Monday, May 17, 2010

Open Europe press summary: 17 May 2010


UK facing defeat on EU alternative investment rules;
Merkel: "Unfortunately we have to overrule the UK, but that is possible with a majority"
The European Parliament's ECON committee will today vote on the EU's proposed AIFM Directive, and EU finance ministers will tomorrow vote on the proposal. The weekend press reported that the UK will not have enough allies to block the Directive as negotiations currently stand, and could therefore be outvoted under qualified majority voting rules. FAZ quotes German Chancellor Angela Merkel saying, "Unfortunately we have to overrule the UK, but that is possible with a majority."

The Sunday Telegraph quoted a UK Government source saying, "There is a majority in favour of the directive and we don't want to be in a position where we squander any negotiating capital we have for the future on an issue it doesn't appear we can win." The Independent notes that UK Chancellor George Osborne's request to delay the vote was rejected by other EU ministers on Friday.

The Independent on Sunday quoted former City Minister Lord Myners claiming that the Labour Government had succeeded in watering down the Directive. "There isn't anything left in this directive which will threaten the viability of the UK hedge fund industry or the long-term position of London as the centre of that activity," he said.

However, the article notes that both the previous and new Treasury teams have been negotiating to stop the "passport" part of the Directive which requires all hedge funds to register in all the countries where they operate. Unclear wording in the Ministers' draft version could also give the EU Commission the mandate to instruct national regulators to impose pre-set caps on the amount of money fund managers are allowed to borrow - a move which in fact could increase market instability.

Writing in the Sunday Telegraph, Kamal Ahmed argued, "Mr Osborne has decided to fold now and save his battles with Europe for another day." In the European Parliament's draft the contentious issues are market access for non-EU funds; strict rules for where managers should be allowed to deposit their assets; and extra disclosure requirements for companies controlled by private equity groups.

Euro falls to four-year low against dollar
The euro has today fallen to a four-year low against the dollar, amid renewed fears over the eurozone. Markets also fell on Friday on the news that French President Nicolas Sarkozy had threatened to leave the euro unless Angela Merkel agreed to assist Greece in the eurozone bailout package. El País reported on Friday that "Sarkozy went so far as to bang his fist on the table and threaten to leave the euro", according to a Spanish politician, and quoted a European diplomat saying: "It was Sarkozy on steroids".

An article on Handelsblatt online carries the headline "end game for the Euro", and reports that "the European common currency further crashes to a new 4 year low, despite the billions in aid. For the Finance Ministers of the Eurozone countries at their meeting in Brussels it is therefore everything or nothing: if the politicians don't manage to convince financial markets of the success of the remediation efforts, the confidence in the currency will be gone. The end game of the Euro then starts."

AFP reports that, following the ECB's decision to purchase government bonds, German liberal finance expert Frank Schäffler MP has demanded the immediate replacement of ECB President Jean-Claude Trichet by Bundesbank chief Axel Weber, saying that "The purchase of junk bonds is the guillotine for the euro."

An FT/Harris poll published today reveals that 53% of those polled in France think it is likely that their government will be unable to meet its financial commitments within 10 years, and 27% think it is unlikely. Only 33% of British people polled thought the country would be unable to meet its debts. About 35% of Spaniards and 28% of Germans said a default was likely.

Reuters reports that a poll in Germany by the Allensbach Institute has found that half of Germans want the German Mark back. 

EU finance ministers to discuss proposals for greater economic coordination;
Merkel: "We've done no more than buy ourselves time"
Eurozone finance ministers meeting in Brussels today, and EU finance minsters meeting tomorrow, will discuss their public finances and the Commission's proposals, presented last week, for greater surveillance of member states' budgets before they are approved by national parliaments.

The Sunday Express reported on the Commission's proposals and quoted Open Europe's Sarah Gaskell saying: "Any suggestion that budgets should be more tailored towards the EU is undemocratic and a huge encroachment on member states' powers. The UK Government must be vigilant in opposing moves to­wards an economic government for the EU."

German Chancellor Angela Merkel, speaking to the German Federation of Trade Unions yesterday, said: "We've done no more than buy time for ourselves to clear up the differences in competitiveness and in budget deficits of individual eurozone countries. If we simply ignore this problem, we won't be able to calm down this situation". ECB Chief Economist Jürgen Stark told FAZ that market turmoil would only calm down if eurozone member states reform their economies and reduce their deficits, adding: "We bought time, not more than that."

EU Central Bank President Jean-Claude Trichet  backed proposals for stronger economic coordination in the EU in an interview with German magazine Der Spiegel over the weekend, saying: "There is a need for a quantum leap in the governance of the euro area."

