Tuesday, November 16, 2010

Open Europe press summary: 16 November 2010

Open Europe is today hosting an event in London at 12.30 - 14.00, entitled "The Government's EU referendum lock: giving the key to Parliament and voters?" Speakers include: David Lidington MP (Minister of State for Europe), Kate Hoey MP (Labour MP for Vauxhall), David Rennie (The Economist), James Forsyth (The Spectator) and Mats Persson (Open Europe). The event is now full, for more information please contact Sarah Hodges on 0207 197 2333 or by email at shodges@openeurope.org.uk.  


Ireland pressured to seek bailout as Portugal warns of "contagion"
The pressure on Ireland to accept a bailout is mounting, with Portugal, Spain, the European Central Bank and opposition parties urging PM Brian Cowen's coalition government to ask for help. Speaking on the BBC's Today Programme, Irish European Affairs Minister Dick Roche insisted that: "There is no reason that we should trigger an IMF or an EU bailout."

The WSJ quotes Portuguese Finance Minister Fernando Teixeira dos Santos saying that doubts about Ireland's ability to repay its sovereign debts have caused a "contagion" effect for Portugal. He told the FT, "The risk is high because we are not only facing a national or country problem. It is the problems of Greece, Portugal, and Ireland. Markets look at these economies because we are all in this together in the eurozone. Suppose we were not in the eurozone, the risk of contagion could be lower."

The Bank of Spain Governor, Miguel Ángel Fernández Ordóñez, a member of the ECB's Governing Council, is quoted by the Guardian saying, "The situation in the markets has been negative due in some part to the lack of a decision by Ireland." The ECB has also indicated that it will limit its bond buying program for struggling eurozone economies.

FT Deutschland reports that rows are breaking out between eurozone countries in favour of a swift Irish bailout, backed by Germany, and other smaller states which are more reluctant, with the Finnish government opposing a bailout.

David Cameron yesterday hinted at UK involvement in any Irish bailout, which would come from the EU's €60bn bailout fund, guaranteed by the EU budget. This fund could be enacted by qualified majority vote, meaning the UK has no veto. He told the Commons, "If you look at the Irish economy, Ireland is an enormously important trading partner with Britain. It's a fact that we actually export more to Ireland than we do to Brazil, Russia, India and China combined."

The Economist's Charlemagne notes that, "One option being considered is to use initially only the commission's money, perhaps backed by some IMF money too. The political attraction is that the commission's money can be released more quickly, as it requires only a vote by qualified majority of the 27 members of the EU, instead of the unanimous vote of 16 euro-zone members needed to release money from the EFSF".

Meanwhile, following the news that Greek debt and deficit figures are worse than previously thought, the Guardian quotes a Greek official saying, "We will face a profound strategic issue of how to repay €70bn-€80bn when redemption of the rescue loans comes. There will have to be some disguised rescheduling of the time frame in which we repay the money." In an interview with Le Figaro, Greek Prime Minister George Papandreou says that a restructuring of Greek debt is "out of the question".

Greek PM accuses Germany of causing latest eurozone crisis;
Merkel: "This is about everything - if the euro fails, Europe fails"
The WSJ reports that Greece's Prime Minister George Papandreou lashed out yesterday at Germany's plans for a permanent eurozone rescue mechanism, which could see private bondholders suffer losses as part of future bailouts. The German position "created a spiral of higher interest rates for countries that seemed to be in a difficult position, such as Ireland or Portugal," Mr. Papandreou said. He added that the spiral could "break backs" and "force economies toward bankruptcy."

The Telegraph reports that Papandreou said new European-wide taxes might now be needed to fund bailouts. "We need a mechanism which can be funded through different forms and different ways," he said. "My proposal is that taxes such as a financial tax or carbon dioxide taxes could be important revenues and resources for funding such a mechanism."

Meanwhile, speaking at her CDU party's annual conference, German Chancellor Angela Merkel launched a staunch defence of Germany's proposals. "I've heard we won't manage to get the necessary changes to European treaties and that it's utopian to think we'll get agreement of all countries," she said, according to Spiegel. "But faint-heartedness is a poor adviser. This is about everything: if the euro fails, Europe fails and, with it, the European idea of shared values and unification."

Market "excesses" caused the crisis and "markets have to bear the consequences of their actions," she said. Reuters notes that she added, "It's up to us. It's our task to create a new anchor for a culture of stability in Europe," and went on to criticise the decision to admit Greece into the euro. "In 2000 Schroeder and Eichel couldn't let Greece join the euro fast enough and they ignored all the warnings. It was a political decision...political decisions are important but those which ignore the facts are irresponsible," she said.

