Monthly Archives: March 2012

Belgium's finance minister Steven Vanackere talks to colleagues at the Copenhagen meeting.

Our front page story in tomorrow’s dead tree version of the FT includes lines from confidential analyses distributed to European Union finance ministers at their gathering in Copenhagen. As usual, we thought we’d offer a bit more from the documents here at the Brussels Blog.

Among the most interesting elements in the documents are discussions about Europe’s banks, which have seen a surge in confidence thanks to the European Central Bank’s €1tn in cheap loans, known as LTRO for long-term refinancing operations.

One of the analyses in particular – the three-page “Assessment of key risks and policy issues” prepared by the EU’s economic and policy committee – warns that there are new signs of instability in the European banking sector. Details after the jump… 

Klaus Regling, head of the eurozone rescue fund

Coming up with a number for the size of the new, enlarged eurozone rescue fund seems to be the favourite parlour game in the run-up to today’s meeting of eurozone finance ministers in Copenhagen.

According to a leaked copy of the draft conclusions obtained by the FT, the ceiling for the next year will be €700bn. But is that, to quote a former US president, fuzzy math? Is it really €940bn…but some leaders are afraid to admit it out of fear of angering their bailout-fatigued national parliaments?

The leaked draft has three elements of a new firewall starting in mid-2012 : €200bn is committed to the ongoing bailouts in Greece, Ireland and Portugal; €240bn of left-over money in the current, temporary rescue fund is frozen in an emergency account; and two-fifths of the new €500bn permanent rescue fund gets capitalised.

The fuzzy math comes in when you try to account for the new permanent rescue fund, called the European Stability Mechanism. An attempt to clarify, plus some excerpts from the draft, after the jump… 

Pope Benedict XVI, eurozone head of state?

Even in the midst of the eurozone crisis, senior officials in Brussels are occasionally able to maintain a sense of humour. Case in point: A press release sent out this afternoon by the office of Herman Van Rompuy announcing yet another emergency eurozone summit – on April 1. 

Eurogroup contenders Juncker, left, and Schäuble

Although the financial markets and many non-Europeans will be watching Friday’s gathering of eurozone finance ministers in Copenhagen to find out how much they will enlarge Europe’s rescue fund, the Brussels echo chamber will be watching for another reason entirely: Just who will be getting three top jobs that must be filled by the time summer rolls around?

Up until the last day or two, the smart money was that Yves Mersch, head of Luxembourg’s central bank, would get the first job on offer – a coveted seat on the European Central Bank’s six-member executive board, taking away a post originally slated to go to a Spaniard, Antonio Sáinz de Vicuña.

But senior eurozone officials said the intense politicking that has occurred in the run up to Friday’s meeting has made Mersch’s appointment less certain. “It’s one of those things that could go one way or another,” said one person directly involved in the talks. “I wouldn’t bank on it yet.”

The politics get very complicated and are directly related to the re-election prospects of French president Nicolas Sarkozy. A detailed explanation of the convoluted twists after the jump… 

The European commission, the European Union’s executive arm, has been one of the staunchest supporters of the proposed Nabucco pipeline, a 3,900-kilometer behemoth that would carry natural gas from the Caspian region to Austria.

For the commission, Nabucco represents the backbone of a new southern corridor that would break Europe’s dependence on imported Russian gas. It has touted the project repeatedly over the years, and has also opened its wallet, committing up to €200m in funding.

But in a recent conversation with Brussels Blog, Gunther Oettinger, the energy commissioner, made a departure from the usual script and gave support to the growing suspicion that the full Nabucco may be a lost cause. 

The EU's Ashton and Israeli prime minister Netanyahu meet in Jerusalem last September.

Catherine Ashton, the European Union’s foreign policy chief, has spent most of the day under attack from Israeli leaders for allegedly comparing the killing a four people at a Jewish school in Toulouse yesterday to the death of children in Gaza at the hands of the Israeli military.

