Eurointelligence Daily Briefing, 5 de Junho de 2012. Enviado por Domenico Mario Nuti.

Fiscal union plan ready by year-end, says van Rompuy

  • Herman van Rompuy says he will present “the main building blocks” of a fiscal union, and “a working method to achieve this objective”;
  • says he will present detailed proposal for a banking union right away;
  • a fully worked-out plan with timetables for a fiscal union is due by December;
  • Germany says European Council could sign off on the plans in the spring 2013;
  • Angela Merkel proposes an EU wide bank supervisor;
  • the G7 has scheduled a phone among finance ministers today to discuss the possibility of a Spanish bank run;
  • there is now mounting pressure from the outside world on the eurozone to act fast;
  • Olli Rehn wants the ESM to be able to recapitalise banks directly, bypassing governments;
  • says this must go hand-in-hand with resolution powers;
  • Wolfgang Schauble refuses to relinquish his national post as a quid-pro-quo for becoming eurogroup chairman;
  • ECB’s executive board falls victim of eurozone’s top job quarrel;
  • 11 Greek economists warn in a letter to Kathimerini that the threat of an exit is real;
  • the Portuguese government plans to inject €6.65bn to recapitalise its banks to meet new capital ratios;
  • Cyprus, too, may need funds for bank recapitalisation;
  • troika says Portuguese programme is on track;
  • Moscovici confirms France will stick to the 3% deficit target in 2013 “without austerity measures”;
  • Alexander Hagelüken says the Germans are kidding themselves when they think that they can decouple from the crisis;
  • Yanis Varoufakis, meanwhile, says the eurozone is currently committing economic suicide.

So here is the timetable – at least as planned by Herman van Rompuy and Angela Merkel. At the June European Council, van Rompuy presents the “the main building blocks for this deepened economic and monetary union” and “a working method to achieve this objective”.  He promised to present details on bank supervision, deposit insurance, and resolution at this stage. A fully worked out action plan and timetable for a fiscal union is due in the December council.


Germany, meanwhile, does not expect Europe to take any final decisions on strengthening economic policy coordination between member states until the spring of next year, according to a government paper seen by Reuters. The eight-page paper, entitled More Growth for Europe – Employment, Investment, Innovation, lays out a timetable for closer fiscal integration. But the plans may worry investors more than reassure them because Berlin expects nearly a full year of consultations and debate before decisions on the path to a so-called fiscal union are finalised. The paper, which officials said was approved by chancellery, finance ministry and foreign ministry last Friday, says that the European Commission and European Council President Herman Van Rompuy are likely to come up with concrete proposals on closer policy coordination in time for a December summit of EU leaders.  “On this basis, the European Council could sign off on the plans at its spring 2013 summit,” the paper reads. The timetable laid out in the paper could worry Europe’s partners, including the US, who are clamouring for immediate measures to stem a deepening crisis that could push  Greece out of the euro zone and force Spain to seek a bailout.


Merkel calls for body to supervise major EU banks


Angela Merkel said she would discuss the need for a European body to monitor major banks in talks on Monday José Manuel Barroso, Reuters reports.  European institutions needed more powers otherwise monetary union would not function, the Chancellor said in a short statement in Berlin last night before the discussions with Barroso later in the evening. “We will … be talking about to what extent we need to put systemic banks under a specific European supervisory authority,” she said. This was a medium term goal, she added.  “The world wants to know how we conceive the political union that will accompany monetary union, and we have to provide an answer to this question in the foreseeable future,” she said.  Barroso called for a structured approach in the debate, which could include a “banking union”. Some elements of this banking union would be more integrated financial supervision and also more integrated deposit guarantees. It is important to have this long-term vision about more Europe, he said.


G7 to hold emergency phone call today


Reuters has the story of a phone call among G7 finance ministers today, quoting one source as saying that the main concern was a bank run in Spain that could have repercussions beyond the eurozone. The idea is presumably to impress upon the eurozone ministers that the world expects to see some accelerated action in terms of strengthening the banking system.


Rehn wants ESM to recapitalise banks directly


El Pais reports this morning that Olli Rehn wants the ESM to be used to recapitalise banks directly, bypassing governments. The article said such a change of rules would be of vital importance to Spain. The aim, he said, was to break the link between sovereign debt and banking. Rehn’s comments triggered a fall in Spanish 10-year spreads to 520bp yesterday. El Pais quotes EU source as saying that a final decision may be taken at the June economic council. So far, Germany rejects this position, insisting that Spain should apply for a full programme. The article said the quid pro quo for an ESM led recapitalisation would be resolution powers that avoided the use of taxpayers’ money.


Schäuble refuses to relinquish his national post to become eurogroup chairman


Wolfgang Schäuble ruled out that he would relinquish his job of German finance minister in order to succeed to Jean-Claude Juncker as eurogroup chairman. Talking to Handelsblatt Schäuble said: “It is decisive that the eurogroup of finance ministers is strengthened. We have a common monetary policy with the ECB. But we don’t have a common fiscal policy. For that reason he have put the responsible ministers in the governments in front of the ECB. For that reason the eurogroup must not be led by a permanent chairman. In that case it would automatically become part of the Brussels apparatus. Rather he (the chairman) must come out of the national financial policy.”


