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Failed Bund auction raises fears that eurozone crisis has reached Germany;
Ireland looks for more help in dealing with bank recapitalisation
Fears over the eurozone crisis reached Germany yesterday as an auction of ten-year Bunds managed to raise only €3.64bn out of a target of €6bn, with the remainder retained by the Bundesbank. The main reasons for the limited demand are seen to be the increasing uncertainty over the long term state of the eurozone, the very low yields offered on primary bund auctions and the unusual structure of German Bund auctions.

A spokesman for the German debt agency moved to dismiss fears after the result saw a spike in German borrowing costs, saying, “We are seeing no indication that investors might be losing their appetite for Bunds…We shouldn’t over-interpret today’s result.” His comments were echoed by ECB Vice President Vítor Constâncio. However, Austrian Central Bank Governor Ewald Nowotny said that the auction was an “alarm signal,” with a majority of investors and market analysts supporting his view.

The leader of the Greek New Democracy party, Antonis Samaras, finally sent a letter to Greece’s international creditors pledging his support for the latest bailout package and his commitment to imposing the necessary conditions. However, the letter did reiterate Samaras’ belief that the policies must be “modified” to promote more growth in Greece. It is not yet clear whether this will be enough to convince the EU/IMF to release the next tranche of Greek bailout funds, although a decision is expected at the next eurozone finance ministers meeting on 29 November.

Irish Finance Minister Michael Noonan yesterday said that Ireland has borne a “disproportionate share of protecting the European banking system” and that the EU should therefore share the cost of the Irish bank recapitalisation. This could see Ireland taking more loans from the EFSF, the eurozone bailout fund, according to the FT. Separately, Fitch downgraded Portuguese debt to ‘junk’ status this morning. Fitch also warned France that its Triple-A credit rating could be “at risk” if the eurozone crisis were to worsen.
Independent IHT EUobserver FT FT Short View FT Alphaville FT Alphaville 2 CityAM WSJ EurActiv Mail Telegraph TelegraphGuardianWeltBBCLe FigaroLe MondeIHTFT 4WSJ 2FT 5CityAM 3WSJ 4GuardianReuters FranceLe FigaroLes EchosReuters FranceCorreio da ManhaDN EconomiaEl MundoABCEl EconomistaDiario de NavarraCityAM 4CityAM 5EUobserverIndependentTelegraphTimesIrish IndependentLes Echos Irish Independent FT 2 FT 3 Les EchosIndependent: Moore Le Figaro: Jaigu BBC: Peston BBC: Flanders CityAM: Heath WSJ: Smith WSJ: Roche FT: Bowles FT: Schepers FT: Barber CityAM: Drake Le Figaro

Mats Persson: Cameron’s alleged deal on Treaty change for working time changes would be a strategic mistake;
Cameron’s attempts to defend the City from EU regulations met with resistance
On Conservative Home, Open Europe’s Director Mats Persson argues that the deal reportedly made between David Cameron and German Chancellor Angela Merkel, whereby the UK will agree to “limited” EU Treaty change in return for a revision of the Working Time Directive, would be a strategic mistake for Britain. Although reforming the WTD is a “worthy aim”, “unlike Treaty negotiations, where the UK has a veto, the WTD is decided by qualified majority voting amongst EU ministers and subject to so-called co-decision with the European Parliament…Cameron would therefore be trading a UK veto – and spend plenty of political capital – in return for little more than the vague hope of a reformed WTD.”

Mats concludes that a better objective for Cameron at this December’s EU summit would be a “safeguard to protect the UK from harmful EU financial services regulation. It is true, that if Britain overreaches, Berlin may seek an arrangement which involves only the 17 euro members, leaving Cameron without veto and leverage. But the Germans are actually very keen to get things done at the level of all 27 member states for a whole range of reasons and it would be foolish for Cameron to fold prematurely.”

Meanwhile, the front page of the Times reports on EU opposition to David Cameron’s attempts to defend the UK’s financial services industry. The paper reports that European Commission President José Manuel Barroso has told David Cameron that pushing for special opt-outs while also seeking to be a powerbroker risks weakening Britain’s position. French Europe Minister Jean Leonetti told the paper that France and Germany would press ahead with a voting system for the 17 eurozone countries to take decisions, including on introducing a eurozone financial transaction tax, regardless of how those outside the single currency voted. The article notes that Cameron also faces pressure from Conservative MPs who are seeking a special protocol to protect the City of London.

