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Daily Press Summary 160 German economists issue public appeal against eurozone banking union; Citi: Taxpayers and MPs “misled” over extent to which ESM loans are senior to other claims 160 German economists, including the head of the IFO institute, Hans-Werner Sinn, have today published an open letter to their fellow citizens criticising the decisions taken at last week’s EU summit, warning that “we view with great concern the step towards a banking union, which will result in the collective guarantee of the debts of the banks in the eurosystem. These debts are almost three times as large as the government debt and in the five crisis-affected countries they lie within the range of several trillion euros… Banks must be allowed to fail. If the debtors cannot pay, there is only one group who can and should bear the burden: the creditors themselves.” In an interview with Der Spiegel, the SPD’s budgetary expert Carsten Schneider warns that, without strict conditions, Angela Merkel cannot count on his party’s support in the Bundestag for approving direct support to Spanish banks via the eurozone’s bailout funds. In the last four votes on the eurozone rescue, Merkel failed to gain a so-called ‘Chancellor’s majority’, i.e. an absolute majority based only on MPs from her own coalition. Deutsche Wirtschafts Nachrichten reports that an internal Citigroup evaluation of the eurozone’s new permanent bailout fund, the ESM, suggests that taxpayers and parliamentarians have been misled over the level of seniority which ESM loans enjoy. This is because the clauses suggesting that ESM loans would be senior, and therefore likely to avoid losses under a debt restructuring, are only ‘noted’ and are not actually legally enforceable. This interpretation of the treaty was also confirmed by UK lawyers consulted by the newspaper. However, the article does note that this type of seniority is also held by the IMF and other supranational institutions. Spiegel Handelsblatt Welt FAZ FAZ: Economists' Letter Spiegel 2 Spiegel: Schneider DWN Greek government kicks off attempt to renegotiate bailout package today New Greek Prime Minister Antonis Samaras is due to meet the EU/IMF/ECB troika for the first time this afternoon, and is expected to argue for renegotiation of the Greek bailout package, including allowing citizens to pay taxes in instalments and softening public sector cuts. The outcome of these meetings will determine the coalition government’s policy, which will be announced at the end of this week. Swedish Finance Minister Anders Borg warned yesterday, “The most likely scenario is that we get some kind of default in Greece.” Kathimerini reports that the level of non-peforming loans in Greek banks has risen to 18%, a 2% increase in the past two months. An extra eurogroup meeting is expected to be held on 20 July to discuss the situation in Greece and Spain as the on-going assessments of both countries is unlikely to be ready for the 9 July meeting. Eurozone finance ministers will confirm the troika’s negotiating mandate at the 20 July meeting, meaning any significant progress on changing the programme is unlikely before then. The Hellenic Republic Asset Development Fund has said that more than one third of the properties owned by the Greek state are being used illegally and not generating any revenue. Kathimerini Kathimerini 2 Kathimerini 3 EUobserver Sveriges Radio WSJ Spanish government set for showdown with regions over new budget cuts; Le Figaro: Hollande and Merkel want to create new “Super Mr Euro” According to sources quoted by Reuters, the Spanish government is finalising a new austerity package worth up to €30bn to make sure that Spain meets EU-mandated deficit reduction targets. The package would run over several years, and some measures may be announced as early as next week. However,El País notes that many Spanish regions have said they have no margin for further budget cuts this year. In an auction this morning, Spain had to pay a 6.43% interest rate on its ten-year bonds – the highest since last November. Meanwhile, Spain’s former finance minister and IMF director Rodrigo Rato is to face trial for alleged fraud following the collapse of Bankia. Le Figaro reports that France and Germany want to increase the powers of the eurozone President from next year and create a new “Super Mr Euro”. German government spokesman Steffen Seibert toldBloomberg the report was “fabricated”. Separately, during his joint press conference with German Chancellor Angela Merkel yesterday, Italian Prime Minister Mario Monti said that Italy’s public deficit will be 2% of GDP at the end of the year – well above the previous estimate of 1.3%. The Italian government is due to adopt plans to cut public spending tomorrow. Bloomberg Reuters El País El País 2 Cinco Días FT CityAM WSJ Telegraph WSJ 2 Dow Jones Le Figaro 3FT 2 FT 3 FT: Editorial Telegraph 2 IHT Le Figaro Il Sole 24 Ore Il Sole 24 Ore 2 Irish Times TelegraphRTE Italy repays £307m of EU structural funds following investigation by anti-fraud watchdog The Telegraph reports that Italy was asked to reimburse £307m of EU structural funds, after the EU’s anti-fraud watchdog OLAF found widespread “irregularities” surrounding upgrade works on a stretch of the Salerno-Reggio Calabria motorway in southern Italy. Open Europe’s Vincenzo Scarpetta is quoted as saying, “The fact that this money has been recovered is good news, but also shows how vulnerable EU subsidies are to fraud and mismanagement. Instead of asking for more cash, the Commission and MEPs should make sure that taxpayers know where every penny of their money going via Brussels is spent.” Telegraph ECB expected to cut rates but officials play down possibility of further easing The ECB is widely expected to cut interest rates by 0.25% today, although there is a still a small chance it could hold rates and engage in other ‘non-standard measures’, such as bond purchases, to help ease the eurozone’s woes. However, in an interview with Elsevier yesterday, Dutch central bank Governor Klaas Knot rejected this idea saying, “If someone must help southern Europe, let it be other governments, not the ECB,” adding that the ECB’s bond buying programme “is in a deep sleep, and it will remain there”. FT FT 2 FT 3 Telegraph Le Figaro 2 El País 2 Cypriot President: Russia is offering us “better conditions” on bailout loan than EU and IMF Cypriot President Demetris Christofias told the press yesterday that Russia is offering Cyprus “better conditions” than those likely to be attached to the EU-IMF bailout loan the island is negotiating. He added that Cyprus “will fight” to keep its 10% corporate tax rate, which was established “well before we joined the EU”, AFP reports. Meanwhile, EUobserver reports that the speaker of the Russian Duma, Sergey Naryshkin, is hopeful that the new Cypriot EU Presidency will ease the EU’s “extremely strict” visa regime towards Russia. AFP EUobserver Responding to French President François Hollande’s plans to increase taxes on second homes, a UK Treasury source is quoted by the Telegraph as saying, “We will need to study the details. But we will of course challenge any proposal which breaches European single market laws and anti-discrimination rules.” Telegraph The WSJ notes that EU officials have suggested that the year-end deadline set by eurozone leaders for the ECB to become the bloc’s banking supervisor is tight and that the Bundesbank sees a potential conflict between supervision and monetary policy. WSJ The Irish Times notes that unemployment in Ireland is at its highest level since 1994. Irish Times Mike Soden, a member of the Irish Central Bank board, has said he's in favour of creating a two-tier euro. Irish Independent MEPs yesterday voted down the Anti-Counterfeiting Trade Agreement, making it highly unlikely that the EU will approve the treaty in its current form and increasing the likelihood that the global agreement, which the US has strongly supported, will never come into force. FT WSJ EUobserver IHT Guardian The FT notes that EU consumers are paying double that of world prices for sugar and the continent’s food companies are struggling to find supplies at reasonable prices, due to EU sugar quotas. FT