Spain's Mendez de Vigo, right, with his Danish counterpart at a Brussels meeting in May.
An otherwise uneventful meeting of 27 European ministers in Brussels was upended Tuesday when Inigo Méndez de Vigo, Spain’s EU minister, issued a statement saying Madrid, Rome and Paris all agreed countries were not doing enough to implement eurozone crisis decisions taken at last month’s high-stakes summit.
The statement (see it here, in Spanish) appeared to be a coordinated attack on Germany, where senior officials have spent weeks sending conflicting messages on what, exactly, was agreed at the summit and when decisions will be implemented – a big deal for Spain, since the measures could eventually mean the eurozone and not the Spanish government will be liable for debt incurred during Spain’s bank bailout.
One problem: there was no three-country agreement. And now Rome and Paris are running away from Méndez de Vigo’s statement as fast as they can. Read more
Planning for a European banking union is racing ahead, in spite of the considerable political obstacles. The vision is for two, five or even ten years in the future. But be in no doubt: the institutional turf war is already afoot.
It was on display today in the pages of the international press. Speaking to the FT Jose Manuel Barroso, the European commission president, laid out his vision of a banking union built on the foundations of existing EU institutions.
At the same time Christian Noyer, the governor of the Bank of France, made his pitch in the Wall Street Journal for eurozone central banks to provide “the backbone of the financial union”.
The clashing views highlight the great unanswered question of the banking union: if power over banks is centralised, who will be given control? Cui bono? These three scenarios lay down the broad templates for a union, and the institutions that would stand to win and lose depending on the outcome.
1. An EU banking union
Broadly as outlined by Barroso. A single supervisor, resolution regime and deposit guarantee fund serving all 27 member states. Should the UK refuse to take part — which it will — arrangements would be found to enable the other members to go forward. This union would cover countries outside and inside the single currency club, but remain within an EU framework.
Treaty change would not be necessary, at least according to the commission. Read more
Some issues to bear in mind when considering whether a European banking union is a realistic possibility. The difficulties highlighted are not impossible to overcome. But it would be a wrench.
1. Germans don’t like strong EU supervision of their banks. Berlin is fond of federal EU solutions. But it is even more keen on running its own banks. The political links — especially between the state and regional savings banks — are particularly strong in Germany. To date Berlin has proved one of the biggest opponents of giving serious clout to existing pan-EU regulators.
2. Germans really don’t like strong EU supervision of their banks. There is again some wishful thinking about Berlin shifting position. Angela Merkel did say she supported EU supervision. But there were important caveats. She referred to supervision of “systemically important banks” — which is likely to exclude the smaller Sparkassen banks and the 8 Landesbanks. To some analysts, this represents a giant loophole. She also did not explain what kind of supervision. Berlin may only support tweaks to the current system.
3. Germans don’t like underwriting foreign bank deposits. Another pillar of a banking union is common deposit insurance. To Berlin this proposal represents another ingenious scheme to pick the pocket of German taxpayers. A weaker proposal to force national deposit guarantee schemes to lend to each other in emergencies has been stuck for two years in the Brussels legislative pipeline. Most countries opposed it. German ministers say it could be considered, once there is a fiscal union across the eurozone. So don’t wait around.
Francois Hollande rather enjoys issuing blood-curdling warnings to the City of London. During the campaign he declared his “real enemy” to be ”the world of finance” and post-election he is not toning down the rhetoric.
How ironic then that Hollande’s first major piece of EU financial regulation will see him largely siding with European banks (and yes, that includes the British ones) against calls from the UK and ECB for tougher rules.
Diplomacy in Brussels can be a funny business. Hard as it is to believe, in this negotiation the big beasts of City banking have been privately cheering on the French. Next week, when finance ministers meet to negotiate a deal, we’ll all be able to see if Hollande changes Paris’ tune. Read more
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. Read more
Barroso, left, at Thursday's news conference with Denmark's Thorning-Schmidt in Copenhagen
A good chunk of the Brussels press corps has been in Copenhagen this week for the formal kick-off of Denmark’s turn at the EU’s 6-month rotating presidency. Days of back-to-back ministerial briefings and ceremonial events have focused intensively on the Danish government’s “green growth” agenda – down to the green skirt-clad Danish National Girls Choir performing “Plant a Tree” at a concert attended by EU bigwigs Wednesday night.
