Monday, June 21, 2010

Open Europe press summary: 21 June 2010

On Wednesday 23 June Open Europe is holding an event in Brussels from 5 - 6.30pm, entitled "The EU after the euro crisis: superstate or disintegration?" Speaking at the event will be: Dan Hannan, UK MEP; Jochen Bittner, EU Correspondent for Die Zeit; Giles Merritt, Secretary-General, Friends of Europe; and Mats Persson, Director, Open Europe.

Places are limited. If you would like to attend, please RSVP to Pieter Cleppe at or Tel: 00 32 2 540 86 25.


Trichet: France and Germany share blame for eurozone crisis;
New proposals for eurozone governance to be announced today
In an interview with Welt am Sonntag yesterday, ECB President Jean-Claude Trichet said that the actions of France and Germany contributed to the sovereign debt crisis in Europe, saying: "The governments were extremely unreliable over the course of months and years." He added: "There is one thing I have understood over the last weeks: in Germany certain decisions are interpreted in a different way...I would have loved to see the Germans react to the breaking of the Stability and Growth Pact in 2004 with the same anger they have showed against our decision to purchase sovereign bonds".

On the subject of the banking crisis, Trichet criticised the actions of the banking sector, saying: "They would all have disappeared had we not saved them. It was clear for us". He also said that excessive bonuses were disconnected from the real economy and "incompatible with our existing fundamental values".

Meanwhile, City AM reports that Trichet is expected to set out strict proposals to prevent further financial crises in the eurozone in a speech to the European Parliament today. An ECB document released last week is expected to form the basis of the speech. The paper contains proposals for an independent agency policing governments' tax and spending decisions, reading: "In order to strengthen the independence of budgetary surveillance, an independent European fiscal agency could be set up under a mandate from the Eurogroup/Council, acting as its watchdog. It would preferably be located within the Commission, would bring together eminent fiscal experts and draw on independent national budget offices or fiscal institutions".

The FT reports that Trichet wants to rule out the possibility of a eurozone member being expelled, to calm market jitters over the issue. There are also plans for more penalties for those countries which don't conform to the rules - and a "traffic light" system of intensifying surveillance for countries losing competitiveness. The ECB also suggests a crisis management institution able to buy eurozone government bonds "to quickly address disruptions in sovereign bond markets". The paper suggests that the eurozone's future governance should be "based on a genuine sense of co-responsibility" of all eurozone countries, with its ideas expanded "selectively" to other EU countries, including the UK.

Speaking at the European University Institute in Florence on Friday, Commission President Jose Manuel Barroso said: "Sometimes in Europe the small steps are the most important ones. Please, read attentively the conclusions of yesterday's European Council. What is going on is a silent revolution - a silent revolution in terms of stronger economic governance by small steps. Member States have accepted - and I hope they understood it exactly - to give the European institutions very important powers regarding surveillance, and a much stricter control over public finances".

In Saturday's Guardian, Ian Traynor argued, "The centrality to the EU of the Franco-German deal no longer holds. The original core bargain was the marriage of French political leadership with German economic clout. That arrangement has lost its appeal for the Germans. Europe and Germany are reunified. The incorporation of eastern Europe in 2004 enhanced Germany and diminished France."

Meanwhile, writing for the Guardian's Comment is Free, Open Europe's Stephen Booth argued that, at his first EU summit, David Cameron successfully avoided greater incursions on the UK's economic sovereignty but that the most divisive issues were deferred until the Autumn. On his EUobserver blog, Open Europe Director Mats Persson argued that "indeed, this was the most uneventful and dull European Council summit in years. But this dullness may prove deceiving."

France and Germany consider 'two-tier' euro;
EU official: "It's an act of desperation"
Saturday's Telegraph reported that EU officials have revealed that Germany and France are examining ways of creating a "two-tier" euro system to separate stronger northern European countries from weaker southern states. The creation of a 'super-euro' zone would initially include France, Germany, Holland, Austria, Denmark and Finland. The likes of Greece, Spain, Italy, Portugal and even Ireland would be left in a larger mostly Mediterranean grouping.

