Economic governance

Peter Spiegel

Wolfgang Schäuble, the German finance minister, during the marathon talks on Tuesday

EU finance ministers meeting late into the night are edging closer to a deal on a new European bank executioner. But as always in the eurozone crisis, ministers have become hung up on small but potential significant details. Officials say the differences are significant enough that a final deal will have to be delayed until next week.

Brussels Blog got its hand on “Terms of Reference” circulated by the Lithuanians, who hold the rotating EU presidency, around 6:30pm this evening that includes some details that are new – but have already raised objections in certain quarters. We’ve posted a copy of the 10-page document hereRead more

Peter Spiegel

Van Rompuy at last month's EU summit. Will December's summit agree to the contracts?

When is a eurozone bailout not a eurozone bailout?

It’s a question that sherpas to the EU’s presidents and prime ministers will be grappling with on Tuesday when they are scheduled to debate a new proposal from Herman Van Rompuy, the European Council president, intended to further centralise economic decision-making in Brussels.

Under the 9-page plan (first uncovered by our friends and rivals at Reuters; we’ve posted the copy we got our hands on here), a country that is struggling economically could agree to a “contractual agreement” with Brussels that legally codifies its economic reform programme.

In return, that country could avail itself of a low-cost loan that would only be disbursed in tranches to insure compliance with the “contractual arrangement”. Oh, and one other thing: the European Commission would monitor the country to make sure its complying with the “contractual arrangement”.

Legally-binding economic reform agreement. Low-cost eurozone loans. European Commission monitoring missions. Sounds a bit like a bailout, no? Well, because it would be available to all eurozone countries, Van Rompuy doesn’t call it a bailout. In eurocrat-ese, it’s a “solidarity mechanism”. And if sherpas give it the signoff Tuesday, it will be debated by EU leaders at their December summitRead more

Peter Spiegel

Rehn, right, consults with Germany's Wolfgang Schäuble at last month's IMF meetings.

Over the last few weeks, the normally über-dismal science of German economic policymaking has unexpectedly become stuff of international diplomatic brinkmanship, after the US Treasury department accused Berlin of hindering eurozone and global growth by suppressing domestic demand at a time its economy is growing on the backs of foreigners buying German products overseas.

The accusation not only produced the expected counterattack in Berlin, but has become the major debating point among the economic commentariat. Our own Martin Wolf, among others, has taken the side of Washington and our friend and rival Simon Nixon over at the Wall Street Journal today has backed the Germans.

Now comes the one voice that actually can do something about it: Olli Rehn, the European Commission’s economic tsar who just made his views known in a blog post on his website. Why should Rehn’s views take precedence? Thanks to new powers given to Brussels in the wake of the eurozone crisis, he can force countries to revise their economic policies – including an oversized current account surplus – through something soporifically known as the Macroeconomic Imbalance Procedure.

On Wednesday, Rehn will announce his decision on whether Germany will be put in the dock for exactly what the US has been accusing it of: building up a current account surplus at the expense of its trading partners. And if Rehn’s blog post is any indication, he’s heading in exactly that direction. Read more

Backstops? A safety net for banks in difficulty? Why the fuss? We have one already! That is the rough conclusion from finance ministers meeting in Luxembourg on Monday and Tuesday.

To provide some context, the apple of discord is whether Europe should pool more public funds to stand behind its banking system. Looming on the horizon is a stress test of banks next year that is supposed to restore faith in the financial system. It may uncover horrors that can’t be covered by contributions from private investors. If a bailout is needed, the open question is whether the bank’s sovereign will be able to fund it by borrowing from the market or from eurozone bailout funds without rekindling the sovereign debt crisis.

So what is the plan? Well there is no sign of new money. For the more optimistic finance ministers the ultimate, ultimate backstop — only to be used in exceptional circumstances — is apparently a “direct recapitalisation” from the European Stability Mechanism, the eurozone’s E500bn bailout fund.

The trouble is that there are a legion of hurdles to clear before using this instrument in practice — especially if it is to be used to cover any shortfall exposed next year. The rough rules on the use of the instrument were published in June. Many senior officials think it is so encumbered with conditions as to be almost pointless. If direct recap is the backstop, some finance ministers will be worriedly looking over their shoulder.


1. German veto: Any ESM decision to take a direct stake in a bank is subject to a German veto. Berlin is determined to ensure that even if this tool is theoretically “available”, it remains unused. Wolfgang Schäuble, Germany’s finance minister, even said on Tuesday that German law would need to be changed to use the direct recap instrument.

