Economic governance

Jim Brunsden

As everyone who has played the famous video game knows, Super Mario is not always super. Temporarily able to boost his size and powers, he is nevertheless, for much of the time, just regular Mario.

What to make then of ECB president Mario Draghi? The eurozone crisis has seen the ECB repeatedly expand its operations in its bid to stimulate the euro area economy. As Mr Draghi has repeatedly said, these “extraordinary measures” were meant to provide a temporary breathing space for governments. Instead, politicians have proved all too willing to let the ECB permanently shoulder the load.

In a hearing before the European Parliament yesterday, Mr Draghi cut a frustrated figure as he set out the steps nations need to take to finish building their “incomplete” and “still fragile” monetary union, and to make their economies more competitive. Read more

Jim Brunsden

“Which debt relief agreement are you talking about?”

If anyone had any doubts that Christine Lagarde, the managing director of the International Monetary Fund, doesn’t think much of the debt relief deal for Greece that was struck last month by the Eurogroup, these should have been firmly laid to rest by her comments at a press conference in Luxembourg on Thursday.

Asked about what she thought of the outcome of euro area finance ministers’ marathon meeting last month on Greece, which reached some tentative agreements on easing Athens’ massive debt burden, Ms Lagarde appeared to question whether it amounted to a meaningful breakthrough at all.

“Which debt relief agreement are you talking about?,” Lagarde said, before smiling conspiratorially. “I think you have my response in my question actually.”

The issue of debt relief has become central to the roll out of the €86bn euro area bailout of Greece that was agreed on by euro area leaders last summer. The IMF has refused to take part in the programme unless relief is granted, and has challenged what it says are over optimistic EU predictions for the recovery of the Greek economy.

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Jim Brunsden

History is full of great projects left half finished – the Sagrada Família cathedral in Barcelona, the Beach Boys’ Smile album, the last Tintin book … could the euro area’s banking union join them?

Forged at the height of the debt crisis as a way to restore trust in the financial sector, the banking union remains very much a work in progress, and it’s increasingly unclear whether its architects are all working off the same plans.

While the European Central Bank is firmly installed as the currency bloc’s banking supervisor (something examined in-depth in this new study by Bruegel,) and new rules on handling financial crises are on the statute books, discussions are becoming bogged down over the banking union’s third pillar – a centralized scheme for guaranteeing bank deposits. That plan, known as EDIS, is loathed in Berlin while strongly supported by the ECB and governments in southern Europe.

The row between national capitals over EDIS is only part of a larger, and extremely complex negotiation – one that is hampering efforts by Jeroen Dijsselbloem, the Dutch finance minister, to sign off his country’s EU’s presidency by getting a deal on a banking union workplan. The split is likely to be a topic of discussion among policymakers at today’s Brussels Economic ForumRead more

Jim Brunsden

By Mehreen Khan in London

The International Monetary Fund’s latest recommendations on Greek debt relief have leaked.

Yesterday, ahead of the latest meeting of eurozone finance ministers on May 24, the IMF repeated it would take part in Greece’s €86bn bailout only if its European partners could prove “the numbers add up”.

A key part of this calculation is for the fund to be fully assured that Greece’s debt mountain is finally placed on a sustainable downward trajectory. Read more

Jim Brunsden

Britain: 2016

Should an extraterrestrial land on Earth tomorrow and decide to base his decision on where to live solely on economic forecasts provided by the European Commission, there’s a fair chance they’d pick the UK.

In country-specific recommendations published yesterday for almost all EU countries, Britain comes out looking pretty good, with a “dynamic” economy, “strong” household balance sheets and a banking sector whose resilience “continues to improve.” Even the risks to the economic outlook are presented as being contained, or mitigated by the government’s “wide-ranging” reform agenda.

All well and good. The only perplexing thing is, how does this fit with the altogether less peppy assessment that the EU Commission made this time last year? What could be happening to change their view? Read more

The three EU chieftains– Jean-Claude Juncker, Donald Tusk, and Martin Schulz – swapped the corridors of power in Brussels for the halls of Rome’s Capitoline Museums on Thursday night, but the magnificent setting only seemed to deepen their gloom about the state of European integration.

