Tuesday, November 30, 2010

Open Europe press summary: 30 November 2010


Markets unconvinced by Irish bailout as contagion fears increase;
EU Commissioner admits two-speed eurozone is emerging
The bond markets remain unconvinced by attempts to halt the eurozone's sovereign debt crisis, despite the Irish bailout announced on Sunday. The amount of interest Spain's government must pay on its bonds climbed from 5.43% to a record 5.63% yesterday while Portugal's yield edged up from 7.03% to 7.07%. The yield on Ireland's bonds also rose. Attention is increasingly turning to Italy, whose bond yields increased from 4.66% to 4.77%. Belgium also saw a rise in borrowing costs.

The Independent quotes US economist Nouriel Roubini saying, "Like it or not, Portugal is reaching the critical point. Perhaps it could be a good idea to ask for a bailout in a preventative fashion." The Telegraph quotes Charles Dumas, from Lombard Street Research, saying, "The EU rescue fund cannot handle Spain, let alone Italy."

FAZ quotes French Budget Minister François Baroin saying, "It is important the whole world - and the investors - hear the message from Europe: We will save the euro". Les Echos quotes Benoît Hamon - a spokesman for the French Socialist Party - saying that "Europe and France should not have accepted to unblock €85bn" without asking Ireland to raise its corporate tax rate.

The FT reports that Irish central bank governor Patrick Honohan has confirmed that Ireland did not enforce haircuts on private investors in its banks in exchange for the ECB continuing "a liberal attitude" to supporting its financial system. The Irish Independent notes that opposition leaders have sharply criticised the Irish government for failing to force bondholders to take a share of the pain. Fine Gael, the main opposition party, said it has not yet decided whether to back next week's crucial austerity budget, the Guardian reports.

The WSJ notes that eurozone leaders' plans for a permanent rescue mechanism for the euro also contributed to market concerns. The plan is due to come into operation post-2013, with bonds issued after that date containing a clause requiring bondholders to take a haircut in the case of debt restructuring or default. However, analysts remain doubtful whether it is credible to assume that all bonds issued before 2013 are irrevocably safe from future haircuts. If a country runs into trouble in, for example, 2015, forcing losses on the small number of haircut-eligible bonds issued after the changeover wouldn't make much of a dent in the country's overall debt.

Meanwhile, the IHT reports that, after publication of new growth forecasts yesterday, EU Economic Affairs Commissioner Olli Rehn admitted that a two-speed eurozone might now be developing. "It has to be admitted, there is a certain dualism in Europe," he said.

The Times notes that Greece has negotiated an extra six years to pay back its €110bn bailout loan but only in return for increasing its interest rate to the same level as Ireland. Both will now pay 5.8% interest on the loans from the EU and IMF, above the 5.2% rate first agreed by Greece.

Eurozone comment round-up
In the IHT, Roger Cohen questions whether "the euro to the early 21st century is what the League of Nations was to the early 20th: a fine idea that became a political orphan and was condemned to unravel?"

In the FT, José-Ignacio Torreblanca outlines Spain's financial concerns and says that "the prevailing feeling is one of frustration with Germany" as "now, sadly, Ms Merkel's decisions are damaging Spain, turning Germany into a rival." Paul Krugman comments in the IHT that Spain would be "better off now if it had never adopted the euro - but trying to leave would create a huge banking crisis, as depositors raced to move their money elsewhere."

On his BBC blog, Robert Peston looks at the plans unveiled yesterday for a eurozone permanent crisis resolution mechanism and notes: "European finance ministers have in effect announced that the risks of lending to financially stretched eurozone countries would increase in two and a half year's time - which is no time at all for many investors. In practice this means that the eurozone has set itself a deadline of two and a half years to persuade investors that its finances are in order. If it fails to do so, a whole host of weaker eurozone states could find they are confronted with punitive borrowing terms or even a strike by lenders."

