Monday, December 06, 2010

Open Europe press summary: 6 December 2010


Guardian: Merkel warned that Germany could leave the eurozone;
Eurozone rescue fund could be increased under pressure from IMF and ECB
The Guardian reported on Friday that, during the European Council meeting in October, German Chancellor Angela Merkel warned for the first time that her country could leave the eurozone. According to the paper, Merkel hit back at Greek Prime Minister George Papandreou's criticism that Germany's proposals for a permanent eurozone crisis resolution mechanism were "undemocratic", saying: "If this is the sort of club the euro is becoming, perhaps Germany should leave." German government spokesman Steffen Seibert refused to comment. In an interview with Bild, German Finance Minister Wolfgang Schäuble also defended the single currency saying, "Germans would all be worse off without the euro."

Meanwhile, it is widely reported that eurozone finance ministers meeting today will face calls to increase the size of the €440bn European Financial Stability Facility, following demands from both the IMF and the ECB. EUobserver quotes Belgian Finance Minister Didier Reynders - whose country holds the rotating EU Presidency - saying: "I'm in favour of an increase in the permanent mechanism but if it's possible to do that earlier, why not?" However, in an interview with Les Echos, Spain's Economy Minister Elena Salgado has noted that "injecting additional means [into the EFSF] is not the question at the moment. Nowadays, it is rather about showing clarity, determination and coordination."

Dutch daily De Volkskrant notes that the total EU-IMF eurozone bail-out package has a lending capacity of €620bn as opposed to the €750bn originally agreed, while the Economist notes that "by most calculations the European Financial Stability Facility, the main temporary pot set up in May, could lend at most €250bn and still maintain a AAA credit rating."

In an op-ed in today's FT, Italy's Economy Minister Giulio Tremonti and Luxembourg's Prime Minister Jean-Claude Juncker argues in favour of a jointly guaranteed eurozone bond which it said would bring an end to the crisis. However, in an interview with the FT, Schäuble ruled out this option as it would require "fundamental changes" to the EU treaties. Euractiv France quotes German government spokesman, Steffen Seibert, saying: "There are neither plans nor the will to give birth to a common budgetary policy [in the eurozone]. The decisive reform of the Stability and Growth Pact already leads to closer cooperation on economic policy."

AFP quotes Czech Prime Minister Petr Necas arguing "nobody can force us to adopt the euro" and that for his country joining the single currency now would be "political and economic nonsense".

An article in the Sunday Telegraph noted that Patrick Adenauer, the grandson of Germany's first post-war Chancellor Konrad, has backed legal action before the German constitutional court to try to stop Germany from contributing to eurozone bailouts in future. "We don't want to pay the debts of Greece, Portugal, Ireland and then Spain, and then others," he is quoted saying.   

EU ambassador to India gets £50,000 extra a year for 'living conditions' allowance
A feature in the Sunday Times looked at the new EU embassies established under the Lisbon Treaty as part of the External Action Service. The article notes that EU ambassadors receive annual salaries of £128,000 to £188,000 but they can top up their income with a "living conditions allowance" of between 10% and 40%, if their living conditions are considered harsh or unsafe, in addition to 12 weeks vacation and a range of other allowances. For example, on top of her salary of up to £168,734, the EU ambassador to India is entitled to a living conditions allowance of 30%, worth up to £50,000 a year. Ambassadors to Barbados and Mauritius are entitled to a living condition allowance of 10%.

The article also notes that a bridge over the Rewa River in Fiji, which the EU funded, ended in an argument after the EU insisted that it be called the Europa bridge, while the local community demanded to keep the old name, the Rewa bridge.

Open Europe's Mats Persson is quoted saying, "The EEAS is quickly turning into a bureaucratic giant -- but remains a diplomatic midget. Common EU embassies only make sense if countries can boost their clout and save money by pooling resources, but at present they only add confusion while drawing vital funds away from national foreign ministries." Open Europe is also quoted in today's Express.

FAZ economics editor: With every new aid instalment it becomes more doubtful that the Germans benefit from the euro
The economics editor of Frankfurter Allgemeine Zeitung, Philip Plickert, today argues: "should German taxpayers intervene every time an orgy of debt has taken place? The euro is a bottomless pit. With every new aid instalment, it becomes more doubtful whether the Germans are really the ones benefiting from the euro." With regards to the Germans being "the largest profiteer from the euro" he argues that "For many ordinary people this is barely comprehensible. Especially for workers in the decade after the euro introduction, this is held in memory rather as a time of hardship. The consumption in this country has stagnated, while in southern Europe a wild party began." He notes that of Germany's exports, "40% goes to the eurozone" but "at the same time, trade with countries outside the eurozone has increased substantially...Already before the introduction of the euro, Germany was a strong exporting nation. Continuing revaluations of the D-Mark stimulated German companies to become even more productive. For citizens every revaluation brought welfare gains, as imports and travelling became cheaper."

