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."
European Voice European Voice 2 Le Figaro El País Le Monde WSJ BBC BBC: Peston Coulisses de Bruxelles La Stampa: Zatterin Economist: Charlemagne RTL JDD Independent Irish Independent Irish Independent Welt WSJ 3 WSJ 2 Nouvel Observateur Le Figaro Euractiv Euobserver Independent Irish Times Irish Times 2 International Herald Tribune Irish Times Irish Times 2 Guardian Times Telegraph Express FT FT 2 FT: Analysis Guardian FT Guardian Times FT FT 2 Saturday's Telegraph FT Observer Sunday Telegraph Sunday Express Sunday Express 2 Mail on Sunday Mail on Sunday Independent on Sunday Independent on Sunday Sunday Times FT
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.
Telegraph: Evans-Pritchard FT: Leader FT: Munchau Independent on Sunday: McRae Independent on Sunday: Kuo Sunday Times: Crafts WSJ: Stelzer WSJ WSJ 2 Le Figaro: de Capèle Weekend FT: Authers Sunday Times: O'Connell Independent: O'Grady Irish Independent: Keenan Irish Times: Collins Irish Times: O'Toole Handelsblatt: Berschens Spiegel FAZ: Busse Die Welt Die Welt 2
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.
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."
Saturday's Express Saturday's Express 2 Saturday's Express 3 Saturday's Express: Lord Stevens Saturday's Express: O'Flynn Express: Farage Express: McKinstry Sunday Telegraph: McCartney
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.