In Le Monde, Martin Wolf writes that Germany's insistence on budgetary discipline could not be enough to solve the debt crisis in the eurozone, since in countries like Ireland and Spain "it's the private sector, not the public sector, which has gone mad." He argues: "The Irish case shows that Germany's view of the way the eurozone should work is wrong: budgetary mindlessness is not the essential problem; budgetary discipline and debt restructuring are not the only solutions. One cannot draw any lessons from history if one fails to understand it." 

In the WSJ, Patience Wheatcroft agrees that "the essence of the problem is that the bailout in itself is not a solution. The heavy interest rate it carries is an almost built in guarantee of failure. The market does not believe that Ireland will be able to afford its new funds. That Greece has extended the terms of its rescue loans over a further six years, taking it to 2021, but only on condition that it too agrees to the same high level of interest payment as Ireland only exacerbates its own prospects of default."

MEP wants to tighten up Commission proposals on short-selling of sovereign debt
The FT reports that a key European Parliamentary report is seeking to toughen up the proposed curbs on short-selling and the use of credit default swaps (CDS) proposed by the European Commission in September. Pascal Canfin, a French Green Party MEP who is acting as 'rapporteur' on the legislation has proposed an amendment suggesting that traders should only be allowed to enter CDS transactions related to the sovereign debt of a member state of the EU if the entity has a long position in the sovereign debt of that issuer. The report also calls for more disclosure of short positions to regulators.

FT investigation reveals flaws in EU structural funds
An investigation by the FT and the Bureau of Investigative Journalism has revealed several flaws in the way the EU structural funds are administered. Internal documents from the European Commission seen by the paper show that the EU has so far paid out only 10% of the €347bn allocated for structural funds for the period 2007-2013. In addition, some of the world's biggest multinationals appear to have received money under this funding programme, which is supposed to provide support for small and medium-sized enterprises. EU structural funds are sometimes also used by companies to relocate part of their activities to other countries with lower labour costs, although this practice is explicitly forbidden.

In a separate comment piece in the paper, Tony Barber argues: "Too often the impression arises that those who know the EU's mysterious procedures from the inside are those who gain the most from its largesse. Like other areas of EU policymaking, regional aid needs accountability as well as a generous spirit."

Open Europe is quoted by Italian daily Il Fatto Quotidiano responding to last week's ECJ ruling clearing a 3.7% pay rise for EU officials and arguing: "At a time when all member states are cutting their budgets, European taxpayers can only consider an increase in EU salaries incongruous."

New EU member states oppose ceiling for direct farm subsidies
Negotiations on the future of the EU's Common Agricultural Policy after 2013 kicked off yesterday with a meeting of EU agriculture ministers in Brussels. AFP reports that three member states - Romania, Czech Republic and Slovakia - voiced their opposition to the introduction of an upper ceiling for direct aid to big individual farms proposed by the Commission.

Meanwhile, Euractiv notes that, at yesterday's meeting, France claimed a victory in its bid to defend the CAP budget from deep cuts after 2013. French Agriculture Minister Bruno Le Maire is quoted saying: "A year ago, the Commission's proposal was to cut the CAP budget by 30% to 40%, and to abolish all tools for intervention in agricultural markets. The work done on France's initiative has allowed us to reverse things, and today we have a Commission proposal [on post-2013 CAP] that is much more balanced."

European Voice reports that yesterday EU Commissioner for Transport Siim Kallas said he would propose legislation next year to strengthen security controls for cargo from outside the EU following last month's discovery of explosives in the UK on a flight from Yemen.

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: openeurope.org.uk or call us on 0207 197 2333.

Monday, November 29, 2010

Death to Eurabia?

Eurabia: A Voice Cries Out in Defense of Europe's Heritage

With  birthrates among traditional Europeans in decline while population          growth in Europe's Muslim communities soars, one European voice asks          whether Europe wants to preserve its cultural and religious  identity.         Will anyone listen before it's too late?

