Eurozone bailout fund to be smaller than claimed;
Only €366bn available to countries in need
In an interview with the FT Klaus Regling, the new Chief Executive of the €440bn eurozone bailout fund, the European Financial Stability Facility (EFSF), says that it will be operational by the end of the month, and that he expects it to be awarded an AAA credit rating. In order to assure such status, the article reports that a cash reserve will be built up from fees charged to countries using the facility.
Sueddeutsche reports that the €440bn bailout fund will actually be smaller than expected - with only €366bn available to crisis stricken states. The article cites a letter from the German Ministry of Finance, which clarifies that member states have to over-insure bonds by 20% in order to achieve the AAA rating. "Due to the 120% over insurance the total available amount of loan is around €366bn," the letter states. The paper also reports that German Finance Minister Wolfgang Schäuble rejected criticism that the German Parliament was misled about the size of the bail out fund, saying: "The parliament has the whole agreement on hand. In addition, the most important elements, including the over insurance, were explained orally and in writing in the relevant committees."
When asked by the FT how the fund would operate, Regling said: "We will be ready to act whenever the politicians tell us to act." He added that the fund was a temporary crisis mechanism, but could be extended beyond its intended three-year lifespan if any loans to eurozone governments were outstanding. He also said, "We don't know whether there will ever be a financial operation. Finance ministers hope not. But it was very important that this facility was created. It has had a positive impact on the markets."
Meanwhile, EUobserver reports that Slovak Prime Minister Iveta Radicova left Brussels yesterday without agreeing to the eurozone bailout fund or the loan to Greece. The WSJ reports that Radicova hinted that Slovakia wouldn't block the fund, saying the signing of the EFSF "is a formal act whose commitment has been given by the previous government".
EU financial supervisors given power to bypass national regulators in "emergency situation"
EU finance ministers yesterday reached a political agreement on the new architecture for pan-European financial supervision. The deal is based on a new compromise proposal, presented by the Belgian Presidency, which will now carry on under negotiations with the European Parliament. Internal Market Commissioner Michel Barnier is quoted by the FT saying that "we're on the right track - and the last strait of that track".
The FT also notes that the new European Supervisory Authorities (ESAs) will be entitled to temporarily ban "toxic" financial products which threaten the general stability of financial markets. Furthermore, the ESAs will be able to bypass national regulators and address individual financial institutions directly and with binding decisions every time an "emergency situation" occurs.
Reuters France reports that the UK - which was initially opposed to giving the ESAs such powers - gave in to pressure from other member states and the European Parliament on this key aspect of the proposal. In exchange, the UK has obtained assurance that the Council of Ministers will determine what constitutes an "emergency situation". However, it is not yet clear under what system member states will decide on this, whether under unanimity or majority voting.
In addition, the new compromise text makes clear that no decision taken by the ESAs will impinge in any way on member states' fiscal responsibilities, and that day-to-day supervision will remain a competence of national watchdogs. UK Chancellor George Osborne is quoted by PA saying: "the powers of these European agencies will be focused on areas where there are disputes on points of law, rather than second-guessing national regulators or getting involved in the day-to-day running [...] We do not want the European supervisory authorities being able to question the discretion of the national authorities".
The idea of the three new EU regulators for banks, insurance and markets all being based in Frankfurt - strongly backed by the European Parliament - has also been rejected by member States, with the European Banking Authority (EBA) to be housed in London.
Meanwhile, Reuters Italia reports that a new trilogue negotiation between the Commission, the European Parliament and member states on the proposal is being held this morning, while an extraordinary ECOFIN meeting will take place on 7 September in order to speed up the proceedings for approval.
Full details of bank stress test publication to be delayed;
Commissioner confirms that eurozone bailout funds could prop up banks with "excessive problems"
The EU yesterday announced that the publication of results from the banking stress tests would be staggered over two stages, and that eurozone emergency support mechanisms could be activated to prop up banks identified as weak. Belgian Finance Minister Didier Reynders said a consolidated version of the results would be published on 23 July, and that "at a later stage the deconstructed data will also be published by the states and through the various individual banks and institutions." EUobserver reports that a full release of the data will follow in August.