Ashton’s spokesmen have vehemently denied she was drawing a comparison between the two and was simply listing places where children have been violently killed, including the recent death of Belgian students in a bus crash, the shooting of Norwegian students last year by a right-wing extremist, and the Assad regime’s assault on Homs.

One problem: almost 24 hours after the speech was given, someone in the EU bureaucracy noticed the transcript posted by the European Commission’s communication team was incorrect. In the list of places cited by Ashton was also Sderot, the Israeli town near the Gaza Strip that has been targeted by Palestinian militias with rocket attacks.

The new version of the transcript still leaves out some of Ashton’s rhetorical flourishes, so Brussels Blog put together its own transcript of the section in question, which can be viewed in this video around minute 12. 

US treasury secretary Timothy Geithner

Timothy Geithner, the US treasury secretary, has occasionally irked his European counterparts with attempts to influence the eurozone’s crisis policymaking, but European officials will be closely listening to him as the clock ticks down to next month’s spring meetings of the International Monetary Fund.

European Union leaders hope to get non-eurozone backing to double the IMF’s funding to $1tn at the gathering. Although the US won’t contribute, Washington is the IMF’s largest shareholder and is widely believed to be behind the insistence of Christine Lagarde, the IMF chief, that no increase will be forthcoming unless the eurozone increases the size of its own €500bn rescue system.

Those interested in tea leaf reading will get their chance today, when Geithner testifies on Capital Hill on the eurozone crisis. The House financial services committee, where Geithner will appear, helpfully released his testimony last night, and it makes clear Geithner is in no mood to back down. 

Poul Thomsen, head of the IMF mission to Greece

On Friday, after much of Europe shut down for the week, the International Monetary Fund issued its 231-page report on Greece’s new €174bn bailout, which seems to struggle to keep an optimistic tone about Athens’s ability to turn itself around over the course of the rescue plan.

But the IMF report is worth scrutinising for reasons beyond its gloomy prose: If there’s anyone who might force eurozone leaders back to the drawing board once again, it’s the IMF, which essentially pulled the plug on the first €110bn Greek bailout early last year when it became clear it wasn’t working.

Signs that the IMF is on a bit of a hair trigger litter the new report. 

European regulators embarked on a financial rulemaking binge after the 2008 crisis. Yet the biggest question of all — how do you let a big bank like Lehman Brothers collapse without endangering the entire financial system — remains unanswered. If you think the system was inadequate 2008, it is basically no better today.

A Brussels proposal on “Crisis Management and Bank Resolution” has been promised “in a few weeks” since the summer of 2011. Month after month, the Commission ducked the issue. Today Michel Barnier, the commissioner overseeing financial services, admitted he needed more time for a informal mini-consultation on “timing and calibration”. The odds are surely lengthening on a proposal emerging before the summer. 

Orban walks on stage in front of Hungary's parliament for Thursday's national day address.

[UPDATE] We’ve obtained the English-language version of Orban’s March 13 letter to Barroso requesting assistance on reopening talks with the IMF for a line of credit. The letter can be read here.

The war of words between Brussels and Budapest continued on Friday, with José Manuel Barroso, president of the European Commission, hitting back at Hungarian prime minister Viktor Orban, who a day earlier compared Barroso’s Commission to Soviet apparatchiks and Hapsburg imperialists.

Orban’s tongue lashing, made at a national day rally in front of thousands in central Budapest, came after a series of recent moves by the Commission, the European Union’s executive branch, to sanction the Hungarian government for violating EU rules on deficits and democratic institutions.

Through his spokesperson, Barroso questioned Orban’s grasp of democratic principles, a rebuke sure to rankle the Hungarian prime minister, who as a young anti-Communist activist became famous for publicly calling for the withdrawal of the Red Army in 1989.

“Those who compare the European Union with the USSR show a complete lack of understanding of what democracy is, in his view,” said the spokesperson, adding she was relating Barroso’s personal comments. “They also fail to understand the important contribution of all those who have defended and fought for freedom and democracy.”