The trio was in the Italian capital ahead of Friday’s ceremony to deliver the prestigious Charlemagne award to Pope Francis at the Vatican. But first they had to debate the future of Europe at a time when it appears to be in serious jeopardy amid the rise of populism, weak economic growth, and, the migration crisisRead more

Peter Spiegel

Welcome to Tuesday’s edition of our daily Brussels Briefing. To receive it every morning in your email in-box, sign up here.

EU economic chief Pierre Moscovici, right, with Portugal's new finance minister in Lisbon

There’s been a rare spate of good economic news for the eurozone recently, with Eurostat announcing last week that the currency union’s gross domestic product had finally returned to pre-crisis levels and was growing at a 0.6 per cent quarterly clip – enough to outpace the US or the UK so far this year. But growth remains uneven across the 19-member bloc, and the first quarter’s performance remains meagre by historical standards. As a result, it will likely not be enough to help eurozone countries currently finding it difficult to get their debt and deficit levels back under EU budget ceilings.

Those countries sparring with Brussels over such budget targets – France, Italy, Spain and Portugal – will be in the spotlight today when the European Commission issues its new economic forecasts, which will include predictions on whether any of them are making progress towards getting their deficits below the 3 per cent of GDP threshold or – in the case of Italy, which is already below the deficit ceiling – are cutting their debt piles fast enough.

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Jim Brunsden

Wolfgang Schäuble’s destiny is to be a man who keeps having to listen to people talking about things he doesn’t want to hear about.

Germany’s finance minister, together with his counterparts from around Europe, will gather in Amsterdam on Friday to discuss, among other things, the future of the Banking Union — the major policy push undertaken by the euro area over the last few years to centralIze how it oversees its banks.

But like a band with growing musical differences, ministers can’t agree on what the next steps of the project should be, with Mr Schäuble playing the role of the blues purist who wants the group to move away from grand concepts and get back to basics.

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Peter Spiegel

This is Wednesday’s edition of our daily Brussels Briefing. To receive it every morning in your email in-box, sign up here.

Alexis Tsipras, the Greek prime minister, in between meetings at his office last week

When Wikileaks published a transcript last week of a private teleconference between top International Monetary Fund officials discussing Greece’s bailout, the thing that got Athens the most worked up was a prediction made on the call by the IMF’s European chief Poul Thomsen: he forecast there would be no decision on the programme’s way forward until Greece ran out of money in July. Yesterday, bailout negotiators left Athens after yet another fruitless week of talks. And while they vowed to resume negotiations during the IMF’s spring meetings in Washington, which start on Friday, the differences between the main players remain so wide that Mr Thomsen’s prediction may not be too far off the mark.

For those who only follow the Greek crisis episodically, the fact that the eurozone is facing yet another make-or-break bailout deadline may seem baffling. Wasn’t the Grexit car wreck avoided last July after a series of all-night summits ended with a €86bn rescue deal? Yes and no. The July deal gave Greece €13bn of the €86bn almost immediately, after Athens agreed to quickly pass an overhaul of its value-added tax system and make cuts to pension benefits. But much of the heavy lifting was put off until the new bailout’s first quarterly review – including, critically, a decision by the IMF on whether to participate in the bailout at all.

Casual followers may read the words “first quarterly review” and assume that such a review would be completed at the end of the first quarter. Which, in the case of the new Greek programme, would have meant October. But it has become an unfortunate custom that “quarterly” reviews of Greek bailouts can actually stretch over several quarters – the fifth quarterly review of the second Greek bailout went on for nearly a year. The current “quarterly” review has now gone on for about six months after the first quarter ended. Read more

Peter Spiegel

Welcome to Friday’s edition of our daily Brussels Briefing. To receive it every morning in your email in-box, sign up here.

Spain's Mariano Rajoy, right, with Jean-Claude Juncker, European Commission president

Next to Ireland, there have been few eurozone countries that have been touted as austerity success stories more often than Spain. Under the government of Mariano Rajoy, the centre-right prime minister who is still clinging onto office after indecisive elections in December, the country went through a series of wrenching reform programmes and came out the other side with relatively robust growth. In February, the European Commission said Spain’s economic output had grown 3.2 per cent last year, double the eurozone average.