But when it came to today’s official handoff of the EU reins to Danish prime minister Helle Thorning-Schmidt, there was a slight hiccup: Denmark’s Vestas, the world’s largest maker of wind turbines, chose the same day to announce it was cutting 2,335 jobs – most of them in its home country. Read more
Uwe Corsepius, EU Council's secretary general
UPDATE: According to a British official, the UK has today been invited to participate in the treaty negotiations, a significant shift that will allow London to weigh in on some of the most sensitive issues to be discussed, including whether EU institutions will enforce the new pact.
Senior officials from European national finance ministries chatted last night in the first informal negotiations on the highly-touted new intergovernmental treaty to govern the region’s economic policy, though diplomats say little substance was discussed.
Ahead of the talks, however, Uwe Corsepius, the new secretary general of the European Council, sent out a four-page letter to negotiators in an attempt to set a roadmap for how the talks will proceed – and we at Brussels Blog got our mitts on it.
Significantly, Corsepius writes that he wants negotiations completed by the end of January “so as to allow the signature of the agreement at the beginning of March”. Officials said this is why a new informal EU summit is tentatively scheduled for early February. A first draft of the treaty text could be done by tomorrow, or early next week at the latest. Read more
Finland's Jyrki Katainen, France's Nicolas Sarkozy, Germany's Angela Merkel and EU Commission's José Manuel Barroso at last week's summit.
This morning, we are fronting our newspaper with a story led by fellow Brussels Blogger Joshua Chaffin about the growing problems in multiple European capitals — not just London — with the nascent economic convergence treaty agreed to at last week’s summit.
That story was written with a lot of help from our network of correspondents across Europe, and given space constraints in the dead-tree version of our report, we weren’t able to go into all the detailed accounts we got from our FT colleagues. Here on the blog, we thought we’d provide a more in-depth taste of the potential hiccups ahead. Read more
Herman Van Rompuy, left, with President Barack Obama at last week's EU-US summit.
Fellow Brussels Blogger Josh Chaffin has a scoop in this morning’s paper on the five-page “interim report” on EU treaty changes for this week’s summit written by Herman Van Rompuy, the European Council president, which we were able to get our hands on yesterday.
Our story focuses on what is likely to be the central element debated about the report – the suddenly fashionable proposal to do a quick-and-dirty, limited treaty change through the hitherto obscure Protocol 12 of the EU treaties, which is described on page 3 of the Van Rompuy document, which Brussels Blog loyalists can read here.
But there’s much more to digest in the report, and as is our practice, we thought we’d give a more extended evaluation here on the Blog. Read more
Juncker, left, heads Eurogroup of 17 euro finance ministers. Rostowski, right, the Ecofin of all 27.
UPDATE 2: The Polish presidency has just made the official announcement. They say the cancellation allows heads of government to decide the things finance ministers were originally going to tackle. Despite negative market reaction to the news, several EU diplomats insist this is a diplomatic miscue by the Poles rather than a sign of things to come.
UPDATE: European diplomat confirms meeting of 27 EU finance ministers has been cancelled.
It’s getting uncomfortably close to crunch time for eurozone leaders, with just over 24 hours left before the summit-to-end-all-summits. But will they actually be able to agree on the big euro rescue plan? A letter sent last night by Jacek Rostowski, the Polish finance minister, makes it seem doubtful.
Since Poland currently holds the European Union’s rotating presidency, Rostowski is charged with convening a meeting of all 27 EU finance ministers tomorrow ahead of the big summit to lay the groundwork for a final agreement.
But officials tell Brussels Blog the so-called “Ecofin” council meeting is now likely off, and in a letter to Jean-Claude Juncker, the Luxembourg prime minister who chairs the group of 17 eurozone finance ministers, Rostowski makes it appear the cancellation is due to a failure to agree on outstanding issues. Read more
France and Germany may be divided over the key issues on the agenda of today’s European Union summit. But President Nicolas Sarkozy and Chancellor Angela Merkel have found common ground in the need to hammer Italy over its heavy debt load.
The leaders of the EU’s biggest and most powerful member states called in Silvio Berlusconi, the Italian prime minister, this morning for a pre-summit tongue-lashing. The message they delivered, according to one diplomat familiar with the discussion, was that Italy must deliver “specific and convincing reform measures soon.” They communicated a similar message to Berlusconi at a gathering on Saturday evening held by the centre-right European People’s Party.