"It's an act of desperation," the official is quoted saying. "They are not talking about ideal solutions but the lesser of evils. Helping Greece could be done relatively cheaply but Spain they can't afford to let fail or bail-out." The article noted that French President Nicolas Sarkozy is understood to have been initially cool on the idea but has grown so frustrated with Greece and now Spain that he has allowed officials to explore proposals. The official added, "Only one thing is sure, the euro zone will change."

In Saturday's Independent, John Lichfield argued, "Europe knows it cannot go back, but can't bring itself to go forward", adding that, "To move forward would be to enter the forbidden land of true federalism...Such a Europe-wide economic policy is politically impossible, and probably undesirable in practice."

Writing in Saturday's Telegraph, Charles Moore noted that, "So far, European leaders have tried to deal with this spreading disaster by ruses", using an EU treaty article designed for "natural disasters" to justify the eurozone bailout package. He added, "Natural disasters! We are experiencing a totally unnatural disaster, one brought about by the artificial structure of the European project."

In today's paper, Ambrose Evans-Pritchard writes, "EU president Herman Van Rompuy confessed that EMU lured countries into a fatal trap [...] What he has yet to admit is that the North-South imbalances built up since the euro was launched - indeed, because the euro was launched - cannot be corrected by further loans from the North or by pushing the South in depression. The political fuse will run out before this reactionary and self-defeating policy is tested to destruction".

Writing in Handelsblatt, Detmar Doering, Head of the Liberal Institute of the German Friedrich Naumann Foundation, argues that "EU policy needs a rethink. Integration shouldn't be a goal in itself (...) The Eurocrisis has shown that the idea of a Europe of different speeds is the only way to prevent us descending into the threatening centralised superstate."

Over 1,000 unelected EU officials paid more than David Cameron;
MEPs' researchers paid more than MPs
The Telegraph reports that 1,023 unelected EU officials get higher salaries than Prime Minister David Cameron's annual income of £142,500. This group includes not only European Council President Herman Van Rompuy, EU Foreign Minister Catherine Ashton and Commission President José Manuel Barroso - along with the six vice-Presidents and the 19 Commissioners - but also at least 90 unelected British EU officials. The European Commission has admitted that the true numbers cannot be calculated and could be at least twice as high. After tax relief and generous allowances are taken into account it is likely that over 2,000 officials are earning more than Mr Cameron.

Research and information requests have also found that there are 19 European Parliament assistants, or researchers to MEPs, who earn £75,752 a year. Another 12 assistants, eligible along with EU officials for low tax rates, pocket £70,217 a year. A British MP in the House of Commons earns just £65,738.

A Government spokesman is quoted, saying, "At a time when governments across the EU are reining in their spending, it's only right that the EU institutions think carefully about every euro that they spend to ensure that they're getting the most from their money [...] We are currently pushing for a freeze in the 2011 budget". However, the European Commission is committed to maintain the envisaged administrative budget increase of 4.5 percent. According to a Commission spokesman, "we have to have people in jobs for more competencies under the Lisbon Treaty. That was agreed by everybody".      

Appearing on Spanish TV channel Tele Madrid, Open Europe's Pieter Cleppe criticised the European Commission and the European Parliament for demanding more money for the EU budget at a time when all governments in Europe are facing massive budget cuts.
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IMF chief tries to calm market fears over Spain
The Weekend FT reported that Dominique Strauss-Kahn, IMF Managing Director, has tried to allay fears over Spain, saying, "I'm really confident in the medium- and long-term prospects for the Spanish economy provided the efforts that have to be made are made." Meanwhile, the WSJ notes that the ECB's eurozone government bondholdings are now large enough that a euro-zone nation defaulting on its debt could seriously diminish the capital and reserves held by the Eurosystem of central banks.