Speaking at a Q&A session hosted by the Institute for Economic Affairs, Liberal Democrat MP David Laws argued that the EU should focus more on areas with cross-border significance and allow member states greater control over areas such as social and employment laws and health and safety rules, criticising the EU’s Working Time Directive in particular. However, he warned that, “We need to understand there are many other nations in the EU – not just the new nations, but some of the existing core nations – that are quite attracted to the vision that we have in this country of a much more liberal EU. But at the moment [the UK is] not a country that people want to be allied to because it is not a country that is often seen to have a productive constructive vision of where the EU will go.”

Separately, the Heritage Foundation cites Open Europe research estimating that EU social policy costs British businesses and the public sector £8.6bn a year.
Conservative Home: Persson Guardian Times Heritage Foundation

The FT reports that the ECB has raised tensions in London by insisting that clearing houses handling “sizeable amounts” of euro-denominated business should be located in the eurozone. The paper reports that, although the UK has begun legal proceedings against the ECB at the ECJ it is also in discussions with the central bank about a negotiated outcome.
FT

Germany rejects Eurobonds, but not forever
The Commission yesterday unveiled its proposal for Eurobonds, with Commission President José Manuel Barroso arguing that it will be “difficult or impossible” to save the eurozone from break up without greater fiscal integration, although he did admit that Eurobonds would not solve the “immediate problems”. German Chancellor Angela Merkel described the proposals as “inappropriate” and “extremely troubling” in the midst of a crisis.

However, the FTD quotes Norbert Barthle, Budget Spokesman for Merkel’s CDU parliamentary group, saying, “We never say ‘never’. All we say is: No Eurobonds under current conditions…[but] if we get real tough sanctions accepted in the eurozone, we could in exchange be more open to the Eurobond topic.” This view was echoed by the Netherlands and other triple-A countries, although Barroso noted that, often in this crisis, “Member states [have] agreed to what they said they could never agree to.” Merkel will meet French President Nicolas Sarkozy and Italian Prime Minister Mario Monti in Strasbourg today to discuss the eurozone crisis and the potential role of the ECB and Eurobonds.

In Die Welt, columnist Thomas Exner argues that the “moment of truth for Merkel draws nearer”, as financial markets have long assumed that Germany will have to bear a significant portion of the costs of dealing with the crisis, which would involve either Eurobonds or the ECB becoming the lender of last resort, and although she has steadfastly opposed these, the pressure on her to change her mind will not go away.

In an interview with French business weekly Challenges, former European Commission President Jacques Delors rejects the idea of turning the ECB into the eurozone’s lender of last resort, arguing, “We could perhaps stop the fire, but the consequences would be terrible, not just for the balance sheet of the ECB…The institution would lose all credibility.”
FTD FT CityAM WSJ EurActiv European Voice EUobserver Welt: Exner Challenges: Delors

Commenting on the European Commission’s proposals for greater control over member states’ budgets, Open Europe’s Raoul Ruparel argues in Polish daily Rzeczpospolita that budgetary integration or a euro collapse is a false dichotomy, and that what the most indebted states need above all else are structural reforms.
Rzeczpospolita

The Mail and the front page of the Express report that figures released by the Office for National Statistics (ONS) show that the UK’s gross contribution to the EU budget rose by 5.7% last year to £18.5bn. At the same time, the money Britain received back from the EU fell by almost a quarter to £8.1bn, a fall of £2.6bn in a year.
Mail Express

Writing in City AM, Director-General of the Institute of Directors Simon Walker warns that forthcoming European Commission proposals for reform of corporate governance could damage the UK’s distinctive ‘comply or explain’ model of corporate governance, and argues that this “would be a major setback to the UK business community.”
CityAM: Walker

The Danish government, which takes over the rotating EU Presidency for the first half of 2012, has said it will try to get "as far as possible" on agreeing the next long-term EU budget for 2014-2020 but that a deal is unlikely until the end of next year.
European Voice EurActiv

World

The Independent reports that France will propose establishing a “securitised zone” to protect Syrian civilians at the next European Council.
Independent EUobserver Nouvel Observateur Le Point Le Figaro

New on the Open Europe blog

Eurobonds or ECB…Either way Germany has to pay the bill
Open Europe blog