Euro

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

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

Pedro Passos Coelho, Portugal's prime minister, addresses his nation on Tuesday

Portugal’s political wobble has raised anew questions about whether it will need a second bailout once its current €78bn rescue runs out in the middle of next year. With bond market borrowing costs hovering above 7 per cent – just below levels where Lisbon was forced into the rescue in April 2011 – a full return to market financing appears far less likely than it did just a few days ago.

What are the options if Portugal can’t make it? Back in February, when eurozone finance ministers were weighing whether to give both Ireland and Portugal more time to pay off their bailout loans, EU officials drew up a memo that included a section titled “Options beyond the current programmes and the role of the ESM”.

Although it’s over four months old, it hasn’t been made public before and it offers some newly-relevant insights into what path Portugal may take if it can’t stand on its own by May 2014. Read more

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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Slovenian finance minister Cufer agreed to the outside banking audit just last week.

Last night, after everyone in Brussels had spent most of the day digesting the European Commission’s reports on all 27 EU countries’ budget plans, officials quietly posted far more interesting documents online: the “staff working papers” that underpin the policy recommendations issued earlier in the day.

According to Commission officials, this was done intentionally. They wanted reporters and national officials to focus on the recommendations and not the analysis behind them.

But starting this morning, Brussels Blog began combing through the working documents – which are much longer and more detailed than the Commission recommendations – starting with the country many consider the next eurozone bailout candidate: Slovenia. It makes for eye-opening reading. Read more

It may seem a moot point now that Cyprus’ financial system has, for all intents and purposes, collapsed in the wake of last month’s €10bn eurozone rescue that forced the island to impose capital controls on any large withdrawals from its banks.

But as part of the bailout deal, Nicosia agreed to allow international inspectors to rummage around its banks to investigate allegations of rampant money laundering that were once a major bone of contention in Berlin. The investigation was completed late last month.

Last week, a damning four-page summary of their findings written by the so-called “troika” of bailout lenders was obtained by Brussels Blog and other news organisations (we’re posting it here for the first time, since we only recently able to return to blogging after a hacker attack). The “confidential” troika summary paints a picture of lax enforcement and repeated breakdowns in anti-money laundering procedures.

This afternoon, the Cypriot central bank fired back, issuing its own two-page synopsis of the two reports – one by Deloitte, the other by Moneyval, the Council of Europe’s anti-money laundering monitoring body – which accused the troika of “drawing inferences where none exists in the original reports.” We’ve posted the Cypriot response hereRead more

Nicos Anastasiades, the Cypriot president, leaving bailout negotiations in March.

Remember when accusations of money laundering appeared to be Cyprus’ biggest problem? It was only a few weeks ago that Nicosia was pressured into agreeing an outside auditor to poke around its banks to ensure they are not havens for questionable Russian deposits.

Given the fact Cyprus’ two main banks have been either shuttered or drastically restructured as part of its €10bn bailout, it may now seem a moot point, but the 34-page draft “memorandum of understanding” between Cyprus and bailout lenders (a copy of which we’ve gotten our hands on and posted here) is holding Nicosia to the promise.

On page 6 of the MoU, Cyprus agrees to go forward with the audit, as well as an “action plan” to make clearer just who is behind the “brass plate” shell companies that offshore entities use to take advantage of the island’s low corporate tax rates: Read more

At Friday’s gathering of eurozone finance ministers in Dublin, the so-called eurogroup is expected to give a “political endorsement” of the details of Cyprus’ €10bn bailout programme, according to a senior EU official.

Ahead of that meeting, documents related to that sign-off have begun to leak out, including the always-interesting “debt sustainability analysis” (which Brussels Blog got its hands on and posted here) and an equally intriguing document titled “assessment of the actual or potential financing needs of Cyprus”, which we’ve also posted here.

As our friends and rivals at Reuters first reported, the most unexpected thing in the documents is the revelation that Nicosia will help reduce its debt burden by selling off “the excess amount” of gold reserves held by the Cypriot central bank, which is expected to raise €400m.

But the details of the rest of what will be the “contribution by Cyprus” to the bailout may be more significant. It is spelled out in detail on page four of the second document and makes clear just how damaging the mishandling of the first bailout agreement was.

Originally, Cyprus was to contribute €7bn (€5.8bn from the now-infamous bank levy and the rest from a new withholding tax on investment profits) to the €17bn total cost of the bailout. Just over a week later, the amount Nicosia will contribute almost doubled, to €13bn, and the total price tag had increased to €23bn. Read more

The EU's Rehn, left, with Cypriot finance minister Sarris at the outset of Friday night's meeting

With the eurozone’s €10bn Cyprus bailout now laid waste by the country’s parliament, the recriminations are likely to begin almost immediately. In fact, they started even before the vote was held — almost as soon as it was announced early Saturday morning that the programme included a 6.75 per cent levy on bank accounts under €100,000.

Since then, almost all officials involved in the talks have said it wasn’t their decision to seize deposits from small savers.