Read more - Eurabia

Open Europe press summary: 29 November 2010


EU finance ministers approve €85bn bailout package for Ireland
EU finance ministers yesterday gave the go-ahead to a €85bn bailout package for Ireland after an emergency meeting in Brussels. It has been agreed that Ireland's contribution to the rescue will be €17.5bn, coming primarily from its sovereign wealth fund - the National Pension Reserve Fund. The remaining €67.5bn is comprised of: €22.5bn from the IMF; €22.5bn from the European Financial Stabilisation Mechanism (EFSM, which the UK is part of); €17.7bn from the eurozone's own rescue mechanism, the European Financial Stability Facility (EFSF); a €3.8bn bilateral loan from the UK; a €0.6bn bilateral loan from Sweden; and a €0.4bn bilateral loan from Denmark.

Speaking after the announcement, Irish Prime Minister Brian Cowen insisted that the EU-IMF loan was essential for Ireland. "Can Ireland do without this package? The answer to that is no", he told reporters, adding that his government had considered "all possible policy options" before applying for a bailout. The average interest rate for the portion of the loan provided by the EU is around 5.8%, slightly higher than the 5% applied for Greece. The FT reports that some €10bn will be poured immediately into Ireland's banks in a bid to stem the outflow of deposits by major companies, while €25bn will be set aside as a "contingency fund" to help support Irish banks in future, if necessary. 

Meanwhile, the Observer reported that on Saturday more than 100,000 people took the streets in Dublin to protest against the government's four-year austerity plan.

In total, the UK's contribution to the Irish bailout will be worth an estimated €7bn. Chancellor George Osborne is quoted by the Guardian saying: "There is a loan going from Britain to Ireland of just over £3bn. Of course, Britain is also part of the EU and part of the IMF, so we stand behind their loans as well. It is in Britain's national interest."

However, the agreement reached yesterday hasn't stemmed fears of contagion to other eurozone countries. The Times reports that, in early trading this morning, the yields on Spanish and Portuguese 10-year bonds remained at the high levels seen last week. Ashok Shah, chief investment officer at investment firm London & Capital, is quoted by the Guardian saying, "Portugal is already in the borderline, it will have to be rescued soon, maybe within a matter of weeks. The market will also focus on Spain. It will remain very volatile", he warned. Le Figaro quotes French Finance Minister Christine Lagarde saying: "Sometimes the financial markets are irrational. But it's true that Europe is hard to understand. One never really knows who the boss is. They want to know: who decides? Who pays?"

Open Europe's Director Mats Persson is quoted by PA arguing: "It's clearly in everyone's interest for the jitters in the eurozone to calm. However, merely passing debt around countries, banks and the ECB, which is what the current bail-out arrangements effectively are doing, will not solve any of the fundamental problems of either Ireland or the eurozone as a whole."

New eurozone crisis mechanism will see bondholders involved on a case-by-case basis from 2013
Meanwhile, at yesterday's meeting, eurozone finance ministers also reached agreement on the creation of a new permanent resolution mechanism for ailing eurozone countries. The new fund will replace the existing €440bn EFSF when it expires in 2013.

In spite of Germany's demands to make bondholders take automatic "haircuts" in the event of future eurozone bailouts, under the scheme agreed yesterday the involvement of the private sector will be decided on a case-by-case basis. Eurozone finance ministers will decide by unanimity whether assistance is needed by a eurozone country. However, if the country's debt position is considered unsustainable by the IMF, the ECB and the European Commission, the concerned government will have to enter negotiations with its private sector creditors to restructure its debt. To this end, "collective action clauses" will be annexed to all eurozone government bonds issued after June 2013.  

Der Spiegel reports that Volker Wissing, financial expert from the FDP, German Chancellor Angela Merkel's coalition partner, has said that, if there are no talks by mid-December about the future participation of banks and financial investors in sovereign defaults, "there will be an uprising in the FDP."

Eurozone comment round-up;
Die Welt: Chancellor Merkel should prepare for a downsizing of the eurozone
In the Irish Times, Fintan O'Toole writes of the Irish bailout package, "This is not a rescue plan. It is the longest ransom note in history: do what we tell you and you may, in time, get your country back."

