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.
TEN OBSTACLES TO A DIRECT RECAPITALISATION
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
What has become an increasingly touchy EU-Russia trade relationship took another tit-for-tat turn on Thursday when Brussels escalated a WTO case against Moscow over vehicle recycling fees.
The EU believes a recycling fee Russia charges on imported cars is less about good environmental policy and more a way to squelch foreign competition. The fee does not apply to cars built in Russia or its closest trading partners,Kazakhstan and Belarus.
Brussels complained to the WTO about the levy in July, marking the first case against Russia since it joined the global trade body with much fanfare in 2012 – 19 years after its initial application. On Thursday, the EU asked for a panel to rule on the matter after – to little surprise – settlement talks with Moscow proved fruitless. A result could take months.
“We’ve used all the possible avenues to find with Russia a mutually acceptable solution,” said Karel De Gucht, the EU trade commissioner. “As the fee continues to severely hamper exports of a sector that is key for Europe’s economy, we are left with no choice but to ask for a WTO ruling.” Read more
My big fat Greek presidency it will not be. When Athens takes the reins of the EU’s rotating presidency in January, the government will manage the event like a family throwing a frugal wedding.
That is only to be expected since Greece’s crisis-hit economy is now enduring its sixth year of recession, the public coffers are bare and unemployment is nearing 30 per cent. Dishing out huge amounts of cash to impress visiting diplomats would likely provoke outrage from a citizenry that is increasingly unhappy with the EU, as it is.
So how frugal is Greece planning to be? The government has set a €50m budget for the six-month affair, down from the €60m to €80m spent by predecessors like Ireland,Cyprus,Denmark and Lithuania. Officials say they are hoping that the final bill comes to even less.
The Greeks have found a few simple ways to cut costs. They will limit the number of ministerial meetings that will be held in their country to just 13 – keeping as much of the work in the EU’s Brussels headquarters as possible. All of the Greek meetings will be hosted in Athens. Read more
Brussels and Beijing appear to be nearing a settlement in a trade fight over solar panels that is the EU’s biggest ever anti-dumping case – based on the more than €20bn in Chinese-made solar products shipped to the bloc in 2011. Sometime on Friday afternoon, EU officials are expecting to learn whether or not their counterparts in Beijing have taken their latest offer.
In theory, the two sides have until August 6th to haggle over a deal. After that date, provisional duties imposed by the EU will jump from about 11 per cent to an average of 47 per cent. The reality is that they have probably already missed that deadline, according to diplomats, given the amount of legwork that Brussels must do to translate an agreement and circulate it among national governments. Hence, the next few days are crucial. Read more
Is some lobbying in Brussels too heavy and contrived for its own good?
Two examples spring to mind from some of the most over-lobbied issues handled by the European Commission: card fees and the antitrust case against Google. Read more
Günther Oettinger, EU energy commissioner, proposed tweaking the biofuels policy last year
Among the EU’s less successful policies, the one governing biofuels looms as a particular case study in unintended consequences.
Five years ago, member states agreed to binding targets requiring each country to derive 10 per cent of all transport fuel from renewables by 2020. Those targets were meant to speed the adoption of environmentally-friendly biofuels and were part of a broader campaign by Brusselsto claim the lead in the fight against global warming.
These days, that policy is a mess. The increased demand for crop-based biofuels – made from corn, rape and soya, for example – has been blamed for a surge in world food prices. It also appears to contribute to deforestation as farmers in far corners of the world chop down rainforests to plant biofuel crops.
The EU is now seeking to correct that. The European Commission, the EU’s executive arm, made a new proposal last year that aims to phase out crop-based biofuels in favour of cleaner ones derived from waste products and algae, among other substances. The European parliament’s environment committee last week voted through its own version of the draft legislation.
But it seems even the revised biofuels policy may have its own unintended consequences, including a brewing fight between Europe’s oleochemicals industry – the folks who use processed animal fats to produce everything from lubricants to lipstick – and their suppliers. Read more
A few weeks ago, the EU agreed an historic overhaul of its troubled common fisheries policy, setting binding deadlines to end decades of over-fishing that have depleted stocks from the Mediterranean to the North Sea.
But just when it seemed safe to go back in the water, the European parliament’s fisheries committee threatened to take a bite out of the reform on Wednesday. By a 12 to 11 margin, the committee approved an amendment allowing the use of up to €1.6bn in EU funds to help build new fishing boats.
The subsidies fly in the face of the conventional wisdom that the EU’s 83,000-vessel fleet is already far too large, and in need of a drastic cut – some say by half – in order to allow stocks to recover.
“For anyone with a brain this is completely outrageous and very difficult to understand,” said Markus Knigge, a fisheries advisor to the Pew Charitable Trust, citing estimates that the money could result in 19,000 new boats. Read more
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
Pity the Lithuanians. When assuming the EU rotating presidency next month they will inherit the mother of all regulatory backlogs, especially when it comes to the financial sector. It is an impossible and thankless task, a numbingly complex pile of half-negotiated, often paralysed and always contentious directives and regulations, which the European Commission is still adding to with some gusto.
There are going to be around 25 financial services files for the Lithuanians to shepherd through, either in negotiations between member states, or directly with the European parliament. The poor Lithuanian officials strong-armed to work the files will have to become instant experts. Most of the proposals will require countless long meetings with member state or parliamentary negotiators; some will need ministerial input and some sacrificial political blood.
The demands could dwarf the resources and time available. After March 2014, the parliament essentially shuts shop for European-wide elections, so the Lithuanian presidency, which runs through the end of this year, is pivotal. Some countries only have one or two financial services attachés covering the bulk of files. Getting MEPs together for talks is like herding cats. Getting them to agree is even harder, especially in this pre-election environment. A lot of the initiatives will not make it through; their fate is then in the hands of the next leaders of the EU’s parliament, commission and council. Read more
Actor Brad Pitt is interviewed at last week's Paris premiere of his new film "World War Z"
When EU and US officials launched new talks on a transatlantic trade deal earlier this year – an issue of such import that President Barack Obama announced it in his February State of the Union address – many thought the most contentious issues would be agricultural, like US exports of beef with synthetic hormones.
But even before the talks have formally begun, an altogether different issue has threatened to derail the deal: France’s insistence that the so-called “cultural exception” – the ability of European governments to establish quotas and subsidise their home-grown film and music industries – be completely off the table.
The US has insisted on no “carve outs” before the talks even begin, and EU officials worry that if cultural issues are put aside pre-emptively, it will give the Obama administration fodder to respond in kind with an issue that may be sensitive for a wider number of countries – like agriculture.
In an effort to bridge the gap, the Irish presidency last week circulated a new draft of the mandate that will be given to the European Commission in the trade talks which contains new language assuring France that, while audiovisual issues will not be excluded, there will be clear red lines in the EU’s negotiating position. Brussels Blog got its hands on the 12-page document, which is marked “trade-sensitive” across every page and “EU restricted” at top, and posted it here. Read more