Brussels blog

Are Italy and Spain decoupling?

May 29, 2012 10:39 am by Peter Spiegel

Italy's Mario Monti and Spain's Mariano Rajoy chat during a March EU summit in Brussels.

The leaked copy of the Italy “country-specific report” from the European Commission which we got a hold of before its official publication Wednesday contains lots of warnings about tax evasion and the black economy. But with Spain and Greece dominating headlines these days, one thing that stands out from reading the report is that Italy is not Spain or Greece.

Both Spain and Greece are struggling mightily to get their budget deficits under control, and some analysts argue they’re failing because of a “debt spiral” where their governments attempt to close shortfalls by instituting severe austerity measures – thus killing economic growth and causing bigger deficits.

The European Commission report (which we’re posting online here) shows how much better Italy’s situation is when it comes to its budgetary situation. Not only is Italy not dealing with huge deficits like Spain and Greece; last year it actually had a primary budget surplus – in other words, it took in more money than it spent, if you don’t count debt payments.

That’s a significant difference, and may be one of the main reasons Italy appears to be decoupling from Spain, as our friends and rivals over at Reuters noted in a Tweet this morning: the spread between Spanish and Italian 10-year bonds have shifted a pretty dramatic 250 basis points over the course of the year.

Continue reading: “Are Italy and Spain decoupling?”

Tags: Italy, Spain
Posted in EU, EU Commission, Euro | Permalink

EU summit: Did we mention growth?

May 23, 2012 3:32 pm by Joshua Chaffin

Over at the socialist gathering held in a conference centre overlooking an ornate garden in the centre of Brussels, a gaggle of reporters – and a few bemused tourists – clustered around Jean-Marc Ayrault, the new French prime minister, as he arrived for the meeting.

Jean-Marc Ayrault arrives at the meeting of the Party of European Socialists (PES). Reuters

Speaking in French, English and German, he said: “We need to give Europe confidence. Throughout his election campaign, President Hollande made an issue of the importance of growth.”

He added: “It is very important not just for France, but all the European people, to have a new strategy. It is very important. Not just for the eurozone.”

Mr Ayrault stressed, though, that this evening’s summit was informal and that leaders would not be taking big decisions.

Moments later Elio di Rupo, Belgian prime minister, arrived wearing his trademark Burgundy bow tie. He waved aside reporters as he went into the meeting without making a comment.

Tags: Ayrault, Brussels, Hollande
Posted in EU | Permalink

EU summit: Samaras pulls the first punch

May 23, 2012 3:17 pm by Peter Spiegel

Antonis Samaras. Getty Images

Leaders have begun arriving at their party caucuses and one of the first to show up at the centre-right EPP gathering was Antonis Samaras, the New Democracy leader locked in a neck-and-neck fight to become Greece‘s next
prime minister.

Predictably, on his way in, Samaras pushed EU leaders to do more to turn around the eurozone‘s faltering economy. “Europe needs a new growth orientation,” he said. “In my country recession and unemployment have
really had a devastating effect on the social fabric and social cohesion.”

Before ducking in, he said that a focus on growth in the run-up to the
June summit — where more firm decisions are expected than tonight — was
“crucial for Europe and critical for Greece.”

Tags: Antonis Samaras, eurozone, Greece
Posted in Euro | Permalink

EU summit: Let the games begin

May 23, 2012 10:51 am by Peter Spiegel

France's Hollande and Germany's Merkel at the Nato summit in Chicago earlier this week

Ahead of today’s informal EU summit in Brussels, senior officials have been repeatedly warning that no decisions will be taken. Indeed, no communiqué has even been circulated among national delegations, so the dinner is likely to wrap with only a press statement from Herman Van Rompuy, the evening’s host.

Even though Van Rompuy in his letter to leaders has emphasised the informal nature of the session, Europe’s two largest party groupings – the centre-right European People’s Party and the centre-left Party of European Socialists – will both hold pre-summit caucuses starting in the late afternoon.