Sarkozy also expressed his displeasure with Italy’s refusal to make way for a Frenchman on the European central bank’s executive board, according to the diplomat. France is due to lose its seat when Jean-Claude Trichet steps down as ECB president at the end of the month to be replaced by Mario Draghi, the outgoing president of the Bank of Italy. Berlusconi infuriated the French this week when he declined to free up a seat on the powerful decision-making committee by refusing to name current board member Lorenzo Bini Smaghi as Draghi’s replacement. Read more
From our foreign affairs blog:
Welcome to our continuing coverage of the eurozone crisis. All times are London time. This post should update every few minutes, but it may take longer on mobile devices.
Curated by John Aglionby and Esther Bintliff on the world news desk in London, with contributions from FT correspondents around the world.
Today’s main drama is in Bratislava (it’s not often one says that), where the Slovakian parliament is voting whether to back the expanded eurozone rescue fund, the EFSF. (The pic is of Iveta Radicova, the Slovakian prime minister, just in case you were wondering.)
From our foreign affairs blog:
Welcome to our continuing coverage of the eurozone crisis. All times are London time. Curated by Esther Bintliff and John Aglionby on the world news desk in London, with contributions from FT correspondents around the world. This post should update automatically every few minutes, although it may take longer on mobile devices.
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. Read more
Merkel and Sarkozy at their post-summit news conference Tuesday evening in Paris
The letter Nicolas Sarkozy and Angela Merkel sent yesterday to the president of the European Council, Herman Van Rompuy, contains a lot of ideas that have been discussed previously in Brussels and not gone very far, raising questions as to how much of the new Franco-German agenda can actually be implemented.
But reading between the lines of the letter, one theme that has gone almost unnoticed is the seeming sidelining of the institution that is supposed to be at the centre of European integration: the European Commission, the EU’s executive branch headed by José Manuel Barroso.
Suggesting that Van Rompuy head regular summits of eurozone heads of state as “the cornerstone of the enhanced economic governance of the euro area” is only part of the seemingly anti-Commission tenor of the plan. Read more
New York Stock Exchange on August 4, 2011. Image by AFP
In a sign of the severity of this week’s market turbulence, Olli Rehn, Europe’s economics commissioner, has cut short his holiday and will be back in Brussels today. Rehn is to address the press corps at midday – presumably to undo some of the damage caused by an explosive letter penned by his boss, José Manuel Barroso, the European Commission president.
In his letter – which was sent to the eurozone heads of government on Wednesday, but released to the press on Thursday – Barroso acknowledged that the big decisions taken at a eurozone summit on July 21 were not having the intended effect on financial markets. He also called for a “rapid reassessment” of the eurozone’s €440bn bailout fund just two weeks after leaders had armed it with new weapons following a torturous, months-long debate. Read more
Demetris Christofias, president of Cyprus, at the eurozone summit in Brussels in June
The news of further turmoil in Cyprus is a reminder that Italy and Spain are not the only eurozone members that may soon be forced to seek European Union support.
After weeks of negotiations, the coalition government’s junior partner, the centrist Democratic Party, has broken off talks with the ruling AKEL, led by communist president Demetris Christofias. As of this morning, that has pushed the yields on 10-year Cypriot bonds above 11 per cent. Read more
So much for the “six pack,” the sprawling fiscal reform package that was supposed to rein in government debt and prevent a recurrence of the crisis currently threatening the euro.
Hungary placed the six pack atop the priority list for its six month European Union presidency, and worked doggedly to try to forge a compromise with the European parliament before its term ended last week.
The Hungarians were not the only ones keen to close a deal: Herman Van Rompuy, the European council president, spent months in tortured negotiations leading a task force that developed the rules, which would allow Brussels to fine governments that do not put their fiscal houses in order. Angela Merkel, the German chancellor, has promised the Bundestag she will not participate in a new eurozone bailout fund, set to go into effect in mid-2013, without the new budget controls in place first.
But as Poland takes the EU’s presidential reins, it appears intent on dialling back the urgency. Polish diplomats will resume negotiations with MEPs in Strasbourg this week. But people involved in the talks say it is now impossible that a deal could be finalised before September – if one gets done at all. Read more