2. German veto: the Bundestag would have to vote through any direct recap. Germany’s centre-left Social Democratic Party, the most likely coalition partner for Chancellor Angela Merkel, is dead-set against direct recapitalisation of banks. It thinks the financial sector, not taxpayers, should foot the bill for bank failure. Read more

Peter Spiegel

Moscovici, left, and Rehn at press conference where Rehn held the new French budget aloft

After an hour-long meeting this afternoon up in Olli Rehn’s office in the European Commission’s Berlaymont headquarters, Rehn and Pierre Moscovici, the French finance minister, wandered down to a crowded press area to make the expected enthusiastic noises about Paris’s economic reform effort.

But what might be most noticeable about the appearance was not what was said but what was done: Moscovici handed over a copy of France’s 2014 budget, which he had unveiled in Paris just yesterday.

“Pierre has given me the draft budget law for 2014 for France,” Rehn said, holding aloft the document, marked “Projet de Loi de Finances 2014” on the cover. “This is the real spirit of governance at the European level.”

To the uninitiated, the display might have appeared to be a bit of empty symbolism, a courtesy Moscovici was paying to the perpetually besieged Rehn. But there was nothing symbolic about the handover. This year, for the first time in EU history, every eurozone member must submit its national budget to Rehn’s office for review within the next two weeks – before they are debated by national parliaments. Read more

Peter Spiegel

Reactions around Europe to Angela Merkel’s sweeping victory in Sunday’s German parliamentary elections were mixed. As expected, fellow leaders – particularly those of the centre-right persuasion – sent their congratulations while some on the centre-left called for Merkel to join the Social Democrats in a grand coalition.

In Italy, the Berlusconi-owned newspaper Il Giornale warned the result left the EU “in the hands of the chancellor who helped exacerbate the economic crisis.”

The differing views reflect increasingly polarising opinions towards Merkel across the eurozone. Just last week, the German Marshall Fund published its annual “Transatlantic Trends” report, which included polling of 11 EU countries (plus Turkey) and their views of Merkel’s handling of the eurozone crisis.

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Bank investors beware. Dazzling political fireworks will be launched in Brussels today that may distract you from the reform that really matters, at least over the next few years.

All the attention will naturally be on a bold move to create a powerful authority to wind up eurozone banks — a great leap forward for banking union that puts Germany’s red-lines to the test. Read more

Peter Spiegel

Noonan addresses reporters outside the finance ministers' meeting in Luxembourg Friday

When EU finance ministers reconvene on Wednesday for a last-ditch attempt to strike a deal on bank bailout rules after they couldn’t get one in the early morning hours Saturday, it won’t be the first time fights over Europe’s “banking union” have gone to the eleventh hour before a major EU summit.

The last major decision – how many banks would be overseen by a new single supervisor based at the European Central Bank – also took one failed finance ministers’ meeting late last year before they reached a deal on the eve of a summit.

But EU leaders are sounding a bit more cautious this time than last December, since the issues at hand – who will pay for bank bailouts – are far more politically sensitive than last time around. They involve both power and money. Last time, it was just power.

To get an idea of where things lie after the Friday night/Saturday morning 18-hour marathon, we’ve posted this three-page proposal tabled by Michael Noonan, the Irish finance minister who chaired the meeting as holder of the EU’s rotating presidency, near the end of the debate. Read more

Peter Spiegel

Dijsselbloem, right, meeting Greek prime minister Antonis Samaras in Athens this morning.

As part of the big Franco-German deal announced last night in Paris, President François Hollande and Chancellor Angela Merkel took everyone by surprise by announcing they now want a permanent head of the so-called eurogroup, the committee of 17 eurozone finance ministers that does all the heavy lifting on regional economic policy, including bailouts.

The timing of the agreement (it’s on page 8 of the nine-page “contribution”, which we’ve posted here) is a bit awkward, since a new part-time eurogroup chairman was appointed just six months ago: Dutch finance minister Jeroen Dijsselbloem.

Most EU officials view the deal as more an effort at Franco-German rapprochement than an attempt to force Dijsselbloem out, despite the fact he has stirred controversy in his short tenure in the job. As one senior official put it, agreeing to language that eurozone reforms “could include” a permanent eurogroup chair “is not exactly ousting someone”.

We here at Brussels Blog asked the FT’s man in Amsterdam, Matt Steinglass, to send us the reaction from Dijsselbloem’s homeland:

There is surprise and a bit of resentment. Dijsselbloem was forced to issue a hasty statement that he did not support the move and would not accept the position if it meant he could no longer serve as finance minister.

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Peter Spiegel

Bratusek: "Slovenia can on its own without any supervision resolve its problems.”

Amid all the talk that Spain, France and the Netherlands will get waivers next week on tough EU budget rules, allowing them to breach yet again Brussels-mandated deficit ceilings, there are growing signals that one country may not get let off: Slovenia.

