Friday, 20 January 2012

Open Europe

Europe

New draft of European fiscal treaty: Non-euro countries must be subject to the eurozone’s budget rules if they want to be invited to euro summits;
Irish government may face legal challenge if it tries to avoid referendum
The fourth draft of the new European ‘fiscal treaty’ setting out stricter budgetary rules for the eurozone was published yesterday. The agreement now establishes that, from March 2013, eurozone countries will be allowed to receive bail-outs under the eurozone’s permanent rescue fund, the ESM, only if they have ratified the fiscal treaty – a provision which Germany was particularly keen on. The new version also opens the possibility of non-euro countries attending future meetings of eurozone leaders. However, non-euro countries will be invited only if they have ratified the agreement and accepted at least part of the same deficit and debt rules envisaged for the eurozone.

The latest draft allows the ECJ to impose fines on countries which ignore its rulings. The penalty must not be higher than 0.1% of a country’s GDP, and the amount would be poured into the ESM. A new paragraph has been added to stress that the use of the ECJ is legal under the EU treaties – in a bid to protect the use of the Court from possible objections by the UK.

Meanwhile, Ireland’s second-largest opposition party, Sinn Féin, told the FT that it is “seriously and actively considering” filing a legal complaint at the Irish Supreme Court if the government decides to dispense with a referendum on the fiscal treaty. Dutch magazine Elsevier reports that Dutch Finance Minister Jan Kees de Jager and Europe Minister Ben Knapen have said that the agreement is not ambitious enough, noting that the Netherlands would be in favour of giving the ECJ a greater role and suspending the voting rights of countries in breach of the agreement.

Polish daily DGP reports that the Polish government has said that the latest draft is an improvement on the previous “scandalous” version, and has adopted a new strategy of being more openly critical of France and Germany, while trying to build alliances with other member states such as Italy in order to secure non-voting representation rights at future euro summits.

Euro to play central role in Finland’s presidential elections
The first round of the Finnish Presidential elections will take place this Sunday with two of the most prominent candidates in the race arguing that Finland should quit the eurozone – Paavo Väyrynen from the Centre party and Timo Soini, leader of the True Finns are expected to win more than a quarter of the popular vote between them. The clear leader in the polls is pro-euro candidate Sauli Niinistö, a former finance minister, but the run-off could become a straight vote for or against the euro if Väyrynen makes it into second place.YLE reports that Väyrynen is currently polling third at 10%, only two points away from second place but Soini is currently polling well below the almost 20% of votes his party received in parliamentary elections.

Leslie: We need to look at radical options to fix EU working time rules
In the Times, Charlotte Leslie, Conservative MP for Bristol North West, writes that the effect of the EU’s Working Time Directive “has been devastating on junior doctors’ training and the expertise of the next generation of hospital consultants.” She cites creative solutions used in the Netherlands and Ireland to limit the impact of the Directive on their health services but concludes that, if these prove impossible in the UK, “we will have to face the elephant in the room: the directive itself and European social policy. The two together cost the UK around £8.6 billion a year…The Open Europe think-tank suggests a radical solution: to repatriate social policy through an opt-out of key parts of what was the social chapter, and a suspension of the jurisdiction of the European Court of Justice over those areas. Yes, these are big, challenging steps. But if we want to protect our great NHS we can’t afford to wait for Europe.”

Italian banks borrowed over €50bn from ECB’s long term lending operation;
Ed Balls expresses concern over increased IMF contributions
According to a new report published yesterday by Morgan Stanley, Italian banks were the biggest borrowers at the ECB’s December Long Term Refinancing Operation (LTRO), tapping it for more than €50bn in total. The take up suggests that Italian banks have now covered 90% of their financing needs for 2012, according to the FT. The report notes that Spanish banks took €25bn, equal to around a third of their funding needs for the year.

There will be a second LTRO on 28 February, when ECB President Mario Draghi expects demand will be “lower than the first, but still very high.” The ECB monthly bulletin confirms that the LTRO increased liquidity in the system by a total of €193.4bn. Separately, there looks set to be another disagreement over members of the ECB with Slovenia and the Netherlands objecting to Spain's assumption that it can replace its retiring representative on the ECB’s Executive Board with another Spaniard.