In the past, the EPP gathering was the more significant affair, with almost every major EU leader (Van Rompuy, European Commission president José Manuel Barroso, Eurogroup chair Jean-Claude Juncker) and leaders from the largest eurozone countries (France’s Nicolas Sarkozy, Germany’s Angela Merkel, Italy’s Silvio Berlusconi) all regular attendees.

At one point, the PES became something of a caucus of the damned, with only Greece’s George Papandreou, Portugal’s José Socrates and Spain’s José Luis Rodriguez Zapatero as centre-left leaders in attendance. Like so much in Europe these days, the French presidential elections have changed all that.

Continue reading: “EU summit: Let the games begin”

Tags: EPP, EU summits, European socialists
Posted in EU | Permalink

The slow-motion run on Greece’s banks

May 17, 2012 10:32 am by Peter Spiegel

People pass Bank of Greece in Athens last week

Jitters over whether Greece will be forced out of the euro have turned the focus of policymakers in recent days on whether Greece is on the precipice of a bank run.

It’s no mere academic exercise; a full-scale bank run would force the European Central Bank and eurozone lenders to either pump in more money – without a new government in place, and no assurances Athens would live up to the rescue terms – or pull the plug on Greece’s financial sector.

Since a banking sector without a central bank would essentially force Greece back to the barter system, there would be few options left then for Athens to begin printing its own currency again. Essentially, the drachma would return through the back door.

As we reported in today’s dead-tree edition, senior eurozone officials responsible for monitoring the currency area’s banking system said the rate of withdrawals thus far falls short of a panic. But the International Monetary Fund’s recent report on Greece makes it clear that a slow-motion bank run has been under way for more than two years, with close to 30 per cent of deposits being pulled out since the end of 2009.

Continue reading: “The slow-motion run on Greece’s banks”

Tags: European banks, European Central Bank, Greece
Posted in EU, Euro | Permalink

The moment George Osborne was encircled

May 17, 2012 9:41 am by Alex Barker

George Osborne, the UK chancellor, surrounded at the marathon Brussels negotiations on bank capital rules. The May 2 talks ended at 2am with Osborne outnumbered 26-1 by other EU finance ministers. A deal was finally done on Tuesday.

Tags: George Osborne, Michel Barnier, Wolfgang Schauble
Posted in EU, Fiscal policy | Permalink

Michel Barnier and the future of the French right

May 16, 2012 6:37 pm by Peter Spiegel

In our interview published today with Michel Barnier, the silver-haired Frenchman who oversees the EU’s financial system, he talks in great depth about the future of banking regulation and his relationship with François Hollande.

EU commissioner Michel Barnier

For Barnier, the election back home not only brought him a new French president to deal with, but also a mixed legacy for his political home, the centre-right UMP. The party’s standard-bearer Nicolas Sarkozy used the waning days of the campaign to openly court voters who had supported the far-right National Front through anti-EU rhetoric.

In addition to threatening to pull France out of the EU’s passport-free Schengen travel zone, Sarkozy regularly belittled the European Commission and urged “buy French” policies that violated the EU’s common market.

In our hour-long interview, Barnier insisted that such Europe-bashing was only the result of overheated politics ahead of a contentious vote. “I think you have to put to one side the electoral campaign,” he said, citing UMP party luminaries like François Fillon and Alain Juppé who have strong pro-European pedigrees.

Still, Barnier said he intends to actively insert himself in the post-Sarkozy debate about the UMP’s future – though he assiduously declined to say what role him himself might play in that new party.

Continue reading: “Michel Barnier and the future of the French right”

Tags: France, Francois Hollande, Michel Barnier, Nicolas Sarkozy
Posted in EU, EU Commission | Permalink

Hollande: Friend of the City?

