Friday, November 19, 2010

Open Europe press summary: 19 November 2010


Ireland accepts need for "external assistance" as bailout talks turn to thorny issue of low corporation tax
Discussions between the Irish government, the EU and IMF continue regarding a bailout for the country. The WSJ quotes Irish Finance Minister Brian Lenihan saying, "It's clear we will need some form of external assistance...We have to find a resolution to our banking difficulties with whatever external assistance is appropriate." Former Taoiseach John Bruton described the IMF's arrival as a "very, very sad day for Ireland". Irish Labour leader Eamon Gilmore today demanded that PM Brian Cowen resign.

French and German officials are pressing Ireland to increase its low corporate tax rate in return for an aid package, saying that this has become a major point of contention in the talks. The FT quotes a French official saying, "They need lots of money and we note they have a corporation tax rate that is very low. Supply must follow demand." The Irish Independent quotes Irish Deputy Prime Minister Mary Coughlan saying, "The 12.5% corporation tax is not negotiable."

The structure of the anticipated Irish bailout remains unclear but looks set to focus on the banking sector. Mr. Lenihan told MPs yesterday afternoon that the negotiations will be focused on "providing capital - or a contingency capital fund - that can stand behind the banks." Money could be borrowed from the IMF and the EU, with other bilateral funds paid into a pot, in effect creating a massive cash buffer for the banks in case they run out of money.

The Mail notes that David Cameron made clear to MPs yesterday that a British loan to Ireland is a possibility. "I certainly don't want to rule anything out," he said, adding, "Our banks are very connected to the Irish banks."

Meanwhile, the Telegraph notes that
the ECB has issued a clear warning that it will press ahead with plans to raise interest rates and withdraw lending support for banks despite the eurozone debt crisis. ECB President Jean-Claude Trichet said, "The central bank must guard against the danger that the necessary measures in a crisis period evolve into a dependency." Handelsblatt also notes that ECB President Jean-Claude Trichet is "gravely concerned" that the proposed reforms of the Stability Pact are not strict enough.

The Spanish and Portuguese governments have both publicly ruled out rescue packages for their countries, and Spain's debt auction yesterday produced interest rates lower than expected.

Handelsblatt reports that EU Competition Commissioner Joaquín Almunia plans to introduce a new EU regulation making it harder for banks to receive aid from member states. The new regulation which is expected to come into effect on 1 January 2011 entails that banks applying for state aid will have to provide a restructuring plan, no matter how big the volume of the aid might be.  

Eurozone comment roundup
In response to the Irish crisis, Stephen Fidler writes in the WSJ, "It's hard to resist asking again what the stress tests into the state of the European banks in July were actually for... Allied Irish Banks and Bank of Ireland passed the stress tests in July". A leader in FT Deutschland argues, "The only thing you can blame the Irish government for is that they underestimated the problems of their domestic banks...Instead of scolding the Irish, Europeans should remember the causes of this disaster".

The frontpage of Handelsblatt argues that "the strict policies of Chancellor Merkel towards the indebted countries damages German interests." It argues that saving and punishing are the key words of the Chancellor, which "won't make sure that our interests - the repayment of debts, the stability of banks and the survival of the Eurozone - are safeguarded".

At a debate organised by the European People's Party in Brussels yesterday, European Commissioner Michel Barnier said that "Europe without the euro, is not possible". An editorial in Le Monde notes "Indeed, the EU will cope with [the Irish crisis]. It has established a mechanism, the European Financial Stability Facility, which is going to be activated [...] And we will go out of this misadventure like going out of a good Irish pub - a bit groggy. Waiting for the next 'crisis'".

Open Europe's Stephen Booth argues on the news website, "The eurozone's fundamental problems will not be addressed by a bailout. So, if the UK is forced to contribute, British taxpayers need some reassurance that good money will not simply be thrown after bad."

An article in Handelsblatt warns that "Ireland is gambling with its sovereignty". A leader in the Economist argues: "The Irish are right that they have enough money to last until the middle of next year...But they could face bank runs long before then. On the other hand, the Irish are also right to be suspicious of intentions in Brussels and Berlin. Too much of the EU's motivation seems to be to punish Ireland for its Anglo-Saxon ways--especially its highly competitive 12.5% tax rate on corporate profits, which helps it attract foreign firms. Raising this would be madness".

On the Spectator's Coffee House blog, Open Europe Director Mats Persson argues: "The part of the eurozone bail-out package which Britain could be underwriting to the tune of £6-7 billion - the so-called European Financial Stability Mechanism - is not protected by a UK veto. This means that the mechanism can be triggered by a majority vote amongst EU ministers, and that the UK could be outvoted". He goes on to argue, "If anything, bilateral rescue arrangements between similar economies have a far better chance to end happily than messy multilateral bail-outs which come with ideologically fuelled demands (i.e. German or European Commission demands for raising the corporate tax rate which would be economic suicide for Ireland). The joint loan given by the Nordic countries to Iceland when that country hit the wall in 2008 could be one model."

On the Telegraph blog, Daniel Hannan MEP argues: "Ireland could adopt the pound and treat its loans as having been issued in sterling. Immediately, Eire would be able to start exporting its way back to growth...the problem of inappropriate monetary policy would disappear".

EU Agriculture Commissioner: Direct EU farm support is fully legitimate
EU Agriculture Commissioner Dacian Ciolos unveiled yesterday a set of proposals for future of the EU's Common Agricultural Policy post 2013. European Voice notes that the proposals include an upper ceiling for direct payments to large individual farms and the evening out of disparities in the size of direct payments between member states. The Commission also plans to abolish dairy quotas by 2015.

One of the three policy options looks at a gradual phasing out of direct payments in their current form. However, Mr. Ciolos is quoted in Le Monde arguing: "Direct aid is a means to support farmers' revenue. This support is fully legitimate since we know that farmers' revenue is 40% lower than the average salaries in Europe." French Agriculture Minister Bruno Le Maire is quoted by AFP saying that "many elements [of the Commission's communication] reflect the Franco-German common position" agreed in September.

Open Europe's briefing on 50 examples of EU waste was reported yesterday in Hungarian papers ATV and Del Magyar and featured on Hungarian radio.

Euractiv Deutschland reports that Dutch Finance Minister Jan Kees de Jager has said that his German counterpart Wolfgang Schäuble contributed to break down negotiations over next year's EU budget. Meanwhile, in a letter to the FT, former European Commission President Jacques Delors and other pro-EU politicians and academics have warned that "curtailing the EU budget [...] would condemn the EU to economic depression or at best stagnation."

"ECB is more leveraged than the average hedge fund"
Peter Jungen, who is the President of SME Union, the pro business wing of the European People's Party (EPP), highlighted at an EPP debate that the ECB is more leveraged than the average hedge fund. He said the ECB is leveraged 21 times, and the Eurosystem 24 times, while the average hedge fund is only leveraged three to four times. He added, "A fall in assets of 4.2% would wipe out the reserves of the ECB balance sheet, which begs the question: who will then bail out the ECB?" He further said that if the ECB applied mark-to-market accounting, it would already be insolvent.
SME Union

FT Deutschland reports of a new OECD study according to which Germany's export trade imbalance will exceed that of China in the next two years.
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In an interview with La Repubblica on the eve of this weekend's EU-US summit in Lisbon, US President Barack Obama has said that "the US strongly supports Turkey's entry into the European Union."

Writing on Conservative Home, Richard Ashworth, Martin Callanan and Charles Tannock set out their stalls in the race to lead the Conservative MEPs in the European Parliament.

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