Details of the Eurozone rescue mechanism to be agreed today;
National Parliaments will have no veto power on future activation of fund
Eurozone finance ministers meeting today will finalise the last technical details of the rescue mechanism agreed in May, and will create the 'special purpose vehicle' of €440bn in loans and loan guarantees for any countries in financial difficulties. Its duration will be prolonged to five or six years, from the initially agreed three, following concerns that recipient countries would need longer to pay back the loans, reports Handelsblatt. French newspaper Les Echos reports that an overall agreement was reached on Friday, following a series of phone calls between Paris and Berlin.
Under the final plans, national Parliaments will be given no veto power over future activation of the mechanism, in spite of the strong demands for that from Germany, Austria, the Netherlands and Finland. It has also been agreed that the fund will lend money at market conditions, i.e. without applying lower interest rates to borrowing countries.
According to Reuters, the loans will be guaranteed by the whole eurozone bloc, despite Germany favouring making each country responsible for its own share of money lent.
In an interview with Sueddeutsche, European Investment Bank Chief Philippe Maystadt, denies that the special purpose vehicle is tantamount to a "Eurobond", saying "one could call them Eurobonds. I wouldn't do so however, because not every country is without limit liable for the liabilities of its partners." He added that, "with the package all EU countries can be bailed out, apart from Germany and France."
Eurozone reforms envisage tough and "automatic" sanctions over debt levels
EU finance ministers will meet tonight as part of the eurozone task force, led by EU President Herman Van Rompuy. French President Nicolas Sarkozy and German Chancellor Angela Merkel are meeting today ahead of that, in order to discuss the future of economic governance in the EU. Nouvel Observateur quotes an Elysée source saying: "If it is to be hoped that the 27 member States develop coordinated macroeconomic - and especially budgetary - policies, it is absolutely indispensable to make sure that such coordinated policies are adopted by the 16 countries which share the same currency".
Die Welt reports that it has seen a copy of the working paper which finance ministers are to discuss, and notes that it would see the EU imposing sanctions for breaching debt limits much earlier than previously, with a "gradual and automatic sanctions mechanism" proposed. Additionally, as well as national budget deficits, the entire debt position of a country would be taken into account. The article adds that the document does not specify what the sanctions would be. Finance ministers will also discuss whether member states should submit "binding budget planning" for the next several years.
Handelsblatt reports that EU member states are opposing automatic sanctions for countries that breach the budget rules, because the Ecofin council would no longer have a right to discuss possible sanctions, quoting an EU source saying: "That is not an option for any Minister".
Die Welt adds that there is unanimity within the eurozone for the proposal for a "European Semester" during which eurozone member states' budgets would be discussed within the eurogroup, before being sent to national parliaments. The EU summit on 17 June will aim to reach "political agreement" on his proposals, with reform to the growth and stability pact to be achieved by the autumn.
Meanwhile, EP Vice-President Silvana Koch-Mehrin has criticised the calls by EU President Herman Van Rompuy for a "strong economic government in the EU", saying that, "this would mean that other EU member states would essentially get more influence on the economic and social policies of Germany."
Hungarian warning on sovereign debt causes slump in euro;
Juncker: "national economies no longer exist"
Saturday's Times reported that the Hungarian Prime Minister's spokesman said on Friday that the economy was in a "very grave situation" and suggested that it had only a slim chance of avoiding a Greek-style debt crisis, causing the euro to fall to a four-year low against the dollar. The FT reports that State Secretary Mihaly Varga has since described the comments as "exaggerated", and said it would meet this year's 3.8 percent budget deficit target.
French PM François Fillon also said on Friday that the weakening currency was "good news" because it could boost European exports, further accelerating a currency slide and prompting the sale of French government bonds.
The WSJ reports that Eurozone Chairman Jean-Claude Juncker said yesterday that he wasn't worried about the fall in the value of the euro, adding: "I was surprised by the speed of the fall, but I'm not worried about its current level...We haven't learned enough about collective management of the common currency. Too many countries amongst the 16 members behave like national economies, but national economies no longer exist; we are in an economy crowned by the common currency".
Meanwhile, a survey of 25 leading City economists by the Sunday Telegraph found that 12 predicted that the euro would not survive in its current form during the next five years, compared with eight who thought it would. Five declared they were undecided.
French Foreign Minister: EU could take control of Gaza border crossing
The BBC reports that French Foreign Minister Bernard Kouchner has said that the EU can play more of a role in Gaza, suggesting that it could take control of the Rafah border crossing between Egypt and Gaza. Speaking after a meeting with Foreign Secretary William Hague yesterday, Mr Kouchner said: "The European Union has already offered to monitor the aid that goes through Rafah. We can put together a new plan, the EU - European countries - to control this crossing, in the strictest fashion. We can check the cargo and we can control effectively the boats that are trying to reach Gaza. We can do it, we want to do it, we have volunteered to do it."
