Peter Spiegel

Regling, right, with European Central Bank president Mario Draghi at a press conference

Klaus Regling has been the head of the eurozone’s rescue funds – first the temporary European Financial Stability Facility, now the permanent European Stability Mechanism – since the outset of the debt crisis, a perch that has given him a unique insight into the five years of occasionally contentious deliberations over the bloc’s five bailouts: Greece, Ireland, Portugal, Spain and Cyprus.

But as the EFSF turned into the ESM, and as the €500bn ESM gained staff and authority, Regling’s own role in eurozone debates has grown – particularly on the issue of Greek debt, where he has been a frequent and outspoken critic of the argument, made both in Athens and by the International Monetary Fund, that the heavy debt burden is what ails the Greek economy.

Two years ago, in an interview with our friends and rivals at the Wall Street Journal, Regling in essence sounded the death knell for a November 2012 deal where eurozone governments had promised debt relief for Athens as long as it achieved a primary budget surplus – something it achieved by the end of 2013. As Regling predicted, the eurozone did not restructure Greece’s debts despite Athens living up to its side of the 2012 agreement and posting a surplus.

In an interview this week with the Financial Times, Regling has done something similar. As part of July’s controversial €86bn bailout deal, creditors again held out the promise of debt relief. And Regling is now suggesting that even if it does occur, a restructuring will not be on the scale Athens and the IMF had been arguing for just four months ago.

Our story on the Regling interview is here, but as is our practice at the Brussels Blog, we’re offering an annotated (and slightly edited for length) transcript for readers who want to hear more from Regling below. Read more

Christian Oliver

Oh dear. It’s like Fifa all over again.

How was it that the Americans managed to unearth all the rottenness in Volkswagen, Europe’s top carmaker? How come the Europeans were asleep at the wheel again?

That pretty much summed up the shame-faced mood at today’s session of the European Parliament’s environmental committee, where MEPs wanted lots of answers from the European Commission. And didn’t really get any.

Christofer Fjellner, a Swedish centre-right MEP, captured the spirit: “Of course it’s embarrassing that it’s the Americans that show us we have a problem. It could be telling that it is the Americans because in Europe, in member states, we are not up to the task of scrutinising our own heroes the way we should.” Read more

Duncan Robinson

Viktor Orban, Hungary's prime minister, during a visit to Brussels to discuss the crisis this month

When the European Commission this month unveiled its scheme to share out 120,000 refugees, on top of the 40,000 agreed in July, it added a new beneficiary country to the programme: Hungary. But unlike the other two targeted in the scheme as EU front-line countries, Greece and Italy, Hungary didn’t want to be included, despite being subject to a massive influx from its border with Serbia.

The dispute has become one of the primary reasons agreeing the scheme has taken so long. Originally, the plan said that 54,000 refugees would be sent from Hungary to other member states. The remaining 66,000 would come from Italy (16,000) and Greece (50,000).

Commission officials admitted Hungary’s inclusion was a bit of political jujitsu. For months, Hungary’s combative prime minister, Viktor Orban, argued his country was being overrun with people trying to enter Germany. The relocation scheme provided the opportunity for Budapest to offload 54,000, quiet Brussels’ loudest critic, and peel off Hungary from the hardening anti-relocation alliance of Visegrad countries.

The publicly-stated reason Orban doesn’t want to participate is a matter of principle: Budapest does not see itself as a front-line state. Nearly everyone arriving in Hungary has come through Greece first and Budapest argues that, if Greece was doing its job, Hungary would not be facing a problem. “The elephant in the room is Greece,” insists one top Hungarian official.

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Duncan Robinson

Hungarian soldiers build a new section of a border fence, along the Croatian border

Amid the diplomatic fighting over the size of the refugee scheme, one question has been buried: will it actually work?

As some analyses have noted, there is a lot of doubt over the practicalities of the plan to share out 120,000 refugees across Europe. The main one is pretty fundamental: how do you make sure a refugee stays in the country where he or she is sent when systematic border checks no longer exist?

The proposals being debated this weekend, and seen by Brussels blog, touched on this. In short, member states have few tools to keep refugees in one country beyond cutting their benefits, making them repeatedly check-in with authorities and, well, asking them nicely not to leave. Read more

Duncan Robinson

For the second weekend in a row, ambassadors from across the EU are spending their Sunday behind closed doors, trying to reach a deal on sharing out 120,000 refugees across bloc for the crunch interior ministers’ meeting on Tuesday, ahead of a make-or-break migration summit on Wednesday.

