Eurocrash: Draghi - One leg bad, two legs good
Thursday 6 September 2012
Rather there being "unlimited" purchases, though – despite the headlines - Mario says there are "no exact limits". Clearly, this is not unlimited. He says the level is going to be "adequate to reach our objectives".
And no brave new initiative would be complete without a grand new title. What we have here, therefore, is the Outright Monetary Transactions Programme. There is to be "conditionality", but not as rigorous as the bailout conditions imposed on the Greeks – or so we are supposed to gather. Despite this, the official statement says: A necessary condition for Outright Monetary Transactions is strict and effective conditionality attached to an appropriate European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) programme. Such programmes can take the form of a full EFSF/ESM macroeconomic adjustment programme or a precautionary programme (Enhanced Conditions Credit Line), provided that they include the possibility of EFSF/ESM primary market purchases. The involvement of the IMF shall also be sought for the design of the country-specific conditionality and the monitoring of such a programme.So there. No one will say whether Spain is going for the country-specific conditionality – but "full macroeconomic conditionality" applies if it does. Crucially, IMF involvement would be "very welcome". This is all about addressing the "distortions" in the bond market, so it's all hands to the pumps. Interestingly, our Mario keeps repeating that the purchases will be "adequate to reach our objectives". As well as being adequate, we need two legs to make this work, the Draghi then says – obviously no fan of the paralimpiks. Last time there was only one leg, and that's why the last programme didn't work. One leg bad, two legs good - the ECB has spoken. COMMENT THREAD Richard North 06/09/2012 |
Eurocrash: tightening the screws
Thursday 6 September 2012
On the back of the latest ideas from the quartet, we also have an intervention from German foreign minister, Guido Westerwelle.
He wants the EU commission to have more power to take infringement proceedings against member states, for failure to comply with EU law. The first step would be to create a report on violations and require member state to remedy the deficiencies immediately. In the event of non-compliance, the commission could then refer the matter to the EU Council, which could freeze or cut payments due to members. Then, as a last resort, the existing process under Article 7 of the consolidated treaty would apply. This allows for the suspension of certain rights, including voting on the council. Westerwelle justifies his suggestions on the basis that there are so many hurdles in the way of Article 7 that, in practice, it is never used. Existing tools, therefore, are insufficient. This, however, is by no means the only intervention. EU Justice Commissioner Viviane Reding is also in print arguing for an EU justice minister and changes to the treaties. In a monetary union, "we talk every day about how we can achieve greater control and better supervision", she says, "but we also need this in the judicial field". If we are now talking about political union, the rule of law is a major point. We need stronger instruments. Reding's idea for an EU Minister of Justice thus puts in place an official who can enforce "the rule of law" in the EU. This should also include the right to bring an action before the ECJ if the independence of the judiciary is at risk in any country. This would most certainly apply if, for instance, the courts took political direction to set aside EU law. Then we have the Polish foreign minister, Radoslaw Sikorski, putting his oar in. He is proposing a merger of the presidencies of the EU commission, the council and the eurogroup, to create one overarching super-president. He also wants Europe-wide elections for the EU parliament, with supranational electoral lists – so that a hundred or so MEPs can be elected on a Europe-wide basis. His super-president would either be elected by the parliament, or by direct election. Interestingly, Sikorski acknowledges that treaty change is needed, and is specifically calling for a treaty convention, the only senior politician outside Germany to do so publicly. One recalls that, on Sunday, Mariano Rajoy admitted that Spain had submitted treaty proposals and, with Westerwelle's and Sikorski's input revealed, we are beginning to see the extent of theconsultation exercise which was reported in Süddeutsche Zeitung. This is far more, now, than merely "mood music". The pace is picking up and we are hurtling towards treaty change territory. And it is inconceivable that HMG is not aware of this developing situation. But so far, nothing has been said officially. One wonders when Mr Hague will deign to tell us what British policy is on all this. COMMENT THREAD Richard North 06/09/2012 |
Eurocrash: retreat to the bunker
Thursday 6 September 2012
While all eyes are on the Draghi show, Handelsblatt comes up with a stunning development: a trial balloon floated by the quartet for the new treaty.
Responding, presumably, to Merkel and others, who have been calling for more "democracy" in the eurozone, the four presidents of the quartet - Van Rompuy, Barroso, Juncker, and Draghi – have come up with the idea of giving the eurozone its own parliament.But this is just one element which emerged from a meeting of the quartet last Monday, with the four presidents now "working at full speed" on a "radical new architecture" for monetary union, far beyond anything so far proposed. A key element is the co-ordination of fiscal policy. The governments of the eurozone countries would have to submit their draft budgets to Brussels for approval. The commission could exercise its veto if an excessive deficit threatened. National government would be forced to make adjustments, which would then be voted on in the eurozone parliament. Within that framework, member states will be permitted to make their own taxation and spending decision, "as long as total debt and deficit in line with EU requirements", but there is a plan to impose a minimum rate on corporation tax to limit "harmful tax competition". Overall, fiscal and economic policy would be approved by the eurozone parliament. But this new body is not just a smaller version of the EU parliament. It would be made up of MEPs and national parliamentarians. However, we are told, there is "considerable opposition" to this idea, especially from the ten non-euro states. Such "reforms" will, of course, require treaty changes, which are "unpopular" and may also encounter resistance in countries such as France and the Netherlands. Despite this, the direction of travel is now becoming clearer by the day. A "core community" is in the making, with further integration focused on that group, leaving peripheral states in an outer circle. The "colleagues" are retreating to their bunker. COMMENT THREAD Richard North 06/09/2012 |
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