ECB’s executive board falls victim of eurozone’s top job quarrel


Starting today the ECB’s executive board will meet with only five instead of the normal composition of six members for its weekly Tuesday working session, Financial Times Deutschland reports. The reason is that the eight year term of José Manuel González-Páramo expired last Thursday and the euro governments have been unable to appoint a successor because the ECB job is part of a package including the eurogroup and the ESM chairmen about which the capitals have been quarrelling for months. For the time being the ECB says the board is functioning well and it split up González-Páramo’s responsibilities among the remaining board members. But unnamed eurogroup members quoted by FTD worried that the vacancy was damaging the ECB’s reputation and criticized Mario Draghi for not having been more insistent with the governments to nominate a new board member in time.


Greek economists warn that threat of an exit is real


In an open letter published in Sunday’s Kathimerini by 11 Greek economists, including George-Marios Angeletos of the MIT and Dimitris Vayanos of the LSE, stress that the prospect of a Greek eurozone exit is still very real, despite reassurances by EU officials. “The international community is monitoring our country with great concern and believes it very likely that it will default in a disorderly fashion and leave the Eurozone.” As for the campaign they note that “we would not like to see ignorance and populism lead the country to disastrous and irreversible choices.”


European leaders, meanwhile, continued to express their hopes that Greek authorities will do what it takes to remain in the eurozone. European Council President Herman Van Rompuy and European Economic and Monetary Affairs Commissioner Olli Rehn repeated Monday that Brussels wants Greece to remain in the eurozone. Van Rompuy said Athens could only achieve this “while respecting its commitments.”


Cash injections for banks in Portugal and, possibly, Cyprus


The Portuguese government announced it will inject €6.65bn into three of the country’s largest banks. Vítor Gaspar said the funds would ensure that Banco Commercial Portugues, Banco BPI and state-owned Caixa Geral de Depósitos met tough new capital requirements set by the European Banking Authority. Besides paying interest rates on the loans, banks will also make specific commitments to lending to small companies, the Wall Street Journal reports.  Small and micro enterprises, which make up for the majority of companies in the country, are facing credit restrictions as banks struggle raising the level of capital they must set aside to cover for potential loan losses.


In its fourth quarterly review the troika concludes that Portugal’s reforms are on track and revised its forecast for 2012 upwards, 3% contraction rather than 3.3%. Exports are higher than expected but unemployment will peak at 16%. While the report says there will be no tolerance in deviating from the deficit target, the debt ratio was revised upwards to 118% next year, Jornal de Negociosreports. With this endorsement, Portugal is set to receive a €4.1bn installment of its rescue loan next month. Including that tranche, the country will have received about 75% of the bailout since the program began a year ago.


Other countries also struggle to hit new EBA capital ratios by the end of the month. Cyprus Popular Bank needs €1.8bn to meet a core tier 1 capital of 9% before June 30. The figure is equivalent to about 10% of Cyprus’s GDP, according to Reuters. Government officials say external bilateral lending is an alternative they pursue. Cypriot President Demetris Christofias said last Friday the prospect of the island entering a financial support mechanism wasn’t a foregone conclusion, but one that could not be totally ruled out.


Moscovici confirms France will stick to the 3% deficit target in 2013 “without austerity measures”


After a meeting with Olli Rehn in Brussels, Pierre Moscovici confirmed that France would stick to the 3% deficit target for 2013 but would do so “without austerity measures”, Les Echos reports. “We are ready to be judged on our results but we also have our own ways and means, that you would call a project”, the new finance minister said. In last week’s recommendations for France, the Commission had asked the country to undertake additional efforts to reach the 3% target. Also Brussels had warned that France had significantly lost out in terms of competitiveness.


Alexander Hagelüken points out the end of the German illusion about growth in a depressed environment


Süddeutsche Zeitung’s Alexander Hagelüken uses the bad stock market performance in May to point out the end of the German illusion that the country was able to prosper in an environment of recession and depression. “It was an illusion to think that the Federal Republic would sustain macroeconomic records while euro partners on the left and on the right were faltering”, Hagelüken writes. He points out that German consumers could offer some relief given that wages were growing. But uncertainties about the future of the eurozone future, Spain and Greece is weighting on them. “The federal government can contribute the reduce risks for the German economy and jobs”, Hagelüken concludes. “It needs to learn that economic policy is no longer possible only within the country’s borders.”


Yanis Varoufakis says eurozone is committing suicide


A strong column by Yanis Varoufakis on the economic consequences of the fiscal pact in Naked Capitalism. He says the eurozone is committing economic suicide. Here is aün abbreviated extract of his main argument:

“The other day, the Irish voted in favour of a hideous impossibility: They voted in favour of the EU’s fiscal compact which specifies that which is both impossible to attain and catastrophic if it is attained…


Suppose that every European citizen adopts the fiscal compact as her or his guiding principle and puts its implementation above all else in life. If Spain, Italy, Portugal, Ireland, France, Greece, Germany etc. (i.e. countries with debt well above 60% of GDP) were to reduce their debt by the specified 5% per annum, this would mean that all these nations should turn an average 2.8% primary deficit to something akin to 6% primary surplus. Suppose we could do it (which, of course, we cannot). Were we to succeed in this endeavour, the result would be a very deep recession equal to at least -4.5% in terms of average Eurozone-wide ‘growth’. In a period when a banking crisis is in full swing, the Periphery is in free fall, US growth is tittering of the verge, China is slowing down etc., engineering such a recession via this piece of ‘legislation’ is the macroeconomic equivalent of committing suicide.”


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Source: Reuters




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