He goes on to say that "The claim that without the euro, Germany would have developed to be economically worse-off appears questionable with regard to Switzerland or Sweden. These have a higher level of prosperity without the European currency, their exports have grown just as dynamically."

Plickert also notes that "Economic arguments for the advantages of a single currency were put to one side [before the introduction of the euro]. The majority of German and many foreign economics professors in the nineties were extremely skeptical. Strong and weak countries squeezing under one currency roof would lead to tension; this risk was known from the beginning."

In Le Figaro, columnist Jean-Pierre Robin argues, "Union is strength: the slogan chosen in 1998-1999 to advertise the launch of the euro sounds a bit hollow twelve years later. Europeans are forced to pay hundreds of billions for their solidarity, having failed to understand how to make good use of the euro. And they are all very unhappy with it. A real challenge for political elites."

In Saturday's Telegraph, columnist Charles Moore argued that the UK should take a more proactive approach to the EU in the wake of the eurozone crisis: "Britain is not in the same pivotal situation as Germany, but ours is, in a way, a better one. We are not in the middle of the mess, and we do, we promise, have a realistic agenda for Europe. We want rigour in the new, long-term budget deal now being worked out, the return of powers to member states and of scrutiny to national parliaments, more referendums, an end to new treaties, a policy of free trade. And we do not want to go on paying for a system which isn't working, bearing responsibility without power. The time may be coming when we can win these things. Are we ready?"

In the Observer, columnist Nick Cohen argued, "The terms Ireland's new rulers in the EU have imposed on their subjects are inexcusable. It is hard to tell which is worse: the stringency of the EU's demands or the immorality that lies behind its choice of targets."

In the WSJ, columnist Irwin Stelzer argues, "Markets also know another thing. Sitting atop this volcano is a bureaucracy that is fractured, indecisive, incoherent and without sufficient resources to contain what it likes to call "the contagion." Eurozone bureaucrats alternately proclaim an existential threat to their common currency, and attempt to reassure the markets by promising that no nation is too big to bail."

On her BBC blog, economics editor Stephanie Flanders argues, "you wonder whether the periphery would get the depreciation they would need if only Germany left...imagine, as I suggested previously, that the other major surplus countries (Austria, the Netherlands and Finland) all joined Germany in this implausible departure scenario: then the average current account deficit outside this new DM bloc would rise to 3.4% of GDP. In Graham Turner's [of consultancy GFC Economics] view, these remaining countries could enjoy lower borrowing rates, 'if investors thought that a weaker exchange rate gave them a better chance of growing again'".

An answer to a Parliamentary Question tabled by David Nuttall MP has revealed that the decision Tony Blair made to give away part of the UK's rebate from the EU budget, will cost Britain £2bn from 2011, when Blair's deal applies in full.

The FT reports that UK based European Parliament and Commission staff will today move into the new 'Europe House' offices which £26m to purchase and £4m to refurbish. On Conservative Home, co-editor Jonathan Isaby argues that UK Foreign Secretary William Hague should not attend the opening ceremony.

Wikileaks: EU Climate Action Commissioner asked US if "creative accounting" would be needed to plug promised climate change fund
Cables released by Wikileaks reveal that European Council President Herman Van Rompuy said the Copenhagen climate change talks had been "an incredible disaster", and he expected those in Mexico would also be a disaster, reports the Guardian. A separate cable reported in the EUobserver claims that EU Climate Action Commissioner Connie Hedegaard asked the US' Deputy Special Envoy for Climate Change if the US would need to do any "creative accounting" to fulfil its promised contribution to the $30 billion climate change fund for poorer countries.

Meanwhile, in a meeting with a US Ambassador, Van Rompuy said it would be a "mistake" for the US to opt out of an EU-US summit. The Ambassador replied that while the White House "understands the important symbolism of the summit" US President Barack Obama was more focused on results, reports the Guardian.

El Pais reports that Spain's CAP subsidies increased by 3% since last year. It is the second biggest receptor after France.

UK Employment Relations Minister, Edward Davey, will meet other European ministers today to discuss the European Parliament's proposals to extend maternity leave to 20 weeks on full pay and two weeks on full pay for paternity leave, reports the Telegraph. If approved, the proposal is expected to cost the UK £2bn.

Hungary and Bulgaria have nationalised their pre-funded pension schemes and excluded the cost of the reform from their public debt figures, opening a row with the European Commission.

German consumer groups have called for energy saving light bulbs to be removed from the market - despite the Commission having banned other types of light bulbs. The consumer groups called the energy saving light bulbs "toxic waste". "It can't be that a safe product is being banned while replaced by an unsafe one," they said.

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