But one thing Madrid can’t seem to do is get a handle on is its budget deficit. Originally, the Spanish government was supposed to get its deficit back below the EU’s ceiling of 3 per cent of gross domestic product by 2013. When it became clear at the height of the eurozone crisis that was impossible, the deadline got extended by a year. But a year later, Madrid had made so little progress that it got a further two-year extension, to 2016. It appears things have gotten no better over those two years, however: yesterday, Spain’s national statistics office announced that the country’s 2015 deficit was nearly 5.2 per cent – even higher than Brussels estimated back in February. Read more

This is Thursday’s edition of our new Brussels Briefing. To receive it every morning in your email in-box, sign up here.

One side-effect of “crisis Europe” has been a surplus of bombastic political rhetoric. In a crowded field Mark Rutte, the Dutch premier, stood out when likening the EU to the fall of the Roman Empire. Hungary’s Viktor Orban touched a nerve with his “no road back from a multicultural Europe” speech, which in turn built on his warning over the bloc “staggering towards moonstruck ruin”. And of course Fico is FicoRead more

Britain's David Cameron addresses the press on his way into the EU summit on Thursday evening

David Cameron is in a hole. His flagship policy to curb EU migration – a four-year ban on benefits for migrant workers – looks doomed. When it was announced more than a year ago, Cameron was told it violated a fundamental EU principle of non-discrimination. If the EU stands for anything, it is ensuring EU workers don’t pay a higher effective tax rate on the basis of their passport.

This was flagged up by British officials at the time. Cameron nevertheless ploughed on. While Downing Street were drafting the Conservative party election manifesto, aides suggested leaving out the four-year idea. He ploughed on. When Mr Cameron preparing a letter to other EU leaders on his reform demands, he was told by Whitehall and Brussels the four-year ban was all but impossible and should be dropped. He ploughed on.

The final reckoning may come this evening. Cameron makes a make-or-break pitch for the idea. Having spent far too long trying to understand how the problem will be fixed, it may also be my last opportunity to inflict a benefit reform listicle on Brussels Blog readers.

So while there is still time: behold the nine ways Cameron’s four-year benefits saga may end.

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Jim Brunsden

Since he took office a year ago as the EU’s financial services commissioner, Jonathan Hill has become renowned for his low key, calm approach – except when it comes to how he feels about car hire companies.

The details remain sketchy, but the demons of some previous holiday trauma seem to haunt this otherwise affable politician. Last week, he used the medium of Twitter to call on people to “Let us know your worst holiday car hire experience.”

A hearing he held last year with a committee of the UK House of Lords (of which he is also a member) become dominated by the issue of insuring rented cars, as peers took turns to let off steam about their encounters with unscrupulous rust bucket purveyors.

What, you may ask, has this got to do with Hill’s remit as the grandly titled European commissioner for financial stability, financial services and capital markets union?

The answer is: quite a lot, and this became clearer when the Commission published a policy paper on tackling the day-to-day financial irritants that people encounter when crossing borders, be it a lack of transparency on the fees you are charged when you transfer money abroad, an inability to take your health insurance policy with you when you move to another country or, yes, frustrations with ludicrously high insurance premiums on hire cars. Read more

Christian Oliver

Johan Van Overtveldt, Belgium's finance minister, has vowed to fight Vestager

Margrethe Vestager, the EU’s competition chief, is regularly in the headlines for her corporate tax battles with big US companies: Google, Amazon, Apple and now McDonald’s. But don’t overlook her investigation into Belgium’s tax perks scheme for multinationals. A verdict appears to be imminent, and the repercussions will be felt well beyond the country of 11m.

Earlier this week, Johan Van Overtveldt, finance minister, told the De Standaard daily that Belgium was “highly likely” to have to claw back €700m from companies that have benefited from Belgium’s special tax incentives package.

Van Overtveldt is promising to resist Vestager’s tax justice campaign, but she isn’t a commissioner to change her mind too quickly. Read more

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

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

Peter Spiegel

Merkel, standing, with her finance and defence ministers in the Bundestag last month

Just when is the real deadline before which Greece has to reach a deal with its creditors to gain access to €7.2bn in bailout aid?

Its current bailout ends on June 30, and officials think that if a deal is in place by the next scheduled meeting of eurozone finance ministers, June 18, there may just be enough time for Greece to pass the necessary legislation to get the rescue disbursement before the clock runs out.