In the Telegraph, Ambrose Evans-Pritchard argues that "Germany must contemplate doing for Euroland what it has done for its own Volk in the East over the last 20 years - pay big transfers - or watch its strategic investment in the post-War order of Europe collapse with a bang, and in hideous acrimony. Tough call." In the Weekend FT, John Authers noted that German domestic politics holds the key to the euro's future. "If Germany cares enough about the eurozone to submit to market blackmail, then the crisis can be resolved; if not, life is more uncertain," he wrote.

Die Welt argues, "The Merkel government can hope that the current crisis management works, that the markets calm down and countries see reason on fiscal policy. That is possible but it is not probable. Instead, there is the alternative of deeper political union, which doesn't look realistic, or an orderly unwinding of the euro zone to fewer, relatively economically solid countries. Even if a government leader should not speak loudly about it, that is exactly what Chancellor Merkel should now prepare for."

Another editorial in the paper, under the headline "Myths of the Euro's benefits crumble", suggests Germany might be better off without the euro, arguing that "On talk shows and at social events, it is repeated like a mantra: the euro may be unpopular, but without it German industry, and thus the backbone of our economy, would be much worse...Investors have long had reason to doubt this claim." In Handelsblatt, columnist Ruth Berschens argues: "The future of the euro remains uncertain. The bitter reality cannot be eluded by anyone, not even the EU's finance ministers [...] Germany will have to pay the price for the stability of the euro...[but] its own demise will come at an even higher one."

In the WSJ, Irwin Stelzer argues that there are warning signs over Italy's future "with debt equal to 120% of gross domestic product, Italy is more heavily in hock than Portugal, its total debt running at 85% of GDP." He adds that Portugal's World Bank ease-of-doing-business rank is 31st, while Italy is ranked 80th.

Liam Fox drops promise to pull out of European Defence Agency
The FT reports that Defence Secretary Liam Fox has dropped his pre-election promise to pull Britain out of the European Defence Agency, which aims to co-ordinate military procurement across the EU. Mr Fox's aides reportedly said that the UK's longer-term membership was under review. Meanwhile, the Telegraph reports that EU officials have warned that a failure to break the deadlock over the 2011 EU budget could mean that Baroness Ashton's new diplomatic service will not be properly financed. The External Action Service is formally due to start work on Wednesday.

UK likely to opt in to EU cross-border traffic fines
The EU is to agree on a new directive on Thursday, which would enforce cross-border road traffic penalties in Europe, the Sunday Times reports.  Under new rules, British motorists could face six-figure fines if they are captured exceeding the speed limit in other EU countries. Sources close to negotiations have said that the new proposal, for which the UK has an opt-out, is expected to be endorsed by UK officials.
Sunday Times

In an Express article looking at EU agricultural spending, Open Europe's Mats Persson is quoted saying, "The CAP puts prices up, hits the poorest people in Britain hardest and hasn't even stopped the collapse of British farming" and that since the introduction of the single farm payment, farm subsidies have been obtained by airlines, golf clubs, cruise ships and pony clubs.

MPs join the Express' campaign to exit the EU
Saturday's Express noted that several MPs had joined its campaign for the UK's withdrawal from the EU, quoting a Cabinet source saying that the campaign "strengthens the hands of those of us in Government arguing that it is time to go." Writing in today's Express, Nigel Farage argues that the UK should leave the EU.

In the Sunday Telegraph, Jenny McCartney argued: "If recent events have demonstrated one thing very obviously, it is that, just because European integration was confusing, that didn't necessarily make it clever. Perhaps it is time for the British to make it unambiguously clear to politicians precisely how far in, or out, of Europe they really want to be."

An article in the FT argues that meeting the EU's renewable energy targets "will not be cheap. Ofgem, the energy regulator, has estimated £200bn of investment will be required in the energy sector alone to meet these targets." Meanwhile, in the Independent on Sunday, Energy Secretary Chris Huhne argued a tougher EU emissions reduction target would have a minimal effect on output.

The Sunday Express noted that four times a year, Maurice Ponga - an MEP from New Caledonia, a French colony near Australia - travels from his home to Strasbourg at a cost to the taxpayer of around £6,000 a time.