At the heart of the plan, which has become a flagship policy for the Juncker commission, is the “distribution key”.

Member states would take a number of refugees based on how big they are, how rich they are, how many asylum seekers they already have, and the country’s unemployment rate. Or as the Commission put it:

Got that? Good.

But now, it seems, the distribution key is dead – for this scheme, at least. The latest version of the draft agreement seen by Brussels Blog has all mention of distribution keys taken out. Even the percentage breakdown for each member state has been removed.

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Christian Oliver

Malmstrom, right, signs an intellectual property deal with Beijing at June's EU-China summit

The gloves are coming off in the intensifying dispute over whether the EU should recognise China as a market economy.

A group of European industry organisations has commissioned a report from the left-leaning Economic Policy Institute in Washington, which concludes that the granting of market economy status to Beijing would endanger between 1.7m and 3.5m jobs in the EU.

That report – published here today – certainly lobs a grenade into the debate, and takes it out of the realm of legal hair-splitting by trade wonks. It comes with all the normal caveats about macroeconomic modelling, but it definitely takes things to a more visceral level.

For Cecilia Malmström, EU trade commissioner, China’s status poses a serious headache.

Here’s why: China itself argues that it automatically achieves market economy status within the World Trade Organisation at the end of 2016, according to the terms of its WTO accession agreement in 2001.

If Beijing is right about that, the EU could face significant strategic problems as it would be prevented from using its standard defence – retaliatory tariffs – to block what it sees as Chinese dumping in vulnerable sectors. Under international trade rules, is much harder for the EU to punish a country with high retaliatory tariffs when the offender is officially considered a market economy. Read more

Jim Brunsden

Juncker, left, with Moscovici at Thursday's hearing, before he ducked out early

Ten months ago, amidst the recriminations of the LuxLeaks scandal, the prospect of Jean-Claude Juncker appearing before a European Parliament inquiry into whether the European Commission president acted improperly while Luxembourg’s premier may have seemed to promise high political theatre.

In the event, however, Juncker’s testimony on Thursday before MEPs probing hundreds of sweetheart tax deals handed down to multinational companies in Luxembourg during his 18-year tenure as the country’s prime minister was anything but.

It featured a round of applause for his opening statement, plenty of softball questions, and the sight of Juncker ducking out before the end, citing an overrunning timetable and other commitments. Pierre Moscovici, the political savvy EU commissioner in charge of tax policy, was left to field the second and last round of questions. Read more

Christian Oliver

Margrethe Vestager, the EU's antitrust chief

Margrethe Vestager seems to be preparing for a marathon court battle.

At a parliamentary committee on Thursday, she gave a clear sign that she had the political will to issue tough landmark decisions on the sweetheart tax deals that EU countries have been issuing to multinationals.

But she also gave away a tell-tale clue that her officials are steeling themselves for a firestorm of litigation in what will become some of the defining cases of the Juncker commission. She won’t be rushed into a verdict before she has a “quality” case, she told the committee.

The Danish commissioner was appearing before the Brussels parliamentarians to give an update on four landmark tax investigations – Apple in Ireland, Starbucks in the Netherlands and Fiat and Amazon in Luxembourg.

Most critically, she robustly defended the commission’s revolutionary approach of treating “comfort letters” as state aid – effectively defining the letters (which are pre-emptive tax rulings, intended to reassure multinationals about whether their corporate structures aimed at to avoiding high tax bills are legal) as illegal subsidies. Read more

Peter Spiegel

Hungary's interior minister, Sandor Pinter, arrives at the migration council Monday afternoon

The EU’s interior ministers started their highly-anticipated meeting to agree next steps in Europe’s burgeoning migrant crisis with a newly drafted communiqué, which Brussels Blog got its hands on and has posted here.

As expected, the new draft would have EU members agreeing to accept 120,000 more refugees and relocate them around the bloc so that none of the front-line countries are overburdened – but rejects the European Commission’s demand that such a relocation system be mandatory, with set quotas for each country.

But what wasn’t expected is a significant watering down of the language that commits ministers to implement that plan. Last night, a draft of the communiqué included this sentence on the need to quickly adopt the relocation scheme:

Work will be carried out as a matter of priority on the preparation of a formal decision to implement this commitment.

In the new draft, that sentence has a new clause that includes a whole lot of caveats:

Work will be carried out as a matter of priority on the preparation of a formal decision to implement this commitment, with due regard to the flexibility that could be needed by Member States in the implementation of the decision, in particular to accommodate unforeseen developments.