EU Economic Affairs Commissioner Olli Rehn said that "if there were excessive problems which could not be covered by either market financing or national backstops then we would have the third line of defence which is the European instruments. However, I don't believe these will have to be used." European Voice reports that these instruments would include the €440 billion eurozone bailout facility, and the separate €60bn mechanism, for which the UK is a participant.
Meanwhile, El Pais reports that Spain will publish data on 95% of its financial system, a much higher number than the EU average of 60%. Spanish Finance Minister Elena Salgado, however, has asked the Commission for an extension to use its state-financed bailout fund, or FROB, as a "precautionary" measure, in case Spain has to provide capital to any banks that are found to be dangerously weakened.
Kaletsky: "The construction of a federal Europe has never relied on democratic support
Writing in the Times Anatole Kaletsky outlines the conditions he thinks are needed for the euro to survive and argues that, "Voters must not be asked to give their verdict directly on the euro programme. Even assuming substantial fiscal convergence, German taxpayers will never vote for their money to be spent on supporting Greece, Portugal and Spain. But luckily for the euro's survival, German voters will never be asked this question. The construction of a federal Europe has never relied on democratic support, merely on acquiescence and the force of habit. The creation of a viable single currency, backed by a European federal budget, will merely be the next stage of this non-democratic process."
A leader in the FT argues that, "New rules are needed to underpin the eurozone in the post-crisis world. The stability and growth pact has failed. To avoid moral hazard, these rules must admit the possibility of sovereign default."
EU firms supplement ETS credits with cheaper UN ones
The FT reports that European energy and industrial companies have become the largest buyers of UN carbon credits from the developing world, spending an estimated £800m on the credits last year, as these are often cheaper than buying European carbon permits. Under the rules of the EU's emissions trading scheme, European companies may supplement their quota of carbon permits by buying in credits awarded under the UN's separate carbon trading system.
Estonian eurozone entry approved
EU finance ministers have given their final approval for Estonia to join the single currency on 1 January 2011, as the country has met entry requirements on inflation, debt and deficit levels, interest rates and currency stability.
PA reports that the Foreign Office has revealed in a Parliamentary question that 300 EU officials, and all members of the College of Commissioners, earn a higher salary than UK PM David Cameron. Foreign Office Minister Lord Howell of Guildford urged the EU institutions to "think carefully about every euro they spend" during the current economic crisis.
The Express reports that the EU has proposed to simplify entry rules for non-EU workers looking for temporary seasonal jobs in farming, tourism and other industries. Home Office sources said that Britain would refuse to sign up to the overhaul of EU border controls.
AFP reports that the idea of direct EU taxation to fund the EU budget is gaining traction in the European Parliament, and quotes French Socialist MEP Stéphane Le Foll saying that, "The idea is progressing in Parliament, and I think that there is a majority on it." The Belgian Presidency also thinks there should be a debate on the issue.
Le Monde reports that, following the publication of yesterday's EU proposal on GM crops, the French Environment Minister Jean-Louis Borloo has said "It is not acceptable". Focus also cites German CDU MP Peter Bleser (CDU) describing the move as "the first coffin nail in the EU common agricultural policy."
It is widely reported that the French National Assembly has passed a bill on banning full-face veils in public spaces, with 335 votes in favour and only one against. Women who choose to cover their faces will now face €150 fines.
The BBC and the Independent report that rating agency Moody's has cut Portugal's credit rating, from AA2 to A1. Reasons cited are worsening public finances and weak growth prospects.
The Independent reports that HSBC Chairman Stephen Green has warned that that new EU curbs on bankers' pay would weaken both the City of London and Britain's economy against competitors in Asia and the US by "providing real incentives for a mobile population to arbitrage the rules to London's - and therefore the UK's - disadvantage."
An article in the Independent reports on an EU mission to train Somali military recruits.
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