But Stefan Wagstyl, the FT’s man in Berlin, writes to point out there’s another looming deadline that could cause problems for a Greece decision, tied to the upcoming recess of the Bundestag, which must approve any aid tranche:

It could be that Greece’s real deadline is much earlier that many realise: June 14. That is the date by which German officials say Greece and its bailout monitors must complete a new agreement for the German parliament to have time to vote on it before the end of the month.

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Peter Spiegel

Spain's De Guindos, left, and incumbent Dijsselbloem during a eurogroup meeting

Want to be president of the eurogroup, the increasingly powerful chairman of the group of 19 eurozone finance ministers? Your applications are due a week from Tuesday.

That’s the deadline set in a letter sent today to all members of the so-called “euro working group” – the panel of finance ministry deputies who prepare all eurogroup meetings – which officially kicks off the race to succeed Jeroen Dijsselbloem, the Dutch finance minister whose term ends next month. We’ve posted a copy of the letter here (and we’ve whited out email address of the officials you need to email your applications to…but if you want to apply, they can be provided by Brussels Blog upon request).

Dijsselbloem himself has already hinted publicly that he will throw his hat into the ring for another two-and-a-half year term, and his likely opponent will be Luis de Guindos, the Spanish finance minister. [UPDATE: Both men announced Friday they will run.]

According to an EU diplomat, Madrid has been lobbying for the issue to be raised at this month’s EU summit, a possible indication De Guindos feels he does not have the votes among the 19 ministers. Read more

Peter Spiegel

The Franco-German contribution ahead of today's Brussels meeting contains little detail

When eurozone leaders decided last year it was time for another look at overhauling their common currency, the main driver was Mario Draghi, the European Central Bank chief who has been one of the main figures behind the push to make the eurozone a more fully integrated and centralised union.

But in the months since a Draghi-backed decision for the eurozone’s four presidents – the heads of the European Commission, European Council, eurogroup and ECB – to present another blueprint on the way forward at June’s EU summit, the appetite among political leaders for a step change, always lukewarm, has cooled even more.

If documents sent around to national capitals in recent days ahead of Tuesday’s Brussels meeting of EU “sherpas” – the top EU advisers to all 28 prime ministers – are any indication, the report being pulled together may propose little more than a bit of euro housekeeping in the near term. Although more ambitious plans could be included, the leaked documents show they will be relegated to the medium and long term – a tried and true EU tradition that is normally a recipe for bureaucratic burial.

Among the documents obtained by the Brussels Blog are a three-page summary of what the new report will look like (posted here) as well as a Franco-German contribution (the French version is here) and that of the Italian government (conveniently in English, here).

Although the Italians emerge as the most ambitious reformers of the lot, the “note for discussion by sherpas” makes pretty clear that the measures being contemplated for immediate action are the leftovers from recent reform efforts – streamlining and clarifying the EU’s crisis-era budget rules, for instance, and adding a bit more financial heft to the EU’s bank bailout fund. Read more

Peter Spiegel

Group photo, distributed by the European Commission, of "sherpas" at last month's meeting

The agenda for next month’s EU summit has the potential to become very full very fast. European leaders are already facing a fraught decision over whether to extend economic sanctions against Russia, which expire in July.

Then there’s the ongoing Greek fiscal crisis, which could come to a head in June, when Athens’ current bailout ends. And now David Cameron, the rechristened UK prime minister, has signaled he will launch his renegotiation of Britain’s relationship with the EU at the same session.

Almost forgotten in this mix is eurozone leaders’ promise to revisit the future of their monetary union with a new “four presidents’ report” on how to fix the remaining shortcomings, due to be presented in June, too (the four presidents refer to the heads of the European Commission, European Council, European Central Bank and the eurogroup).

In preparation for that report, the so-called “sherpas” for all 28 EU leaders have been meeting periodically in Brussels under the chairmanship of Martin Selmayr, Jean-Claude Juncker’s influential chief of staff. Ahead of the last session on April 27, a summary of where the group stood was circulated to national capitals, and Brussels Blog obtained a copy.

As we reported in today’s dead-tree edition of the FT, the document contains no mention of changing EU treaties any time soon, which will disappoint Cameron, who has included treaty changes as a pillar of his renegotiation campaign. Indeed, the clearest thing to come out of the five-page “note for discussion by sherpas” is that there is not a huge amount of enthusiasm for doing much of anything. Read more