In a double blow to the eurozone on Friday, S&P announced a series of downgrades which included France and Austria losing their triple-A status. Seven other countries including Spain, Italy and Portugal were also downgraded. On its reasons for the downgrades S&P said, "We believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating,” adding, that last month’s summit had “not produced a breakthrough of sufficient size.” The French government played down the impact of the cut, while EU Economics Commissioner Olli Rehn branded the rating agencies “inconsistent” and the Portuguese government termed the move “ill-founded” since it had met its fiscal targets. A leader in Le Monde argues that the French downgrade was long overdue after decades of anaemic growth and imbalanced budgets, while noting that the downgrade has reinforced “two Europes within the eurozone”, with France belonging to the “second” Europe. FTD reports that the downgrades have convinced the German government that the dependence on rating agencies needs to be reduced, possibly replaced by an emphasis on in house ratings by financial firms. The downgrade also means the eurozone faces a choice between keeping the EFSF – its temporary bailout fund – lending capacity of €440bn or lowering the lending capacity and keeping its triple-A rating. German Finance Minister Wolfgang Schaüble said that the EFSF guarantees were “sufficient” for the next few months after which the fund will be ‘superseded’ by the ESM, the eurozone’s permanent bailout mechanism. FT Alphaville reports that, according to RBS, the downgrade will cause the lending capacity of the ESM to fall by €200bn if the level of callable capital is not increased. In a reaction to the developments, Open Europe Director Mats Persson argued on Friday on his Telegraph blog that “Though the downgrades seem more dramatic now, the Greek problem could soon begin to hit home….if a default can happen in Greece, why not in other insolvent eurozone states?” Open Europe’s Raoul Ruparel was quoted in Saturday’sTelegraph blog arguing the same point.Open Europe Europe
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Monday, 16 January 2012
Greek default moves closer after negotiations on voluntary restructuring breakdown;
France and Austria lose their triple-A rating as S&P criticise handling of eurozone crisis
The threat of a Greek default moved closer on Friday as negotiations broke down between Greek private bondholders and European officials. Head of the Institute for International Finance, Charles Dallara, said: “all the European heads of state said they wanted a deal with a 50% [haircut] and a voluntary agreement…Some of their own collaborators are not following that decision.” The talks will resume on Wednesday with the aim of concluding a deal by 23 January when eurozone finance ministers meet. The key area of dispute is said to be the interest rate which will be offered on the newly written down bonds, with Germany reportedly demanding as low as 2% - 3% while bondholders believe an agreement had already been struck for 5%. Discussions will resume tomorrow on the €130bn bailout which is tied to the Greek voluntary restructuring. If Greece is to be able to repay the €14.4bn in debt maturing on 20 March both sets of discussions reportedly need to be concluded in the next week.
Meanwhile, the FT reports that Chancellor George Osborne will say in a speech in Hong Kong today that the funds in the IMF may need to be increased and that Britain is willing to increase its share if others do so as well.
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Backroom deal could see German socialist MEP become EP President
German Social Democrat MEP Martin Schulz looks likely to become the next President of the European Parliament after the usual backroom deal between the centre-right (EPP) and Socialist groups in the European Parliament. Cecilia Wikström, Swedish liberal MEP said, “This is a failure for the democratic system, that we have these opaque deals behind closed doors almost with no insight for those of us who are elected representatives in this house.” Separately Die Welt quotes Schulz saying that he will be a “combative President”.
New EU rules of origin could cause “immense damage” to the German economy
Die Welt reports that the Association of German Chambers of Industry and Commerce has warned that the EU Commission’s plans on changing its rules of origin criteria could threaten the ‘Made in Germany’ label and cause “immense damage” to the German economy. Currently, products can also be marked with the label even if they were 90% assembled abroad, but the final modification took place in Germany. The paper reports that Germany’s most export-intensive sectors such as car manufacturing, electrical, mechanical and plant engineering would be affected.
Hungary’s far-right Jobbik party on Saturday staged a protest in Budapest, which saw thousands of people protesting against alleged EU interference in Hungarian politics. The Vice President of the party burnt an EU flag outside the EU commission office in Budapest, Svenska Dagbladet reports.
The BBC reports that the Romanian government has called an emergency meeting to address the increasingly violent protests against austerity cuts in Bucharest.
UK to look beyond Europe for new growth opportunities
The Independent on Sunday reported that George Osborne will give a speech in Hong Kong today, saying, "I believe we can make Britain the home of Asian investment and Asian finance in the West." Meanwhile, in an interview with theSunday Telegraph, William Hague said, "The balance of economic activity in the world is shifting all the time, to the East and to the South, which means that Europe is a smaller and smaller proportion of the world economy.”
AFP quotes a senior EU source claiming that were Scotland to become independent of the UK, there would be “a valid legal question” over the nature of the remaining part of the UK’s relationship with the EU. According to the source, "We're not talking about policy renegotiation - but a rewrite of Britain's membership".
The WSJ reports that the EU could enforce an oil embargo on Iran in the next six months, but no final decision has yet been reached in Brussels.
The Telegraph reports that French Foreign Minister Alain Juppe has said that France and the EU will respond ‘positively’ to recent reforms in Burma.
Friday the thirteenth in the eurozone
Who is Oli Rehn? Belgium hits back in its budgetary dispute with the Commission
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