Meanwhile, EUobserver reports that Spanish Foreign Minister Miguel Moratinos said on Saturday that the EU will in the next few days table a proposal for a lifting of the Israeli siege of Gaza. He said he had contacted EU Foreign Minister Catherine Ashton's office about it already. However, the article reports that her office has suggested that no such coordination took place before it was announced.
Employers fear review will open agency workers debate
The Sunday Telegraph reported that employers have urged Business Secretary Vince Cable not to change the previous Government's plans on implementing the EU's Agency Workers Directive. Mr Cable said last week he would conduct a review of all upcoming regulations not yet implemented. Employers fear that unions will walk away from a compromise deal which will see agency workers receive equal pay and rights to permanent workers after 12 weeks, and demand equal entitlement from day one.
FSA ready to "stress test" UK banks over exposure to eurozone debt
The Sunday Times reported that the Financial Services Authority is stress-testing Britain's banks over fears about their exposure to eurozone debt, and has drawn up a "risk map" of Europe, examining potential problems on a country by country basis. Analysts estimate that British banks have a total exposure of more than £100 billion to Greece, Portugal and Spain alone.
A leader in the FT argues that "A public stress test of all eurozone banks must be undertaken. Those insufficiently capitalised for a worst case scenario - including sovereign default - must be recapitalised or taken over. The ECB is equipped for the technical task. But national leaders must find the will to take it on."
Writing in the FT Wolfgang Munchau argues in favour of reform of the governance of the ECB, adding: "I would place transparency and central bank accountability right at the top of the governance to-do list. I am not questioning the ECB's independence. But the ECB should at the very least be forced to publish the votes of its meetings without having to identify the members. Ideally, they should go further and fully identify the votes."
G20 sees little agreement on banking reform and regulation
G20 finance ministers meeting over the weekend agreed that banks needed to increase their capital requirements, but admitted that there were still big differences on the "Basel III" proposals on such requirements, due to be finalised by the G20 leaders' meeting in November.
There are also still differences between countries on calls for a new global banking levy, with more countries joining Canada in its rejection of the idea, reports the FT. Pranab Mukherjee, India's Finance Minister, said: "Regulated mechanisms instead of taxing the banking system is better." Speaking after the summit Chancellor George Osborne said: "We'll introduce a levy regardless of whether other countries will or will not. It's legitimate to do so because of the cost to the taxpayer of all the action we have taken and the implicit state support they enjoy."
The ministers also called for indebted countries to speed up their austerity programmes.
Meanwhile Il Sole 24 Ore quotes former IMF Chief Economist Simon Johnson, warning that the creation of a single European Resolution Fund from a bank tax for the management of future bank crises would convey a dangerous "too-big-to-fail-like message" to the markets.
Spanish Presidency tries to sideline the UK over planned regulation on protection from gender violence;
EU Commissioner: "Let's not kick Britain out"
El Mundo reports that Spain's Justice Minister Francisco Caamaño and EU Justice Commissioner Viviane Reding have clashed over the Spanish Presidency's decision to push forward its plans for the introduction of the "European Protection Order", aimed at strengthening protection for victims of gender violence and, more in general, for "victims of crime who move between EU member States".
EU Business quotes Mr. Caamaño saying that "eighteen member States were in favour - we have a guaranteed qualified majority [...] We have given the UK some time [...] the UK will decide after this period of reflection, but if they do not, we will have a qualified majority". Commissioner Reding replied that there were still doubts concerning the legal basis of Presidency's proposals, and invited Mr. Caamaño to "not twist the numbers". "Let's not kick Great Britain out at the very minute they've joined [Europe] in a true way", she said.
Writing in the Observer Labour leadership contender Ed Balls argued that the Labour Government "should not have rejected transitional controls on migration from the first wave of new EU member states in 2004, which we were legally entitled to impose. As the GMB's Paul Kenny and others have pointed out, the failure of our government to get agreement to implement the agency workers directive made matters worse."
Slovenia yesterday voted in a referendum in favour of a negotiated deal on its border dispute with Croatia. It represents the last major hurdle to Croatia's EU membership, which is now expected to be completed in the next 12 months.
Writing in the FTD Melvyn Krauss, Professor of Economics at New York University, argues that Bundesbank President Axel Weber is unlikely to become the next President of the ECB, and suggests the post could go to the head of the Dutch national bank, and President of the Basel Committee for Banking Supervision, Nout Wellink.
EUobserver reports that bilateral talks between Germany and Russia have resulted in calls for a new Foreign-Minister level forum to discuss security issues.
Euractiv reports that ALDE leader Guy Verhofstadt has warned that the EP could delay and potentially block the financing of initiatives in the EU's 2020 growth strategy if the Union continues to operate using an intergovernmental approach, rather than through the European institutions.
Writing in Handelsblatt, its former Chief Editor argues that the European Central Bank is under French hegemony, adding that after Greece's bailout "France has ultimately freed itself from its former dependence on Bundesbank. Ever since the president of Bundesbank has been put in a strange position - the chief of the most important central bank has been sent to the sidelines and his critical views remain unnoticed."
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