In the Sunday Telegraph, Kamal Ahmed looked at the EU's antitrust investigation into Google.

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: openeurope.org.uk or call us on 0207 197 2333.

Friday, November 26, 2010

Open Europe press summary: 26 November 2010


Portugal under pressure to seek aid from EU;
Die Welt: Commission proposal to increase bailout fund rejected by Germany
FT Deutschland reports that Portugal is under pressure to apply for assistance from the EU-IMF bailout fund, quoting a source from the German Finance Ministry saying, "If Portugal were to use the fund, it would be good for Spain, because the country is heavily exposed to Portugal". This has been denied by Portuguese, Spanish and German governments.

Spanish President José Luis Rodríguez Zapatero is quoted in Expansion noting that "Spain passed the bank stress tests" earlier this year, and Spain will "absolutely" not need an EU bailout. The Times reports that Spain's indebted regions are issuing their own bonds in an effort to cut debts. Spiegel notes that "if Spain falls, the euro falls", reporting that "next year Spain must obtain €65bn on the capital market in order to replace old debt with new."

According to Die Welt, the European Commission floated a proposal to double the EU's share of €440 of the bailout fund, echoing yesterday's comments by Axel Weber, Head of Germany's Bundesbank. The Commission has refuted the claim and the German Government was quick to reject the suggestion. Handelsblatt quotes Germany's Finance Minister, Wolfgang Schäuble saying, "I don't want to hear anything about these demands". This comes as Germany has seen credit default swaps measuring risk on German bonds rise significantly this week, reports the Telegraph.

A German government spokesman told FTD that a French-German proposal for a permanent crisis mechanism will be presented soon. French Finance Minister Christine Lagarde is quoted saying that the decision whether or not to include haircuts for private creditors should be decided "case by case", which is contrary to the German position. FAZ reports that the recent position in economic policy taken by Germany is being criticised harshly by the British financial sector as counterproductive and factually wrong. Erik Nielsen, European chief economist at Goldman Sachs, said "I am completely against the published concept, especially if future help for a member state should depend on a conversion of debt".

Meanwhile, Open Europe's Pieter Cleppe appeared on BBC World Service in a debate with Professor André Sapir, former Commission President adviser, discussing the eurozone crisis. "Sooner rather than later politicians in Germany will realise that there is no way out, that even if the rest of Europe wants to implement all the German proposals on better budgetary supervision, this won't be enough to avoid expensive bailouts. They might come to the conclusion that the least expensive conclusion is that a German bloc would leave the eurozone", said Pieter.

Eurozone comment round-up
On Conservative Home, Open Europe's board member George Trefgarne looks at the success of the Business for Sterling campaign, Open Europe's predecessor and also led by Lord Leach, in keeping the UK out of the euro, noting, "Not only do we as a nation owe them a debt of gratitude, their campaign was perhaps the most successful on the right of British politics for many decades". "What started as a somewhat lonely, marginal enterprise gradually gained momentum as, again and again, it not only made the right strategic calls, but the right tactical ones too...Imagine, however, if they had failed? It is no exaggeration to say Britain would be in nearly as bad a state as Ireland is now."

The Economist's Bagehot notes that "a Spanish collapse would take the eurozone's ills to a new level. Amid a global meltdown, perhaps Tories would forget their bluster and agree that British interests would not be served by standing aloof and watching Spain's reduction to economic rubble." In Spanish economic daily Expansión, Gabriel Calzada, Associate Professor of Economics at the King Juan Carlos University warns: "It's now or never. If the Spanish government doesn't act immediately, the euro and the European project could collapse like a castle of cards."

In the WSJ, Stephen Fidler argues: "The peripheral countries of the eurozone borrowed in a currency that belonged mainly to Germany and the other core countries of the eurozone [...] The euro did allow governments such as in Greece and Portugal to pile on debts that otherwise would have been recognized as unsustainable. When governments in what used to be called the third world defaulted, they often did so with those debts at between 40% and 60% of GDP."

On Reuters's Breaking Views, Noah Barkin writes: "Unthinkable only a few weeks ago, a small but growing number of experts now believe some version of this nightmare scenario could become a reality for the eurozone."

