Cyprus, the small economy with the relatively massive bank recapitalisation problem, may have some kind of good news in its quest for a bailout: Germany might not be so wedded to blocking or delaying said bailout after all.
The Eurogroup finance ministers have inched things forward with their long Monday summit, but the press conference in the early hours of this morning also reaffirmed that many big questions remain.
The first headline is that Spain gets an extra year to meet its 3 per cent deficit-to-GDP ratio target. Just as well, because the country was extremely unlikely to hit that by the end of next year. The Journal reports that a draft statement says this means Spain can now run a 6.3 per cent deficit this year without risking penalties, compared with 5.3 per cent under the 2013 target. Read more
A tense Sunday in Athens as the Greek parliament approved an austerity budget amid violence in the streets that included riot police firing tear gas and stun grenades at protesters while buildings throughout the city were firebombed:
The legislation passed by 199 votes in favour to 74 against, a convincing majority for Lucas Papademos, the caretaker prime minister who has been given the job of pushing through painful reforms demanded by the European Union and the International Monetary Fund in return for a second €130bn bail-out. … Read more
Having been Schäubled late on Thursday, here’s the actual statement issued early on Friday by Greek finance minister Evangelos Venizelos. We’ve emphasised the rousing, emotional stuff…
(Via Google translate; original here if you read Greek) Read more
Greece’s finance minister angrily rejected a German plan for the eurozone to impose a budget overseer onto Athens in return for a new €130bn bail-out, saying it would improperly force his country to choose between “financial assistance” and “national dignity”, reports the FT. Evangelos Venizelos said the proposal to create a EU “budget commissioner” with the power to veto Greek tax and spending decisions, published in an earlier FT, “ignores some key historical lessons”. He added EU lenders already had sufficient monitoring safeguards in place in its bail-out programme. Germany’s finance minister Wolfgang Schauble reacted with a warning that the eurozone might refuse Greece a fresh bail-out, telling the WSJ that Europe is “prepared to support Greece” with the new loan package, but: “Unless Greece implements the necessary decisions and doesn’t just announce the…there’s no amount of money that can solve the problem.” Angela Merkel faces growing political pressure at home over any call for new taxpayers’ money to bail out Greece, reports the FT separately. Meanwhile Der Spiegel (via Reuters) says the troika of official creditors to Greece believe the bail-out may have to be enlarged from 130bn to 145bn, citing an unnamed representative of the troika. However an EU summit due to start on Monday risks being derailed by the disagreement over Greece, says Bloomberg. Private creditors are now prepared to accept a coupon as low as 3.6 per cent on their bondholdings, it quotes a source as saying.
Eurozone finance ministers are weighing more radical options to strengthen their firewall against the sovereign debt crisis, after acknowledging that plans to expand the €440bn eurozone rescue fund could deliver as little as half the extra punch that was anticipated, says the FT, adding that exploratory discussions at a meeting in Brussels on Tuesday evening covered the option of funnelling ECB loans via the IMF to struggling countries. European finance ministers agreed on terms for to expand the EFSF’s firepower on Tuesday night via insuring 20 to 30 per cent of sovereign debt issues and trying to attract private investors into sovereign debt funds, but the deal is increasingly seen as “yesterday’s solution”, as it will not be able to leverage up enough to arrest the region’s crisis, says the FT. Germany’s finance minister, Wolfgang Schauble, has told Handelsblatt that the EFSF was too “intricate and complex” for investors to understand, says The Telegraph.
More EU pantomime on Wednesday:
Take one, via Reuters: Read more
Wolfgang Schäuble, Germany’s finance minister, wants the European Union to take the global lead in introducing a financial transaction tax to curb speculative trading, along with tougher regulation of big banks and the “shadow” banking sector, such as hedge funds, the FT reports. If the UK blocked agreement on such a tax in the full EU, the eurozone should press ahead on its own, he said. He also called for big steps towards a “fiscal union” in the 17-member monetary union to underpin the stability of their common currency. Speaking just days before the G20 summit of global economies in Cannes, Mr Schäuble spelt out his conviction that failure to reach agreement on tougher financial regulation by the full G20 should not stop Europe acting alone. He insisted that the eurozone was not “on a negotiating trip” to seek help from G20 partners such as China to stem contagion from the Greek debt crisis. “You don’t get any free gifts in the market,” he said. “You must offer sensible investment opportunities.” He denied that Europe would offer political concessions to attract investors.