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Duncan Robinson

A Syrian refugee receives assistance near Hungary's border with Austria

UPDATE: The late-night meeting of EU ambassadors wrapped up early (when you consider the EU’s penchant for working through the night), at 10.30pm.

While most of Brussels was getting ready for bed on Sunday night, diplomats from across the EU were locked in a room hammering out a rough agreement on how to deal with the mounting refugee crisis ahead of the crunch meeting of interior ministers on Monday. Brussels Blog saw the draft conclusions the ambassadors from the 28 EU member took into their session, and it’s a bit of a mix for the ambitious and the political.

Ministers are likely to agree on the European Commission’s new target of divvying up 120,000 extra refugees, on top of the 40,000 EU countries have already agreed to relocate. There is, however, no mention of the word “mandatory” or “compulsory” in the draft document, as the commission had demanded.

Earlier on Sunday, the language in draft communiqué on the relocation targets read like this: “In light of the current exceptional emergency situation, the Council has committed to relocate an additional 120,000 persons in need of international protection from Member States exposed to massive migratory flows.” Officials will decide on the details of how those migrants in Greece, Italy and Hungary will be distributed sometime in the next month, aiming to get it adopted at the next meeting of interior ministers, which is on October 8.

There is, however, one major problem: Hungary. While other once-reluctant central European countries have agreed to back the scheme – on the condition that it is voluntary – Hungary threatened to oppose the measures altogether. Despite Hungary being one of the beneficiaries of the scheme, along with Italy and Greece, Budapest is not happy with the terms of the policy, the manner of its introduction, or…well…anything to do with the refugee crisis, really.

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Jim Brunsden

Juncker urged additional eurozone reform in his "state of the union" address in Strasbourg

When Jean-Claude Juncker this week told a packed European Parliament he intends to forge a eurozone system for guaranteeing bank deposits, the European Commission president’s intention was to send a firm message of determination to strengthen the single currency’s foundations.

But just days after Juncker’s “state of the union” address, his attempt to sow hopeful seeds has hit stony ground in Berlin, where the plan was taken more as a declaration of war.

Germany’s fightback begins when finance ministers gather in Luxembourg on Friday, and is set out in a “non paper” obtained by the FT. Our story on the document in the FT’s dead-tree edition is here, but for those who want a bit more detail, we’ve posted it here, too.

Unlike the series of emergency gatherings on Greece this summer, the weekend “informal” meeting of eurozone finance ministers was intended to be a calmer, and above all shorter, stocktaking of the health of the common currency.

Now, however, Germany has decided to use it as an opportunity to put down clear red lines in an attempt to redirect the eurozone reform discussion, which gained momentum following the mess of the July Greek bailout deal on what Berlin believes is an unacceptable course. Read more

Jim Brunsden

Hill's new proposal on asset-backed securities is his first major piece of legislation

Having faced a flood of EU rules over the last six years intended to regulate “every corner” of the financial system, banks are in for something unusual next month when the European Commission will explicitly propose to dial back on one of the primary obligations they now face.

Jonathan Hill, the EU’s financial services chief, is set to propose a substantial reduction of capital requirements on banks’ holdings of securitised debt, in an effort to spur lending and growth. Similar plans are in the pipelines for insurers. We at Brussels Blog got our hands on the plans and have posted them here and here.

While his predecessor, France’s Michel Barnier, pledged during his mandate to tackle what he said were both structural and moral weaknesses in the financial system, Britain’s Hill has said that “today the biggest threat to financial stability is the lack of growth and jobs.”

The proposal on asset-backed securities (ABS) is the first major piece of legislation Hill has proposed since taking office in November. If approved by governments and the European Parliament, the new securitisation rules would amend one of Barnier’s signature legislative achievements: the EU’s new bank capital rulebook adopted in 2013.

But the change of approach from Barnier to Hill is not as neat (regulation-minded Frenchman to lax Anglo-Saxon) as it first appears. In his last year in office, Barnier had already steered the agenda towards how regulation can support long term financing of the economy, saying that the job of post-crisis re-regulation was largely complete. In addition, key parts of the current commission’s plans for a “capital markets union” draw on a Barnier-era policy paper. Read more

Peter Spiegel

Varoufakis, right, with his successor Euclid Tsakalotos in parliament last week

The London-based Official Monetary and Financial Institutions Forum, headed by an ex-Financial Times scribe – managing director David Marsh – on Monday released a 24-minute audiotape of a teleconference they held nearly two weeks ago with Yanis Varoufakis, the former Greek finance minister.