May 8, 2012 4:02 pm by Alex Barker

Francois Hollande rather enjoys issuing blood-curdling warnings to the City of London. During the campaign he declared his “real enemy” to be ”the world of finance” and post-election he is not toning down the rhetoric.

How ironic then that Hollande’s first major piece of EU financial regulation will see him largely siding with European banks (and yes, that includes the British ones) against calls from the UK and ECB for tougher rules.

Diplomacy in Brussels can be a funny business. Hard as it is to believe, in this negotiation the big beasts of City banking have been privately cheering on the French. Next week, when finance ministers meet to negotiate a deal, we’ll all be able to see if Hollande changes Paris’ tune.

Continue reading: “Hollande: Friend of the City?”

Posted in Economic governance, EU, Financial services | Permalink

From The World May 7, 2012

European elections reaction: live blog

Welcome to our rolling coverage of the reaction to elections in France and Greece on a big day for Europe.

By Tom Burgis, John Aglionby and Esther Bintliff in London with contributions from FT correspondents around the world. All times are London time.

This post should update automatically every few minutes, although it might take longer on mobile devices.

12.44 Borzou Daragahi, the FT’s north Africa correspondent, reports on the response to the French election results in the Arab world:

Across a region undergoing tumultous change, many greeted the fall of Nicolas Sarkozy with glee, hopeful it would spell the end of French foreign policies considered too Atlantacist, pro-Israel and anti-immigrant.

Though many Libyans hailed Mr Sarkozy for his role in spearheading Nato’s help in toppling Col Muammer Gaddafi, others remember his administration’s cozy ties with deposed Tunisian leader Zein el Abidine ben Ali and Egypt’s former President Hosni Mubarak.

Ties between Tunisia’s new government, dominated by a coalition of Islamists and leftists, and France have grown particularly strained. In an interview with the FT in January, Islamist party leader Rachid Ghannouchi accused France of arrogantly giving Tunisia ‘lessons’ on economic and social policy despite its own problems.

Mustapha Ben Jaafar on April 27, 2012. AFP PHOTO/ FETHI BELAIDFETHI BELAID/AFP/GettyImages

After Mr Sarkozy’s defeat, Mustapha ben Jaafar, speaker of the Tunisian parliament and leader of the left-leaning Ettakatol party, hailed François Hollande’s arrival as way to update bilateral relations.

“We are hopeful that the arrival of the Socialists will give impetus to the historically strong relationships between our two countries,” he said in a statement. “With France, the new democratic Tunisia wants to build a true partnership that respects the values of freedom and human rights, based on a strategy of co-development and shared prosperity.”

12.22 The election results in Greece testify to widespread dissatisfaction with the country’s mainstream conservative and socialist parties. Voters have punished the political groups they see as jointly responsible for the economic crisis, with once marginal groups rapidly gaining ground.

Continue reading: “European elections reaction: live blog”

Tags: France, Francois Hollande, Greece
Posted in Euro | Permalink

Spain, S&P and the austerty-growth debate

April 27, 2012 11:18 am by Peter Spiegel

Spain's Mariano Rajoy, after a meeting at the Spanish parliament in Madrid earlier this month

The recent turn in market sentiment against Spain has led to a somewhat unanswerable debate in European policy circles about what, exactly, the markets are worried about: Is it that the new Rajoy government tried to break from tough EU-mandated deficit limits last month…or the fact they eventually agreed to stick to next year’s stringent target?

If Standard & Poor’s downgrade of Spanish debt last night is any indication, it appears the markets are more concerned about the latter than the former.

Most senior EU officials have a different view, arguing that by unilaterally declaring he was going to ignore the EU-mandated 4.4 per cent debt-to-gross domestic target for 2012, prime minister Mariano Rajoy spooked the bond market by signalling Spain had lost its sense of discipline.

But S&P makes a different argument.

Continue reading: “Spain, S&P and the austerty-growth debate”

Tags: credit ratings agencies, Spain
Posted in Economic growth, EU, Fiscal policy | Permalink