Wolfgang Schäuble, Germany’s finance minister, wants the European Union to take the global lead in introducing a financial transaction tax to curb speculative trading, along with tougher regulation of big banks and the “shadow” banking sector, such as hedge funds. If the UK blocked agreement on such a tax in the full EU, he said in an interview with the FT, the eurozone should press ahead on its own. Speaking just days before the G20 summit of global economies in Cannes, Mr Schäuble spelt out his conviction that failure to reach agreement on tougher financial regulation by the full G20 should not stop Europe acting alone. He also called for big steps towards a “fiscal union” in the eurozone, saying there was a need for “stronger institutions to oversee the implementation of a commonly agreed finance policy”. The changes might focus on Article 136, says the FT, setting out how the 17 eurozone members can agree “measures specific” to themselves on budget discipline and economic policy, which might be a way to avoid offending the UK government in particular.
France’s president Nicolas Sarkozy flew to Frankfurt on Wednesday night for an emergency meeting on the eurozone crisis at Jean-Claude Trichet’s farewell party, while his wife Carla Bruni was giving birth to their first child. Bloomberg reports that with just four days before the summits that are supposed to announce a solution, there was Franco-German tensions appear to be persisting. The FT reports other attendees at the meeting, held in the wings of the festivities at the Alte Oper in Frankfurt, were German chancellor Angela Merkel, along with Mario Draghi, Mr Trichet’s successor, and Christine Lagarde, head of the IMF. Herman Van Rompuy, president of the EC, and José Manuel Barroso, president of the EC, were also involved, as were François Baroin and Wolfgang Schäuble, the French and German finance ministers. The meeting broke up after two hours with neither the German or French leaders making any comment. German officials on Wednesday reaffirmed the country’s opposition to the ECB providing the European rescue fund with a line of credit. Ms Merkel, who has little room to manoeuvre on the EFSF in Berlin, will address Bundestag with Mr Schauble on Friday morning. Earlier, the FT reported that EU bank recapitalisation plans may fall well short of expectations, with a level of €80bn being discussed. The finance ministry denied a report in FT Deutschland that Mr Schauble had talked of the EFSF firepower being increased to €1,000bn, says Bloomberg.
Angela Merkel, the German chancellor, and France’s President Nicolas Sarkozy spelt out their determination to defend the stability of the euro as they met for a bilateral summit in Berlin, the FT reports, but refused to spell out any further details of their plans. Mr Sarkozy insisted that the two leading governments in the eurozone were pursuing a common course, and were ready to announce a comprehensive package before the summit of the G20 leading global economies in France at the beginning of November. The only concrete statement they made, however, was Ms Merkel’s announcement that “we are determined to do whatever is necessary for the recapitalisation of our banks”. There was no sign that the two governments had yet managed to resolve their differences over whether the cash for such an exercise will come from national treasuries or from the €440bn EFSF. Bloomberg says the focus on what both called a “durable” solution signals a willingness to accept more extensive haircuts for bondholders, which Mr Sarkozy has resisted. Separately, Wolfgang Schäuble, German finance minister, told Frankfurter Allgemeine Sunday that the participation of private creditors in the latest Greek rescue plans for Greece might have to be reviewed, and German news agency DPA, citing unnamed people involved in the negotiations, reported that haircuts of up to 60 per cent were being discussed.