Although Slovenia has budget deficit problems similar to its western European counterparts, Brussels’ real concern is about its banking sector, which needs another infusion of taxpayer money to return it to health as non-performing loans continue to rise. Questions about the stability of its three largest banks, all state owned, has put a target on the small former Yugoslav republic as potentially the next eurozone country to need a bailout.

As a result, Slovenia’s demarche from EU economics chief Olli Rehn on Wednesday is likely to come from a place outside the eurozone’s budget deficit rules: new post-crisis enforcement powers Rehn has never used before, the awkwardly named “excessive imbalance procedure”. This authority allows the European Commission to poke around more deeply into a eurozone country’s entire economy – not just government fiscal policy – and demand reforms under threat of swingeing fines.

Alenka Bratusek, Slovenia’s recently-minted prime minister, isn’t too pleased with the prospect of being the first eurozone country to be subject to the EIP. In a meeting with a small group of reporters after Wednesday’s EU summit, Bratusek said officials in Brussels seem to think an EIP citation would help her. She says it won’t. Read more

Peter Spiegel

Dijsselbloem, centre, at a press conference Monday announcing the €10bn Cyprus bailout.

The joint FT-Reuters interview with Dutch finance minister and eurogroup president Jeroen Dijsselbloem after the all-night talks to secure Cyprus’ €10bn bailout has caused a lot of discussion and debate. Dijsselbloem issued a statement after we published saying Cyprus is “a specific case with exceptional challenges” and that “no models or templates” will be used in the future.

To clarify what Dijsselbloem said, we’ve decided to post a transcript of the portion of the interview dealing with how the eurozone might deal with bank failures in the future in light of the Cyprus example.

The interview we conducted alongside Brussels bureau chief Luke Baker of Reuters lasted about 45 minutes, and the portion on bank resolution lasted for about 10 of those minutes. The interview started out with some Cyprus-specific questions – like how capital controls might work, whether Dijsselbloem had learned any lessons form the Cyprus experience – and then shifted to a discussion about whether north-south relations were hampering EU decision making.

That’s when Baker asked the first question about whether Cyprus set a precedent for future bank rescues:

Q: To what extent does the decision taken last night end up setting a template for bank resolution going forward?

A: What we should try to do and what we’ve done last night is what I call “pushing back the risks”. In times of crisis when a risk certainly turns up in a banking sector or an economy, you really have very little choice: you try to take that risk away, and you take it on the public debt. You say, “Okay, we’ll deal with it, give it to us.”

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Peter Spiegel

Dijsselbloem, left, with his predecessor Juncker after his election as eurogroup president

Spain’s decision to abstain from Monday night’s vote on Dutch finance minister Jeroen Dijsselbloem’s ascendance to the chair of the eurogroup served to highlight the almost complete dominance of the EU’s triple-A countries in securing top economic jobs in the eurozone.

If we include France and Austria (both of which were downgraded last year by Standard & Poor’s, but retain triple-A ratings from Fitch), the six creditor countries have swept nearly every big opening save the European Central Bank presidency – which was secured by Italian Mario Draghi only after Axel Weber, then head of the German Bundesbank, unexpectedly withdrew his candidacy.

“The Dutch minister seem to us an appropriate person, but fundamentally, it’s a matter of institutional calculations,” Luis de Guindos, the Spanish finance minister, said today in explaining Madrid’s abstention. “Spain has taken a position in regards to a situation that it considers is unjust, which is the representation to the European institutions.”

Madrid has a particular reason to complain, since it has been completely shut out of the top jobs after losing a Spaniard on the ECB’s executive board last year, despite being the euroszone’s fourth largest economy. Dijsselbloem said he has invited De Guindos to The Hague to discuss the issue. The Spaniard has accepted, officials said.

After the jump, a run-down of the triple-A’s recent winning streak: Read more

Peter Spiegel

Outgoing Cypriot president Demetris Christofias addresses the European Parliament Tuesday.

In this morning’s dead-tree edition of the FT, fellow Brussels Bloggger Josh Chaffin has a report on Cypriot officials launching an offensive to convince other eurozone governments that it is no longer a haven for money laundering.

The effort has included summoning EU ambassadors in Nicosia to the Cypriot finance ministry, where they were given a 23-slide presentation detailing the country’s anit-money laundering efforts. As is our practice here at the Brussels Blog, we’ve decided to post a copy of the report hereRead more

Peter Spiegel

Van Rompuy, left, has set out a different vision of common eurozone debt than Barroso, right.