Writing in Saturday's Telegraph, Bruno Waterfield noted that, "Markets have not been reassured by a savage package of Spanish spending cuts and there are growing rumours that Spain needs an urgent EU-IMF cash injection, £200 billion is one rumoured figure." In the Irish Times, economist Paul Krugman argues, "German austerity will worsen the crisis in the euro area, making it that much harder for Spain and other troubled economies to recover." El Pais argues that recent German attacks on the Spanish economy arose from "the necessity of Germany to wash the image of its deteriorating financial system."

Meanwhile, FT columnist Wolfgang Münchau writes that "The problem is not the actual government debt, but the contingent debt, most of which is located in the banking sector. If there is more transparency about the banking sector, the situation would be eased".

Meeting in Madrid to settle disputes over EU diplomacy
El Mundo reports that EU Foreign Minister Catherine Ashton is in Madrid today to settle differences with senior MEPs over final plans for the EU's new diplomatic body, the European External Action Service (EEAS). MEPs support a more communal diplomatic corps which is linked to the Commission and independent of national governments. They will also use the meeting to push for further regulations on diplomatic staff, including an eight year limit on national diplomatic appointments to European embassies. An agreement is expected to be reached later today if the officials can overcome their differences and adopt an amending budget for 2011. Meanwhile, FT Deutschland quotes a senior diplomat saying, "Cathy does not only lack a feel for politics. We fear that she is not even interested in foreign policy."

Merkel may lose control of German upper house
German Chancellor Angela Merkel looks set to lose her hold on the German parliament's upper chamber, the Weekend FT reported, following regional election in North Rhine-Westphalia which saw the Social Democrats and Greens agreenig to form a minority administration. Meanwhile, the Guardian reports that the coalition government is experiencing internal difficulties too. FDP member Joachim Günther is quoted saying "It's got to the stage where we're asking what is actually in this coalition for us?" The article notes that German support for Ms Merkel's government is very low: 86% are unhappy with the coalition, according to polls.

Berlusconi says he vetoed "ridiculous" plan for EU tax on financial transactions
The Italian press reports that Italian Prime Minister Silvio Berlusconi has revealed that during last week's EU summit he vetoed the proposal for a tax on financial transactions being unilaterally introduced by the EU. "I am convinced I acted in both my country's and Europe's interest when I vetoed the tax on financial transactions", he said, describing the Franco-German proposal as "ridiculous". However, Italian daily Corriere della Sera quotes a spokesperson for the German government denying Mr. Berlusconi's claims.

EU agrees new legislation on industrial emissions
European Voice reports that EU governments and MEPs have struck a deal on new legislation for industrial emissions, which will see industrial plants - from steel-works to meat-processing plants - required to use the most-advanced technologies and practices to reduce waste and hazardous substances, known as "best available techniques". Industrial plants are expected to have to comply with the new rules by 2012 although some of the most polluting plants will be exempt from the law for up to 13 years.

In an interview with the Sunday Telegraph, Caroline Spelman, Secretary of State for the Environment, Food and Rural Affairs, said that direct subsidy payments from the EU to UK farmers "might" have to reduce over time, adding: "Already it's clear that the hard times in Europe mean that quite a lot of member states are moving on to the same page as us - that the resources are going to be limited, so we are going to have to choose some priorities."
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Following yesterday's presidential elections in Poland, where the late president's twin brother, Jaroslaw Kaczynski, stood against acting President Bronislaw Komorowski, neither candidate secured enough votes to win outright. The election will now be decided in a run-off on 4 July.

An article in the FT notes that the EU's proposed Alternative Investment Fund Managers Directive could hit Asian fund managers particularly hard and slow the growth of the region's relatively small hedge fund industry.


Merkel to clash with Obama on austerity at this week's G20
FT Deutschland quotes German Chancellor Angela Merkel saying that US President Obama's criticism of the EU's deficit reduction policy was "wrong", and that "since the eurozone as a whole had a balanced current account with the rest of the world, there is no problem". The article says that Merkel risks a clash with Obama at this week's G20 summit in Toronto.

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.