Details of the call were first revealed by the Greek daily Kathimerini, and much of most sensational revelations Varoufakis made were about a surreptitious project he and a small team of aides worked on to set up a parallel payments system that could be activated if the European Central Bank forced the shutdown of the Greek financial system.

But Varoufakis also made some other interesting allegations, including claims the International Monetary Fund believes the Greek bailout is doomed and that Alexis Tsipras, the Greek prime minister, offered him another ministry shortly after he was relieved as finance minister.

We’ve had a listen to the entire call, and transcribed most of it – excluding some inconsequential asides to the teleconference’s hosts, Messrs Marsh and Norman Lamont, the former UK finance minister.

The recording starts with an apparent interruption of the speakers; the teleconference operator announces that the call is now being recorded. Then Varoufakis begins:

The thing is, I have to admit we did not have a mandate for bringing Greece out of the euro. What we had a mandate to do was to negotiate for a kind of arrangement with the eurogroup, with the European Central Bank that would render Greece sustainable within the eurozone.

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Peter Spiegel

ESM chief Klaus Regling, right, with German finance minister Wolfgang Schäuble

Now that eurozone finance ministers have approved reopening bailout talks with Greece, the long slog to negotiating a €86bn deal begins. And one of the remaining unanswered questions is just how Greece’s bailout creditors plan to pay for it.

Klaus Regling, who heads the eurozone’s €500bn rescue fund, told German television this week that his European Stability Mechanism was preparing a loan of “perhaps €50bn” for Greece’s third bailout. That would leave as much as €36bn to scrape together from other sources.

The second largest source of bailout funding throughout the Greek crisis has always been the International Monetary Fund, which is still in the middle of a five-year €28bn rescue. That IMF programme has distributed €11.6bn so far, leaving €16.4bn that the new bailout could tap.

But the recent update of the IMF’s debt sustainability analysis, published by the Fund on Tuesday, makes clear that they are in no mood to disburse any of those funds unless there is a full-scale debt restructuring – which Germany and other eurozone creditor countries have fiercely resisted. Read more

Peter Spiegel

Donald Tusk, the European Council president, listens to a question during Thursday's interview

After spending much of the six-month standoff between Greece and its eurozone creditors on the sidelines, Donald Tusk, the former Polish prime minister who is now European Council president, became the central actor in the Greek drama over the weekend when a summit he chaired became the scene of 17-hour marathon talks that finally led to a deal on Monday morning.

In a 90 minute interview with the Financial Times and six European newspapers, Tusk gave a behind-the-scenes account of how the deal was brokered – but he also gave voice to fears that the standoff has given new energy to radical political forces in Europe that has made 2015 resemble 1968. Our full write-up of the interview, focusing on his concerns about renewed radicalisation can be read here.

But as is our practice at the Brussels Blog, we’re providing a transcript of the interview below. It is slightly edited to eliminate occasionally long-winded questions and topics not directly related to the Greek crisis.

The interview started with a question on Germany and whether Tusk agreed with some commentators that Berlin’s standing in Europe has been hurt by perceptions Angela Merkel, the German chancellor, bullied Greece and its leader, Alexis Tsipras, into a deal on her terms.

I think the position in Germany today, after this negotiation, is maybe not weaker, but for sure not more powerful. It was one of my main aims in these negotiations, to avoid this risk that someone is a loser and someone is a winner, especially because as you noticed, for sure, the discussion during this economic negotiation was also about things like dignity, humiliation, trust. From history, we know very well that we can’t ignore such values, or such feelings or emotions like dignity, humiliation and trust, especially when we go back to German history. The discussion about dignity and humiliation could recall the most dangerous time in Europe, and this is why I think it’s very important to avoid this dimension in discussions and in negotiation because for sure what we needed was to have no losers and no winners in this context.

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Duncan Robinson

After more than 14 hours of negotiations, finance ministers from across the eurozone agreed on the below. It outlines the hoops that Greece has to jump through in order to get a chance of receiving a bailout of between €82bn and €86bn.

Here is the draft from 4pm. Below are some of the highlights. Read more

Tony Barber

The discussions held on Saturday and Sunday among eurozone finance ministers exposed fissures between one group of European governments that have lost almost all faith in the radical leftist-led government of Alexis Tsipras, Greece’s premier, a second group that contends it is time to cut Greece some slack and move on with another rescue programme, and a third group that straddles the first two.

