoor, according toDPA.

David Beers, Head of Standard & Poor's sovereign rating group, suggested that the plan could have “potential credit implications in different ways,” hinting that it could lead to sovereign downgrades in the eurozone. Beers added, “We're getting to a point where the guarantee approach of the sort that the EFSF highlights is running out of road.” Schäuble also suggested that the second Greek bailout deal may need to be revised “in the light of more recent developments,” hinting at greater losses for banks, although Deutsche Bank CEO Joseph Ackerman suggested this would not be well received by those banks which had agreed to take part in the original plan.

Open Europe’s Raoul Ruparel is quoted by the Telegraph saying, “This plan remains very much up in the air. The issue will be getting approval and what price would be extracted for that. A lot of Parliaments, Slovakia, Netherlands, Germany, are hesitant about giving the EFSF more scope to act.” He added that for the eurozone, “Three issues remain: the conditions that will be attached to a bailout, restructuring and the political bottlenecks that are holding up action.”

The WSJ reports that significant pressure was applied during the G20 and IMF meetings over the weekend by non-European leaders, which helped convince eurozone leaders that a change in tact may be needed, with US Treasury Secretary Timothy Geithner in particular warning of “cascading default, bank runs, and catastrophic risk”.

In an interview on ARD yesterday, Merkel also fuelled reports from Bloomberg that the European Stability Mechanism (ESM), the eurozone’s permanent bailout fund, may be introduced earlier than 2013 as originally scheduled, saying, “There is no institution in Europe that can truly take a hard line if a country is not behaving correctly. We need the ability to restructure states. And that’s why we need the ESM.” Bloomberg also reports that an early introduction of the ESM may reduce the contributions required by member states.

Meanwhile, Christine Lagarde, IMF Director, suggested over the weekend that the fund may need to tap its members, including the UK, for an increase in its bailout fund, stating, “Our lending capacity of almost $400bn looks comfortable today, but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders." Separately, Chancellor George Osborne issued a warning to eurozone leaders over the weekend saying, “The eurozone has six weeks to resolve its political crisis.”

Die Weltreports that German Professor Markus C. Kerber has announced that he will take European Central Bank President Jean-Claude Trichet to the EU’s European Court of Justice in Luxembourg, for breaching the EU Treaties with his stewardship of the ECB’s bond-buying programme.

Osborne clashes with France and Germany over FTT in Washington
The Mail on Sunday reported that Chancellor George Osborne last week clashed with his French and German counterparts at the G20 meeting in Washington over plans to introduce an EU-wide Financial Transaction Tax (FTT). The FT writes that French President Nicolas Sarkozy is being urged to introduce the levy unilaterally in France, in the event that the Franco-German proposal for a FTT is rejected.

President of German Constitutional Court warns against transferring more competences to the EU;
German Social-Democrats demand referendum on fundamental EU treaty changesIn an interview with FAZ, President of the German Constitutional Court Andreas Voßkuhle argues that within the German Constitution there is not “much more room for transferring more core competences to the EU. If one wanted to overrun this limit…then Germany should give itself a new Constitution. In order to achieve that, a referendum would be needed. Without the people it cannot happen!” On Eurobonds, Voßkuhle said, “[The Court’s] judgement makes clear that the Bundestag cannot assign its responsibility for its budget…to other actors…Continual mechanisms that would take over responsibilities… of other states [which would be the case with Eurobonds] cannot be allowed to be introduced.”

Separately, Süddeutsche Zeitung reports that the leader of the German Social-Democrats Sigmar Gabriel has demanded a referendum on fundamental changes to the EU Treaties, saying, “On fundamental questions of European policy, the people should decide themselves directly in the future…We need again the consent of our citizens on Europe.”

The Finns’ leader Timo Soini announced on Friday that he would run in next year’s Finnish presidential elections. In a comment piece for YLE, Pekka Kinnunen argues that “the election will be a referendum on Finland’s EU and euro policy, in the middle of the euro crisis.”

Eurozone comment round-up
In FAZ, Editor Holger Steltzner warns that turning the eurozone’s bailout fund, the EFSF, into a bank, “would be a solution in favour of debt sinners.” In Die Welt, Ulf Poschardt supports more referenda on EU issues, arguing, “Given the installation of a permanent [eurozone] bailout mechanism, which is in effect a new economic constitution for the euro area, it is necessary that such a lasting transfer of economic sovereignty from a country like Germany should be democratically legitimised.”

In Saturday’s Times, Sam Fleming argued, “in opting for half-measures such as the July 21 Greek rescue package, [eurozone leaders] have ensured that the price of saving the euro is soaring.”In Saturday’s Telegraph, Charles Moore argued that, “It’s no good calling for leadership if none of the EU leaders has the authority to act.”

Following yesterday’s senatorial elections in France – with half of the French Senate’s 348 seats up for re-election – centre-left parties now hold a majority for the first time since the foundation of the Fifth Republic in 1958, reports Le Figaro. 

The Mail on Sunday reported that the Queen received over £224,000 in EU subsidies from the Common Agricultural Policy (CAP) for her Windsor farm estate last year, and is thought to have received similar amounts for her estates in Sandringham and Balmoral.

The FT reports that the new MIFID II proposals due to be published soon by the European Commission will include measures to stop independent advisers receiving fees from asset managers – a move that broadly follows in the steps of the UK’s Retail Distribution Review (RDR), but is likely to face resistance in continental Europe, as it is seen as a ‘British export’.

EUobserver reports that Bulgaria has threatened to complicate EU decision-making after being denied access to the EU’s border-free Schengen area last week, with Bulgarian Foreign Minister Nikolay Mladenov saying in an interview, “There are many policies which cannot be implemented without our cooperation.”

The European Parliament’s plenary session is widely expected to adopt the package of six legislative proposals to strengthen economic governance in the eurozone and the EU on Wednesday, reports EurActiv.

World

EUobserver notes that French President Nicolas Sarkozy’s proposal to give Palestine an upgraded observer status at the UN has failed to win unanimous support from other EU member states, as Bulgaria, Italy and the Czech Republic have joined the UK (and the US) in the anti-upgrade camp, with traditionally pro-Israeli Germany and the Netherlands likely to follow suit.

UK

On Conservative Home, Andrea Leadsom MP – a co-founder of the new group of MPs calling for a re-ordering of UK-EU relations – writes, “Britain needs to be ready to renegotiate a better deal for our citizens as a result of the Eurozone chaos…That renegotiation must focus on promoting jobs and growth as the top priority for Britain in these extraordinary times.”

New on the Open Europe blog

Malteaser: Malta asks for collateral on second Greek bailout in the name of equal treatment

 


Posted by Britannia Radio at 13:55