An editorial in Le Monde criticises German Chancellor Angela Merkel's recent suggestions that bondholders should assume part of the losses in the event of a sovereign debt crisis in future and argues: "This is not the moment, in the midst of a confidence crisis, to make statements that can do nothing but make Ireland's borrowing costs soar! This is the moment to show unity and solidarity. But is this Berlin's wish?"

Dutch financial commentator Jacob Schoenmaker argued on RTL, "it doesn't make sense to raise the eurozone aid package. The €750bn is already worked out. Add €300bn to €500bn to that, and you don't get there. Spanish public debt is €170bn. If speculators targeted Italy, it would be too big as well."

Luxembourg PM Jean-Claude Juncker is quoted in Reuters saying, "I am neither worried about the survival of the euro nor about the survival of the European Union. I am, however, concerned that in Germany the federal and local authorities are slowly losing sight of the European common good."

The Express continues its campaign calling for the UK to leave the EU. An article in the paper quotes an Open Europe's survey showing that 54% of 1,000 quizzed company chief executives believed that the burden of EU regulation "outweighed" the benefits of the single market. The article also picks up some examples from Open Europe's list of top 50 cases of EU waste.

The Guardian reports that Learco Chindamo has been arrested for an alleged robbery four months after he was released from prison for a murder in 1995. Chindamo won an appeal three years ago against being deported to Italy - his native country - after his lawyers successfully argued that the deportation would have been illegal as Chindamo was from an EU country and had already lived in the UK for 10 years by 1995, in accordance with the EU's freedom of movement directive.

Commission releases new 2011 budget proposal with 2.9% increase in addition to a €3.5bn "contingency fund"
The Commission released a revised plan today for the EU's 2011 budget, proposing a 2.9% increase, as demanded by member states in contrast to the freeze originally demanded by the UK and the 6% increase supported by MEPs. The Commission notes that new concessions are made to MEPs in the form of a "contingency fund" of up to €3.5bn in the event of "unforeseen circumstances".

The Express criticises the Commission's new website "The EU: What's in it for me?" as a waste of £45,600 of public money. Open Europe's Stephen Booth is quoted saying, "The EU's public relations efforts verge on propaganda rather than genuine information, but citizens aren't fooled that easily".

The Economist's Charlemagne looks at the state of play of EU-US relations and argues: "The reality is that, to American leaders, 'Europe' means, first, NATO, then national leaders, and only lastly the EU [...] Despite the Lisbon treaty's grand foreign policy aspirations, the EU has not learned to think in geopolitical terms. Now the eurozone's woes have diverted attention inward again. Not surprisingly, many Americans find the EU infuriating."

EUbusiness reports that a Treasury spokesperson said yesterday that Chancellor George Osborne "will be writing to his EU counterparts to suggest new EU-wide transparency rules on bankers' bonuses" in line with the conclusions of last year's  government-commissioned report.

Russian Prime Minister Vladimir Putin spoke yesterday of his ambitions for a Russia-EU free trade agreement, writing in Spiegel of "a unified continental market with a capacity worth trillions of euros." In response, German Chancellor Angela Merkel commented that "the steps that Russia has taken recently do not point in that direction."

The Guardian notes that a report from Counter Balance, a group of NGOs, claims that £932m of annual aid from the taxpayer-funded European Investment Bank to Africa and the Caribbean has disappeared into African banks, a Luxembourg tax haven and a Nigerian bank whose managing director was under investigation for fraud.Guardian

A petition has been launched urging that the European Citizens' Initiative (ECI) should be allowed to run for more time (18 months), and should not require signatures from more than one-fifth of member states.

Bloomberg reports that the EU may propose extending the disclosure rules for securities to bonds in a review of the Markets in Financial Instruments Directive.

DPA reports that Germany and several other states will pursue the implementation of a European patent on their own, under the concept of enhanced co-operation, after talks broke down due to resistance from Italy and Spain.

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: openeurope.org.uk or call us on 0207 197 2333.