Monthly Archives: September 2011

From our foreign affairs blog:


Welcome to the second day of our rolling coverage of the eurozone crisis. Today’s moments to watch include a meeting between Greek prime minister George Papandreou and German chancellor Angela Merkel, and the Greek parliament vote on a deeply unpopular property tax, due at 7pm (5pm BST). This post should update every three minutes, although it will take longer on mobile devices.

All post times are London time. Curated by John Aglionby and Esther Bintliff on the world news desk in London, with contributions from FT correspondents around the world.

 

Our colleague Gideon Rachman in his FT column this week gives one reason why the euro is in trouble: just look at its banknotes.

Unlike other currencies such as the US dollar or the drachma of old, euro notes shun portraits of dead statesmen and national monuments in favour of abstract bridges and arches. You apparently can’t stick Finland’s national liberation hero on a euro banknote, because he is likely to be unknown in Portugal.

Gideon argues this illustrates the lack of a common European identity that would come in handy in the current crisis.

One other peculiarity: unlike other large currencies, it lacks any kind of nickname. A happy American feels like a million bucks; an Englishman pays three quid for a pint of beer; a Frenchman in the past might have paid cinq balles for a baguette.

But ten years after the notes and coins first appeared, the single currency is still known as, well, the euro

Italian prime minister Silvio Berlusconi during last week's vote on new austerity measures

What ails Italy?

If one reads into the minutiae of last night’s Standard & Poor’s downgrade of Italian debt, it wouldn’t be hard to come away thinking that there was not a whole lot wrong with the eurozone’s third largest economy. It’s a “high-income sovereign with a diversified economy and few external imbalances”, S&P notes.

In addition, private sector debt – which crippled Ireland and Spain, when those debts moved onto government books via bank bail-outs – is low. Left unsaid by S&P (but highlighted by Moody’s when it announced its own review in June) is the fact Italy also has a primary budget surplus, which means it actually brings in more money than it spends, if you don’t count interest payments on debt.

According to S&P, then, what ails Italy is as much political as it is economic. 

Flowers are the traditional way to say “I love you”. But in European Union etiquette, they can just as well be the side-product of a political spat.

Romanian authorities this week-end blocked six trucks filled with flowers from the Netherlands, citing health concerns linked to unspecified “dangerous bacteria”.

The blockade came – perhaps coincidentally, but likely not – just one day after the Dutch government said it would veto the enlargement of the passport-free Schengen zone to Romania and Bulgaria.

The Dutch are not the only sceptics when it comes to expanding Europe’s borders to include the eastern duo, a decision that requires unanimity among current Schengen members.

At least a dozen other countries, including France and Germany, lined up against Schengen enlargement last year, worried that though Bulgaria and Romania had met the technical requirements laid out in the accession programme, the endemic corruption in both countries had to be addressed first. 

In a new article, George Soros warns German voters that they risk another Depression.

The Fed pumped dollars into European banks, Timothy Geithner pleaded with EU finance ministers to take quick action, and in today’s FT former Obama administration economic major-domo Larry Summers warned that incrementalism in the eurozone is akin to the slow bleeding of the Vietnam war.

It seems like the week the Americans jumped into the crisis surrounding the euro with both feet.

Now comes a compelling treatise from yet another major American economic thinker, financier George Soros, who has written in the New York Review of Books echoing Summers’ concerns about incrementalism and predicting that a common eurozone treasury is imminent – and may be the only solution to the crisis. 

Finland's finance minister Jutta Urpilainen, left, and prime minister Jyrki Katainen

Senior European officials had hoped to finally bang out a deal today on Finland’s demand for collateral from Athens in order to participate in Greece’s new €109bn bail-out. But fellow Brussels Blogger Josh Chaffin reports in from Wroclaw, Poland, that the Finns don’t seem to be in a mood for compromise.

“I think we are going to debate about it, but unfortunately I don’t see that we can find a solution tonight,” Jutta Urpilainen, the Finnish finance minister, said heading into the meeting of her eurozone counterparts in Wroclaw. “We continue to negotiate. I’m optimistic that we can find a solution that everybody can accept.”

European Union officials have grown increasingly exasperated with the Finns, who made the demand for collateral part of the new governing coalition agreement reached after April’s indecisive national elections

Yves Leterme resigned as prime minister of Belgium in April 2010, prompting a 500-days-and-counting run without a government during which he stayed on as caretaker leader. Now it looks like he intends to resign from that job as well, to join the Organisation for Economic Cooperation and Development in Paris. Does that mean a new government may finally be afoot?

The announcement last night that Leterme would become deputy secretary-general at the OECD, the rich country think-tank stunned the Belgian political world, which is currently negotiating to replace him with a full-powers government. 

Later this week the European Commission will put forward its plan to reform the passport-free Schengen area, as we detailed in our paper edition some weeks ago, and again today.

But its proposals won’t address what to do about Bulgaria and Romania, the two EU members who want to join Schengen but so far haven’t been allowed to.

Both countries have met the technical requirements to be part of Schengen, but existing members – led by France and Germany – say systemic corruption in the civil service are undermining border controls. An onerous “cooperation and verification mechanism” is meant to ensure steady improvement.

Diplomats are thinking creatively, however. One of the sticking points is that allowing Bulgaria and Romania into the pact would create a “land bridge” from Greece to mainland Schengen. (Greece currently has no land borders with other Schengen countries, and seeing as the Greek-Turkish border is the prime gateway for illegal migrants to come into Europe, losing the existing buffer is a problem.)

Poland, which is now handling the dossier as holder of the rotating EU presidency, has revived an idea to grant Schengen access to Romania and Bulgaria in two stages: keep passport controls for now on land and sea borders, but abolish them for air travel. 

Brussels has a mysterious way of letting legislative proposals get stuck in the institutional mire – look at the single EU patent idea first mooted over a decade ago, or the “six pack” measures to curb excessive debt, which the parliament and national governments are still fighting over.

But an episode this week suggests that imbroglios can disappear just as quickly as they first formed.

After three years of stasis, a proposed extension of copyright on music recordings from 50 to 70 years was brokered in just a few weeks and very much below the radar.

The recording industry has lobbied heavily for the extra 20 years, going so far as wheeling out its ageing rockers – think Cliff Richard, Paul McCartney and The Who – to convince governments that their 1960s hits should be covered by copyright until the 2030s. (The European Commission, which as the EU’s executive arm proposes all legislation, had suggested 95 years in an early draft) 

Europe’s track record of getting its member states to abide by common debt rules is clearly a mixed bag. Perhaps not for long, if Günther Oettinger, the German energy commissioner has his way.

In an interview with Bild, the mass-circulation daily, Oettinger floats a new debt-busting plan which he hopes might succeed where past treaties have failed: countries with excessive debt should have to live with the mortification of having their national flags flown at half mast outside official European Union buildings.

The unconventional idea – acknowledged as such by the commissioner – “would only be a symbol, but it would be a powerful deterrent,” he said.