Herman Van Rompuy, the European Council president, published the latest iteration of his plan to overhaul the eurozone this morning, just a week after his counterpart across the Rue de la Loi, European Commission president José Manuel Barroso, offered his own blueprint.

Van Rompuy’s 14-page outline includes many of the ideas he’s been proffering since October, including a requirement that all eurozone countries engage in “contractual arrangements” with Brussels, committing them to economic reform plans, and the creation of a eurozone budget. Barroso’s plan has similar elements.

But it’s worth noting where Barroso and Van Rompuy differ, because it could have major implications for the direction the eurozone heads in the coming months. And the differences are perhaps nowhere more evident than on one of the issues that has bedevilled the eurozone since the outset of the crisis: so-called “eurobonds”.

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Peter Spiegel

Juncker, right, with potential successor Pierre Moscovici, France's finance minister

Jean-Claude Juncker, the Luxembourg prime minister who heads the eurogroup of finance ministers, set off another round of speculation about his potential successor Monday night when he reiterated that he wanted to step down from the job either by the end of the year or early next year.

Senior officials who should know about leading candidates insist nobody has emerged as a clear front-runner to take over the post, despite Juncker’s Shermanesque declaration. But that hasn’t stopped the guessing game. The criteria are unhelpfully vague. The latest EU treaty basically says that anyone with a pulse can hold the job:

The Ministers of the Member States whose currency is the euro shall elect a president for two and a half years, by a majority of those Member States.

But after two days of gossiping in the halls, here is the sum total of what Brussels Blog has gleaned on the topic, boiled down to three groups of candidates. Read more

This issue has always been a potential dealbreaker: how will Germany’s politically powerful network of small public banks — or Sparkassen — sit under the bailiwick of a single bank supervisor? Until now we’ve mainly seen diplomatic shadow-boxing on the matter. But that fight is beginning in earnest.

As is the custom in Brussels, some ambiguous and unclear summit conclusions are helping spur things along. Chancellor Angela Merkel last week hailed a one particular sentence as a breakthrough for Germany: that the European Central Bank would “be able, in a differentiated way, to carry out direct supervision” over eurozone banks.

To her, that vague language was recognition that the Sparkassen would be treated differently — the ECB would concentrate on big banks and those that are facing troubles, and leave the rest to national authorities. Read more

Tomorrow will mark another milestone in the long meandering path towards a international financial transaction tax, otherwise known as the Tobin tax.

What exactly will happen? Well the European Commission, the EU’s executive arm, will approve a proposal that paves the way for an avande-garde of member states to agree their own Tobin regime. In EU jargon, it’s a proposal authorising “enhanced cooperation”.

Ironically the step forward will come in the shape of a legal admission of defeat, a formal acceptance that there is at present no consensus for a pan-EU levy, let alone enough for a global one.

It is largely a formality. But it means the 11 EU countries that want the levy will be one procedure closer to setting up their own Tobin tax. Such breakaway groups are considered a last resort under EU rules, so any enhanced cooperation must clear various legal hurdles, including proof that a pan-EU deal is impossible for now. Read more

Peter Spiegel

Germany's Angela Merkel, left, and France's François Hollande at the EU summit in Brussels.

With the eurozone crisis response slowing to a crawl, Friday’s early-morning agreement setting a timetable for a new single eurozone bank supervisor is probably best judged with textual analysis, since the deal is so incremental it’s hard to really judge without a close look at the details.

The key change between the communiqué agreed in June and the one agreed Friday is the firming up of when, exactly, the new supervisor, to be run by the European Central Bank, will start and how long it will take to be phased in. The June deal was immensely vague on this point:

We ask the Council to consider these proposals as a matter of urgency by the end of 2012.

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Hollande arrives at the Party of European Socialists gathering ahead of the EU summit.

François Hollande, the French president, has just arrived at the socialist confab at The Square meeting centre in Brussels. Read more

Peter Spiegel

Van Rompuy sent the note to national delegations yesterday, ahead of today's summit start.

The issue of a collective budget for the 17 eurozone members has come roaring out of nowhere to become one of the most contentious issues heading into today’s EU summit. It’s included both in the draft conclusions sent around by Herman Van Rompuy, the European Council president, and in his report on the future of the European Monetary Union.

The proposal is so contentious – the French see it as a nascent supranational budget that would spend on things such as unemployment insurance; the Germans a small, targeted fund to help start short-term programmes such as job training schemes – that Van Rompuy yesterday sent around a “background note” to national delegations to flesh out the idea.

The note, seen by Brussels Blog, contains eight separate questions about the eurozone budget and other parts of his EMU report that have drawn controversy, in an apparent attempt to steer tonight’s discussion around the summit table. We’ve posted a copy after the jump. Read more