City AM quotes Shadow Chancellor Ed Balls saying, “If IMF money were going [into the eurozone] and taking over – playing the role that the central bank should be playing – then the IMF money would be making things worse not better,” suggesting that Labour support for increased UK contributions to the IMF may not be assured.

Meanwhile, negotiations over a voluntary Greek restructuring will continue today, with a deal needed so that it can be presented at the meeting of eurozone finance ministers on Monday. Discussions between Greek officials and the EU/IMF/ECB troika on the size and structure of the next Greek bailout will also kick off today. Greek Prime Minister Lucas Papademos has called on the fractious three-party coalition to show more commitment to undertaking tough economic reforms or face losing support from the EU.

Süddeutsche Zeitung reports that EU Economic and Monetary Affairs Commissioner Olli Rehn has warned Germany that it faces a choice between increasing the size of the ESM, the eurozone’s permanent bailout fund, and accepting Eurobonds.

Meanwhile, Spain and France both held successful bond auctions yesterday seeing strong demand and reduced yields compared to previous auctions. In an interview with FT Deutschland, Spanish Treasury Minister Cristóbal Montoro warned that Spain may struggle to meet its deficit targets this year, calling for “sympathy” from its EU partners. In an op-ed in the WSJ, Spanish Economy Minister Luis de Guindos outlines the government’s strategy to reform Spain’s economic system. Separately, the EU/IMF/ECB troika yesterday issued a positive statement after its latest review of the Irish bailout programme.

Handelsblatt: France has dropped plans for unilateral introduction of FTT
Handelsblatt quotes an unnamed official from a large French bank saying that France has dropped its plans to unilaterally introduce a financial transactions tax and is now considering applying a stock transfer tax instead. The paper notes that the decision is due to pressure from French banks, which threatened to relocate much of their business if such a levy were introduced.

Meanwhile, Bloomberg reports that German Bundesbank board member Andreas Dombret told a conference in Berlin, “If not introduced globally – or at least at the most important financial centres – such a tax [the FTT] would set incentives to relocate either parts of the business or firms altogether. In turn, actual revenues generated by the tax will probably be lower than projected and competition between financial centres be distorted.”

Government criticises Commission’s proposed budget increase for infrastructure
In a House of Commons debate yesterday, Financial Secretary Mark Hoban said, “Instead of finding ways to cut spending or drive better value for money, the Commission through the Connecting Europe Facility proposes to increase spending on transport, energy infrastructure and communications by 400%.” Andrea Leadsom MP cited forthcoming Open Europe research which shows that recycling EU funding among richer member states results in extra costs for the UK.

Following Franco-German proposals to speed up tax coordination in the EU, Irish Deputy Prime Minister Eamon Gilmore told the Dáil yesterday, “12.5% is our rate of corporation tax and we are not in the business of changing it…Our position is not going to be dictated by the electoral cycle in any other member state.”

In an op-ed in the Telegraph, EU Internal Market Commissioner Michel Barnier dismisses as a “myth” recent media reports that EU rules force the UK to employ EU doctors without the necessary language skills, and argues, “Language checks are not explicitly imposed by EU law. But neither are they outlawed.” Barnier adds that EU rules will be amended to “add clarity.”
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The Telegraph reports that Lib Dem MEP Diana Wallis, a former vice-president of the European Parliament, will formally resign on Friday after losing her bid to become the Parliament's president. Under EU election rules she will be replaced by the next person on the party’s list in her region – her husband.

EurActiv reports that 56% of Croatians are expected to vote in favour of the country’s EU accession in the referendum which will be held on Sunday.

EU member states’ permanent representatives yesterday endorsed a package of sanctions against Iran, including a ban on Iranian oil imports and the freezing of selected European assets of Iran’s central bank. The Times notes that the oil embargo will not take effect until the summer, in order to give Greece, Spain and other big importers of Iranian oil sufficient time to find alternative suppliers.

The European Parliament yesterday adopted the upgraded version of the Waste Electrical and Electronic Equipment (WEEE) Directive, which will toughen up EU rules to curb the dumping of electronic goods, reports the BBC.

New on the Open Europe blog

The draft euro fiscal pact – Episode IV

So where do you think EU money comes from, Mr Orbán?

Posted by Britannia Radio at 14:12