Nevertheless, the important point is that impatience with the Syriza-dominated government in Athens is not so deep and universal that a consensus exists to prepare the ground for a Greek exit from the eurozone, with all its unpredictable economic, financial and geopolitical implications. In this respect the opposition of France and Italy, and of the European Commission, to such a step is proving to be decisive. Read more

Peter Spiegel

Euclid Tsakalotos, the new Greek finance minister, at Tuesday's eurogroup meeting

Late on Thursday, the Greek government submitted its long-awaited economic reform proposal to go along with Wednesday’s request for a new three-year bailout programme.

The package sent to creditors included three documents: first is a letter from Alexis Tsipras, the Greek prime minister, which we’ve posted here; second it a more detailed letter from Euclid Tsakalotos (here), the new finance minister; and the third is what’s called the “prior actions” – a 13-page plan of reform measures that must be completed prior to winning bailout aid (here).

We will more completely gut these documents in the morning, but a few things that stand out. First, none of the documents mentions debt relief. This was a major demand of Yanis Varoufakis, Tsakalotos’ predecessor. And while it is obliquely mentioned in Wednesday’s bailout request, there’s nothing in the documents sent to Brussels Thursday night that mentions the topic.

Instead, what is interesting about both the Tsipras and Tsakalotos letters is their explicit mention of wanting to remain in the EU’s common currency. As Tsipras puts it:

With this proposal, the Greek people and the Greek government confirm their commitment to fulfilling reforms that will ensure Greece remains a member of the Eurozone and ending the economic crisis. The Greek government is committed to fully implementing this reform agenda – starting with immediate actions – as well as to engaging [sic] constructively on the basis of this agenda, in the negotiations for the ESM loan.

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Peter Spiegel

Greece's Alexis Tsipras, left, with Germany's Angela Merkel on Tuesday night in Brussels

Greek authorities got their final dash to find a bailout agreement before the weekend formally underway on Wednesday by submitting a simple one-page request to the eurozone’s €500bn bailout fund, the European Stability Mechanism, for a new three-year programme.

Under the timetable agreed with EU leaders at Tuesday night’s summit, the request letter is something of a formality. The real details are due on Thursday, when Athens will submit their “prior actions” proposal – the detailed economic reforms that they will pursue under a new, third programme.

Still, the letter (which we’ve posted here) includes some interesting clues as to where Athens is headed. First of all, Greece is seeking a three-year programme and not a two-year bailout that was requested last week. The International Monetary Fund has estimated a three-year programme could cost as much as €70bn.

The letter also suggests Athens is willing to “immediately implement…as early as the beginning of next week” some of the things that creditors were demanding during negotiations on its old €172bn rescue, which expired June 30 – including tax reforms and pension system overhaul.

This appears part of an effort to quickly release short-term “bridge financing” so that Athens can repay the €1.5bn it still owes to the IMF, avoid a default on a €3.5bn bond due the European Central Bank in less than two weeks, and pay another €3.2bn ECB-held bond in August. Read more

Peter Spiegel

Greece’s recently-departed finance minister Yanis Varoufakis repeatedly argued that Greece could never leave the eurozone because there is nothing in the EU treaties that permits exit from the bloc’s common currency. But that hasn’t stopped EU lawyers from looking.

According to eurozone officials, EU legal scholars have been combing through the treaties to find provisions that would allow for Grexit – not because it is something they’re pushing for, but rather because they’re worried the country could be soon entering a legal limbo that could prevent it from getting the financial aid it desperately needs.

If Greece begins printing its own money – which could happen in a matter of weeks if the European Central Bank decides to cut off emergency loans to Greek financial institutions – it may no longer be eligible for aid from the eurozone’s €500bn rescue fund, since it is using a different currency.

But because Greece would still be legally part of the eurozone, it wouldn’t be eligible for the aid scheme reserved for non-EU countries, known as a “balance of payments assistance” programme. Hungary, Romania and pre-euro Latvia all received so-called “BPA” programmes during the crisis.

The traditional assumption is that because there is no explicit way to leave the eurozone, the only clause that comes into play is Article 50 of the Treaty on European Union, which allows for withdrawal from the entire EU. This would require Greece to request a departure, however, which is unlikely, and while there are an increasing number of leaders willing to let Greece leave the eurozone, none want it to leave the EU.

Officials say lawyers are instead looking at Article 7, which was adopted for a very different reason: In the wake of the Austrian government’s decision to include the far-right Freedom Party of nationalist Jörg Haider in a coalition, EU leaders wanted a way to punish countries that did not live up to European values. Read more