Germany strongly rejected mounting calls for the eurozone to issue joint debt at the weekend, but signaled it was open for the bloc to move toward a form of fiscal union, Reuters says, with the finance minister saying he personally supported a European counterpart. Chanceller Angela Merkel told ZDF, the public broadcaster, that eurobonds “are exactly the wrong answer to the current crisis”. “They lead us to a debt union and not to a stability union,” she added. The FT says it was one of Ms Merkel’s most comprehensive rejections of the eurobond idea so far, and she was backed by Wolfgang Schäuble, her finance minister, who said the eurozone would become an “inflation community” if countries opted to sell a joint bond without first unifying their fiscal policies. Mr Schäuble is due to meet his French counterpart François Baroin on Tuesday to discuss the crisis, including proposed remedies such as a tax on financial transactions.
Germany and France are ruling out common eurozone bonds to solve the bloc’s current debt crisis, the FT reports, in spite of renewed pressure ahead of a meeting of chancellor Angela Merkel and president Nicolas Sarkozy on Tuesday. Wolfgang Schäuble, German finance minister, made clear in an interview with Der Spiegel, that Berlin remains opposed to such a policy. “I rule out eurobonds for as long as member states conduct their own financial policies and we need different rates of interest in order that there are possible incentives and sanctions to enforce fiscal solidity,” he said. Senior French officials also played down speculation that any firm announcement on jointly issued bonds would be issued after meetings when Ms Merkel comes to Paris on Tuesday.
Christine Lagarde, France’s finance minister, has emerged as the top contender to run the IMF after being strongly endorsed by her German and British counterparts, who want to maintain Europe’s 65-year grip on the global institution, reports the FT. Both George Osborne, UK chancellor, and Wolfgang Schäuble, Germany’s finance minister, said at the weekend Lagarde was the best candidate for the post. However, Schäuble told the Bild am Sonntag newspaper, it was “crucial for “Europe to speak with one voice on this question.” The finance ministers of South Africa and Australia on Sunday signalled that Lagarde does not enjoy the same support outside Europe, calling for candidates to be selected on ability rather than nationality. Dominique Strauss-Kahn, a former French finance minister, resigned as IMF managing director last week after his arrest on sexual assault charges in New York.
Portugal’s cost of borrowing brushed close to euro-era highs on Tuesday as Germany resisted calls to bolster the eurozone’s bail-out fund for heavily indebted economies on the continent’s periphery, the FT reports. Portuguese bond yields jumped above 7 per cent – a level that Lisbon has admitted is unsustainable – after concerns rose that the eurozone crisis could worsen, following comments from Wolfgang Schäuble, the German finance minister. Mr Schäuble appeared to put the brakes on plans to increase the size and scope of the €440bn ($588bn) European financial stability facility, at the end of ministerial meetings in Brussels, saying “It cannot be that European solidarity just means that six countries carry solidarity and the others profit.” Mr Schäuble’s comments also hit other peripheral bond markets, with yields rising sharply in Greece and Ireland and a bond auction in Belgium.
It is just as well that the formidable Wolfgang Schäuble is Germany’s finance minister rather than its foreign minister — a role that might need a little more delicacy than the inciendary approach he clearly feels is required in a finance minister’s verbal arsenal.
This year alone, the famously combative Schäuble has succeeded in putting noses out of joint within the Federal Reserve and the US Treasury, the EU, and now across international financial markets … not bad for just 10 months work. Read more
Europe’s leaders face fresh divisions over tackling the eurozone’s escalating crisis as EU finance ministers meet on Monday amid pressure to quickly create a market for joint European government bonds — a move almost certain to be blocked by Germany, reports the FT. Jean-Claude Juncker, Luxembourg’s prime minister who also chairs eurozone finance ministers’ meetings, and Giulio Tremonti, Italy’s finance minister, argue in Monday’s FT that the launch of a market for “E-bonds” would send a clear message to markets about the “the irreversibility of the euro” and would be as liquid as that for US Treasuries. But Germany’s Wolfgang Schäuble – on Monday named the FT’s European finance minister of the year – told the FT that jointly guaranteed bonds would require “fundamental changes” in European treaties.