In an interview with FAZ, French Finance Minister Christine Lagarde said that it is "important that the Euro group, as a democratic and representative institution, carries weight in this process. We need a new distribution of roles between the Euro group and European Commission, which isn't a representative organ of a legitimate state representation. The Commission should not decide on the economic or fiscal policies of the member states."

Meanwhile, the front page of the FT reports that the German government wants to press other eurozone countries to adopt their own versions of Berlin's balanced budget law. The law prohibits the federal government from running a deficit of more than 0.35% of GDP by 2016, and prevents German states from doing the same after 2020. The article quotes one government official saying: "Something like that would be a good idea for other countries to have - although it might take on different shapes and forms for each member of the eurozone".

The idea has already won backing, with Austrian Finance Minister Josef Pröll telling Die Welt: "Considering the high indebtedness in Europe, I am in favour of a Schuldenbremse [German budget law]."

Speaking on Belgian TV Een, EU Trade Commissioner Karel De Gucht raised the possibility that Greece would have to leave the eurozone, saying: "I think that Greece is obliged to do the reforms. If not, one will have to decide at some point that Greece is no longer within the Euro. Or a debt restructuring will have to be done in Greece". Bild quotes former CSU leader Edmund Stoiber saying: "when a state refuses to bring its finances into order, then it should be possible that the other members of the Eurozone exclude it".

William Hague: UK will fight for 'guarantees' on justice, social and employment laws during this parliament
Writing in the Irish Times, Foreign Minister William Hague sets out the new Conservative-led Government's EU policy, writing that the EU needs to improve economic competitiveness and that the Government "remains firmly convinced of the merits of further union enlargement." Hague adds that the UK also "intends to play a leading role in discussion of the union's external affairs", calling for a "more muscular and demanding approach" in the Balkans in particular.

However, he argues, "British voters were denied any say over the [Lisbon] treaty, either at a general election or in a referendum and in breach of the last government's election manifesto commitments. That denial has done grave damage in Britain to the EU's democratic legitimacy, and that legitimacy is now in need of repair."

Hague adds, "In a speech last November, Prime Minister David Cameron set out how we intend to do that - by domestic measures to make the EU more accountable and by negotiating for specific British guarantees on the Charter of Fundamental Rights, the operation of the EU's competence in criminal justice and on social and employment legislation. We have been very clear that the purpose of these measures is not to frustrate or sabotage the operation of the EU but to put Britain's role in the union on a more positive footing. We aim to achieve these guarantees over the lifetime of our newly-elected parliament."

He concludes, "It is right that we should establish the principle that European integration is not a one-way street so that powers can be returned from the EU to its member states."

EurActiv looks at the new Government's agreement on Europe policy and cites Open Europe welcoming the commitment to hold a referendum on any future Treaty changes. Open Europe Director Mats Persson is quoted saying: "What cannot happen is for the new government to adopt the calculating, spinning, referendum-dodging approach of its predecessor in order to avoid facing up to the electorate and honouring its pledges, particularly on the transfer of powers to Brussels."

In the Sunday Express, Julia Hartley-Brewer noted that, although the Con-Lib coalition has committed to imposing a "referendum lock" on all future treaty changes that transfer further powers to Brussels, Mr Cameron and Mr Clegg "might have a different definition of what constitutes a 'transfer of powers'".

Meanwhile, the Mail reports that Conservative MP Douglas Carswell has revealed that he and other backbenchers will campaign for a referendum on changes to the Lisbon Treaty that would see an extra 18 MEPs take their seats in the European Parliament before 2014. Although the Treaty change will have to be approved by Parliament, a referendum would not apply to the Lisbon Treaty as a whole, which has already been passed into UK law.

The FT notes that George Osborne appears to have dropped the idea of permanently stationing a Treasury minister in Brussels, but said that he wanted "Treasury ministers out there" fighting Britain's corner, starting with new plans for EU-wide financial regulatory bodies.

ECJ ruling threatens to saddle Austria with millions more to be spent on civil servants
Die Presse reports that a ruling by the European Court of Justice could lead to liabilities of several million euros for Austria's government. The court ruled against age thresholds for years spent outside the civil service, which count toward its promotion schedule. The ruling could yet lead to the wholesale promotion of civil servants into higher categories.
Die Presse

Writing in the Sunday Telegraph Christopher Booker questions the usefulness of the UK having a Europe Minister in the Foreign Office: "The real question is: why should the Foreign Office have a Europe minister at all?" He adds, "So much of our government is now run by Europe that pretty well all our ministers are Europe ministers".

Open Europe is an independent think tank campaigning for radical reform of the EU. For information on our research, events and other activities, please visit our website: or call us on 0207 197 2333.