The Irish Times notes that German Finance Minister Wolfgang Schäuble will today outline his plans for a permanent eurozone crisis mechanism in a meeting with eurozone finance ministers.

Open Europe's Stephen Booth appeared on Channel 4's Dispatches programme last night, which looked at MEPs' allowances and how the EU budget is spent.

Collapse of talks on 2011 EU budget makes cash freeze more likely
EU member states and the European Parliament yesterday failed to reach an agreement on next year's EU budget. European Voice reports that talks went on into the early hours of this morning, but eventually foundered as the UK, Sweden and the Netherlands continued to reject MEPs' demands to open a serious debate on the introduction of an EU tax during future negotiations on the next EU multi-annual budget post-2013. Dutch Minister for European Affairs Ben Knapen is quoted saying: "We did not feel that we should give powers to the European Parliament that they did not have to begin with."

Under the rules of the Lisbon Treaty, negotiations must now be restarted with the Commission presenting another draft budget for 2011, but if there is no agreement by 1 January then the 2010 budget amounts will remain in place for the start of 2011. Le Monde quotes EU Budget Commissioner Janusz Lewandowski saying that he and his staff will start work "immediately", but that "the whole process [for the adoption of a new budget] is likely to take several months."

Eurozone comment roundup;
Larry Elliott: Crisis provides Germany the opportunity shape euro on its terms
As calls mount across Europe for Ireland to accept a bailout, Times columnist David Wighton argues, "Ireland can hardly complain. Other euro countries are clearly being damaged by its problems. And when it climbed aboard the euro, Ireland should have known that one day the passengers might grab the steering wheel".

Simon Nixon in the WSJ argues, "Factor in the ECB's recent Irish bond purchases and it is clear Ireland is already being bailed out to a far greater extent than euro- zone policy makers have been willing to acknowledge...But the ECB does not have a mandate to take credit risk, which is arguably what Ireland now presents. A bailout that exposes taxpayers to losses needs to be a fiscal operation, the preserve of democratically elected governments".

Guardian columnist Larry Elliott argues that Germany "grasps that the problems exemplified by Ireland provide an opportunity to complete the construction of the single currency on German terms. The design flaw of monetary union was that the one-size-fits-all approach to interest rates was not accompanied by a joint approach to running their budgets. There was no effective mechanism for forcing those countries where interest rates were too low to raise taxes or cut spending."

An article in Die Welt entitled "Germany becomes paymaster of the euro-zone", notes that Germany's guarantees to the eurozone, through EU bailouts and the IMF, amount to almost 7% of the country's economic output.

A leader in the FT argues, "EFSF [European Financial Stability Facility] support will do no good, however, unless Dublin tackles the source of doubt about its solvency: the government's vow to back the senior debt of banks, cost what it may for the taxpayer". An article by City AM editor Alistair Heath argues, "The single currency was one of the drivers of boom and bust; continental banks were destroyed in far greater numbers than UK institutions; European governments borrowed even more recklessly than Northern Rock."

CBI warns of £500bn additional pensions' bill under new EU rules
The front page of the Express reports that new EU pension rules could spell the end for defined benefit pension schemes. The new rules would force pension funds to hold similar levels of capital as insurance companies under what is called the Solvency II regime. John Cridland, Deputy Director-­General of the the CBI, said: "These misguided proposals could force British companies to put about £500billion of extra money into their final salary pension schemes."

In an opinion piece in the FT, columnist Philip Stephens argues that the Government's new Europe Bill is "replete with inconsistencies", adding that "the real purpose of the bill is to bind the hands of any future, pro-European administration."

The BBC reports that human rights group Amnesty International has accused the EU of failing to hold member states to account for their role in the detention of terrorism suspects by the CIA.

Italian President Giorgio Napolitano will today meet the two Italian Parliament speakers to discuss the future of the government and the possibility of early elections. As previously announced, yesterday all ministers and secretaries loyal to Gianfranco Fini - speaker of the Italian Parliament's lower house and former ally of Prime Minister Silvio Berlusconi - resigned en bloc from their posts.  

Michael Jaeger from the Europe's Taxpayers' Association is quoted in Handelsblatt criticising the EU's diplomatic service for its "expensive parallel structures".

European Voice reports that the EU will fall short of its promises to provide €2.4 billion in climate change aid to poor countries, because Italy will not deliver the contribution that it had previously pledged.

Euractiv notes that Bulgaria and Romania's accession to the Schengen area and Croatian membership of the EU are among the top priorities of the incoming Hungarian EU Presidency.

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.