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Daily Press Summary Former Polish Finance Minister: ECB bond-buying worst option for the eurozone Open Europe yesterday hosted a lunchtime discussion entitled, “What can the eurozone learn from Eastern Europe’s transformation?”, with a keynote speech from Professor Leszek Balcerowicz of the Warsaw School of Economics, formerly Governor of the Polish Central Bank, and also Deputy Prime Minister and Finance Minister on two separate occasions. Professor Balcerowicz – famous for implementing the Polish structural reform plan following the fall of communism – used the example of some Eastern European countries to show that it is possible to get out of recession through structural reforms, without currency devaluation. He warned against further bailouts, arguing, “If you have a lot of money, then incentives to reform are weaker…Many politicians prefer taking the easy money and putting off painful reforms.” Professor Balcerowicz also said that having the ECB buy large amounts of government bonds would be “even worse” than state-led bailouts, since it would create greater long-term costs. He concluded that, instead of trying to rush the creation of an “unrealistic” political union – which would backfire politically – eurozone leaders should try to put in place the two conditions to make a monetary union function, fiscal discipline and flexible labour markets. The debate was covered by Polish daily Rzeczpospolita, Polish current affairs magazine Wprost and by financial website Puls Biznesu. Open Europe Events Rzeczpospolita Wprost Online Puls Biznesu European Commission: Catalonia’s bailout subject to “strict conditions”; Vincenzo Scarpetta: Catalonia’s bailout a test of Spanish government’s credibility European Commission spokesman Simon O’Connor told the press yesterday that Catalonia’s request for a bailout from the Spanish government “is subject to strict budgetary conditions, in line with our recommendations to Spain.”  Open Europe’s Vincenzo Scarpetta writes in City AM, “If [Spanish Prime Minister Mariano] Rajoy is shown to be unable to exert control in his own backyard, his negotiating position in Brussels will surely be weakened – and his eurozone counterparts will be increasingly reluctant to take his promises of reform and fiscal consolidation seriously.” Meanwhile, two more Spanish regions, Andalusia and Extremadura, have suggested that they could seek a bailout from the Spanish government, although not in the immediate future. Comunidad Valenciana’s finance chief Máximo Buch yesterday confirmed that his region will need a loan of around €3.5bn to cover its financing needs for this year, but added, “Given that we also have outstanding bills from previous years, we have an interest in obtaining more funds [from the Spanish government]. The more we can get, the better.” Separately, Rajoy will meet French President François Hollande in Madrid today, reports El Mundo.  City AM: Scarpetta Open Europe research El País El País 2 El País 3 Expansión El Economista EUobserverEl Mundo Expansión 3 El Mundo 2 Expansión 2 El Economista 2 City AM Kathimerini reports that the leaders of the Greek coalition met again yesterday in an attempt to finalise the €11.5bn in cuts for 2013/14 demanded by the EU/IMF/ECB Troika. Although there was agreement on the broad scenario, details on how the savings will be made still need to be ironed out.  Kathimerini EUobserver WSJ City AM FT Editorial Citing official Bundesbank figures, FAZ reports that between December 2009 and June 2012, German banks’ exposure to the rest of the eurozone fell by 17% – around €190bn – with the decline being particularly strong in the most crisis affected countries.  FAZ Bloomberg notes that the European Parliament is unlikely to back down from its demand that the EU’s new bank capital rules contain provisions capping bankers’ bonuses. The European Commission has proposed making shareholders responsible for remuneration in the hope of a compromise.  Bloomberg Speaking after her meeting with Italian Prime Minister Mario Monti, German Chancellor Angela Merkel described the proposal to grant the eurozone’s permanent bailout fund, the ESM, a banking licence as “incompatible” with the EU Treaties, while Monti said such an option should “be seen in the perspective of a broad mosaic.” WSJ City AM Bloomberg IHT Le Figaro Il Sole 24 Ore Corriere della Sera Repubblica La Stampa TelegraphTelegraph 2 Irish Times FAZ Proposals for ECB intervention take shape, but disagreements remain The FT reports that various plans for ECB intervention in the eurozone crisis have been submitted to the ECB’s Executive Board for deliberation, although within the proposals there are three areas of disagreement. Firstly, some fear the ECB will not be able to stop bond purchases once started without huge market distortions, making enforcing conditions near impossible. Secondly, it is unclear whether any cap on borrowing costs can or should be made public and lastly it is unclear what level of intervention will be justified and needed to remove market fears over a eurozone break-up. FT  In an interview with Les Echos, French Economy Minister Pierre Moscovici said, “I know my country well. The French will only agree to further concessions [to the EU] in terms of sovereignty if there are concrete and tangible benefits for the country.”Les Echos: Moscovici European diplomatic sources told AFP that a meeting of EU leaders is being prepared for November, to discuss the next long-term EU budget running from 2014 to 2020. Open Europe research El País Le Monde According to Diário Económico, the Portuguese Finance Ministry has already informed the EU/IMF/ECB Troika that Portugal’s deficit at the end of the year could be as high as 5.3% of GDP – with the target for 2012 fixed at 4.5%. Diário Económico EUobserver notes that the European Commission is pressing ahead with talks on further bi-lateral carbon emissions agreements with a deal with Australia just announced. An FT leader argues, “If politicians are unable to face down industry lobbying and create a credible carbon market, the arguments to adopt a carbon tax, or other more coercive policies, will simply strengthen.” EUobserver FT: Editorial In its latest draft review of the Irish bailout package, the EU/IMF/ECB Troika cut its forecast for Irish growth next year from 1.9% to 1.4%, adding that a slowdown in demand for exports could further hamper growth. The report also stressed that a restructuring of Irish bank debt would “significantly enhance prospects” for the country’s recovery. FT Chinese Premier Wen Jiabao said in a press conference with German Chancellor Angela Merkel that China will continue to invest in European government debt, but on the condition of a full evaluation of risk. WSJ Welt Spiegel FAZ Süddeutsche