Europe
Ireland and Portugal's borrowing costs hit record highs as investors struggle to make sense of proposed eurozone default mechanism
The FT reports that borrowing costs for Ireland and Portugal hit record highs yesterday as investors assessed EU proposals to force them to take a greater share of losses in future bail-outs. "People do seem shocked about the idea of a future eurozone debt restructuring - but this should not have been a surprise unless you really believed that the German taxpayer would always underwrite everything," said Erik Nielsen, Goldman Sachs' European Economist.
Writing in the Telegraph, Ambrose Evans-Pritchard notes that "Eurozone sovereign states must issue €915bn in new bonds next year...Yet investors have just been told in blunt terms to charge a hefty risk premium on any peripheral debt that expires after 2013, with great confusion over what happens even before that date. Can any investor be sure what the terms will be if Ireland or Portugal needs to access the EU's bail-out fund next week, or next month, or next year?" He concludes, "Chancellor [Angela] Merkel is ultimately correct. A mechanism for sovereign defaults is entirely healthy. Had it been in place long ago, EMU would have been stronger," but adds that, "To wait until now borders on careless."
In an interview with Spiegel, Chancellor Merkel has said, "We have to find ways to harmonise the competitiveness among European countries" but added, "This should not be done by simply targeting the average or gearing ourselves to the slowest. Instead, we should always learn from the best." Merkel also refused to say whether she had consulted her coalition partner, the FDP Foreign Minister Guido Westerwelle, before making a deal with French President Nicolas Sarkozy on treaty change in return for watering down proposed economic sanctions for debt and deficit rule breakers.
Open Europe blog Telegraph: Evans-Pritchard Guardian Irish Independent FT FT 2 Welt Spiegel Reuters Reuters 2 FAZ El Pais Edward Hugh blog Le Monde: Finance blog
Iain Martin: David Cameron has missed out on a historic opportunity to reshape the EU
On his WSJ blog, Iain Martin argues that by conceding on a budget increase for 2011, UK PM David Cameron has missed out on a historic opportunity to reshape the EU: "Last week Cameron indicated that Merkel could get the changes she wanted to Lisbon etc, in return for... er, nothing. This is what happens when the driving force of a policy is the desire to not cause a fuss".
In a Commons debate yesterday, David Cameron was accused of backtracking on his initial promise to freeze the EU's budget by Labour and Liberal Democrat MPs including Charles Kennedy who welcomed the PM from "one long-standing pro-European... to another". Ed Miliband, leader of the opposition, criticised Cameron saying that instead of saying "no, no, no", like Margaret Thatcher, he said "no, maybe, oh go on then".
On the Coffee House Spectator blog, Open Europe's Mats Persson notes that when Cameron was asked by Ed Miliband if he would he be repatriating powers, he pointed to a reassurance that the UK's opt out from economic sanctions remained intact, which was not really in question in the first place, and spoke of "progress on the EU budget". Mats argues, "It slipped through virtually unnoticed, but this second remark is actually quite worrying. Cameron's answer suggested that he has agreed to support Merkel's drive for treaty change in return for 12 other EU leaders signing a letter supporting a 2.9 percent cap on the 2011 EU budget increase and a declaration that future EU budgets should be linked to the state of national public finances. That is a very small price for agreeing a new EU treaty".
He continues: "In terms of negotiating intelligently in Europe, Chris Heaton-Harris made the most astute observation during the debate. He noted that the PM now has two separate vetoes at his disposal: one over Treaty change and one over the EU budget post-2013. Heaton-Harris asked the PM whether he would use the twin-vetoes independently to get the maximum reward...Alas, Cameron hinted he would pass up the opportunity to use the treaty change to push for EU reform, instead focussing on the EU budget". Mats concludes, "If true, Cameron has wasted a perfectly good veto - and heaven knows they don't come along that often in the EU."
1.1% of the EU's total expenditure in 2009 deemed 'irregular' or fraudulent
An editorial in the WSJ notes that, according to a recent Commission report, roughly €1.49 billion (about 1.1%) of the EU's total expenditure in 2009, is deemed 'irregular', and in many cases is suspected of fraud. Most cases are found in the EU's regional funds; however despite this the Commission is proposing to increase regional funds by 16.9% in 2011.
Open Europe's Stephen Booth is quoted by The Parliament saying that, "The fact that the amount of EU spending subject to fraud is actually on the increase is shocking in itself. But it makes the Commission and MEPs' demands for a bigger EU budget all the more outrageous."
Meanwhile, Open Europe's Siân Herbert appeared on Russia Today yesterday arguing that the EU must face up to the serious problems of fraud and wasteful spending of the EU budget. "We are spending so much of the budget on subsidising farmers - it's not really the way to make us grow and to make our economies more competitive. We need to seriously look at our priorities. We need to invest in things which add value, like research and development", she said.
Euractiv reports on a draft Commission white paper which proposes charging transport users for emissions, noise or other external damage.
Tageschau reports that EU Environment Commissioner Janez Potocnik has threatened to freeze EU funds unless Italy complies with EU rules on waste removal.
The Times reports that, under new Government plans, tenants will be given the right to force their landlords to upgrade their homes with new insulation, double glazing or improved boilers. The UK has signed up to EU targets to improve energy efficiency by 20% by 2020, including the Energy Performance of Buildings Directive.
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Maerkische Allgemeine quotes Yves Mersch, member of the ECB's Governing Council, saying that the current Basel Committee proposals for capital resources and liquidity rules "ignore the importance of bank loans as a form of financing for the eurozone".
Britain and France will today announce a landmark defence treaty ranging from military operations in land, sea and air to nuclear weapons.
In the WSJ, Patience Wheatcroft argues that EU Industry Commissioner Antonio Tajani's recent proposal for a European industrial policy "is potentially hugely significant."
Europaportalen reports that support for the euro amongst small businesses in Sweden has dropped by 14% in one year.
European voice reports that the Commission has provisionally agreed to release the final €1.2 billion tranche of aid pledged to help Romania out of its economic crisis.
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.