Wolfgang Schäuble, the German finance minister, was the first out of the gate, telling public broadcaster ARD on Sunday that it wasn’t his idea. “We would obviously have respected the deposit guarantee for accounts up to €100,000,” Schäuble said. “But those who did not want a bail-in were the Cypriot government, also the European Commission and the ECB, they decided on this solution and they now must explain this to the Cypriot people.”

That statement sparked anger over at the ECB, which denied any involvement in levying smaller depositors. “I want to emphasise that it wasn’t the ECB that pushed for this special structure of the contribution which has now been chosen. It was the result of negotiations in Brussels,” Jörg Asmussen, the ECB executive board member who handled the central bank’s negotiations Friday night, said Monday. “We provided technical help with the calculations, as always, but we didn’t insist on this special structure.

This morning, Pierre Moscovici, the French finance minister, added his name to the list, saying he had been in favour of exempting smaller depositors “from the beginning”.

So where does the truth lie? We pieced together the events of Friday night and Saturday morning for Monday’s dead tree edition of the FT, but it appears more forensics might be needed to get this all straight. Having talked to multiple participants, here’s an even more detailed account. Read more

International lenders agreed to a €10bn bailout of Cyprus early Saturday morning after 10 hours of fraught negotiations, which included convincing Nicosia to seize €5.8bn from Cypriot bank deposits to help pay for the rescue, a first for any eurozone bailout.

The cash from Cypriot account holders will come in the form of a one-time 9.9 per cent levy on all deposits over €100,000 that will be slashed from their savings before banks reopen Tuesday, a day after a Cypriot holiday. An additional 6.75 levy will be imposed on deposits below that level.

Cypriot finance minister Michalis Sarris said his government had already moved to ensure deposit holders could not make large withdrawals electronically before Tuesday’s open; Jörg Asmussen, a member of the European Central Bank executive board, said a portion of deposits equivalent to the levies would likely be frozen immediately.

“I am not happy with this outcome in the sense that I wish I was not the minister that had to do this,” Mr Sarris said. “But I feel that the responsible course of action of a minister that takes an oath to protect the general welfare of the people and the stability of the system did not leave us with any [other] options.” Read more

Finance ministers MIchael Noonan of Ireland, center, and Vito Gaspar of Portugal, right, with the EU's Olli Rehn at January's meeting.

After Greece last year won a restructuring of its €172bn rescue that included an extension of the time Athens has to pay off its bailout loans, Ireland and Portugal decided they should get a piece of the action, too.

So at the January meeting of EU finance ministers in Brussels, both Dublin and Lisbon made a formal request: they’d also like more time to pay off their bailout loans. According to a seven-page analysis prepared for EU finance ministry officials a few weeks ago, though, the prospect is not as straight forward as it may seem.

The document – obtained by the Brussels Blog under the condition that we not post it on the blog – makes pretty clear that while an extension might help smooth “redemption humps” that now exist for Ireland (lots of loans and bonds come due in 2019 and 2020) and Portugal (2016 and 2021), it’s not a slam dunk case. Read more

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

Ireland's Kenny, right, with European Commission chief Barroso at start of the Irish EU presidency.

Ireland appears to be taking advantage of the comparatively positive sentiment in the eurozone that has marked the start of the year by moving back into the bond markets in a major way.

Last week, Dublin raised €2.5bn by issuing additional five-year government bonds, and then days later was able to convince private investors to buy €1bn in debt it holds in one of the largest banks nationalised at the peak of its banking crisis. This morning, the government was at it again, announcing a €500m auction in short-term t-bills will take place tomorrow.

Despite the winning streak, there’s still a lot of nervousness in official circles about whether Ireland can fully emerge from its bailout when its €67.5bn in rescue loans run out in November. All this has led to a debate in Dublin about whether Ireland should seek additional aid, such as a line of credit from the International Monetary Fund or the EU – which would be backed by the European Central Bank’s new limitless bond-buying programme – to provide a backstop to new Irish bonds.

The Irish website TheStory.ie got its hands on the new European Commission report on the Irish bailout, which makes clear on page 44 that Dublin is in discussions with the troika about whether the ECB’s bond-buying programme – known as Outright Monetary Transactions – can be accessed: Read more

Enda Kenny, Ireland's prime minister, during a November EU summit in Brussels

One of the hardest things about keeping on top of the eurozone crisis is the tendency for issues once regarded as done and dusted to re-emerge months later as undecided. In the new year, there are two places where this revisionism will be thrust back into the limelight: Cyprus and Ireland.

In Cyprus, two hard-and-fast principles, long believed sacrosanct, will be tested. The first is eurozone leaders’ long-held insistence that Greece is “unique”, in that it would be the only eurozone country where private holders of sovereign debt would be defaulted on.

With Cyprus’s bailout likely to double the country’s debt levels, officials say debt relief must come from somewhere or Nicosia faces a burden rivalling Greece’s – somewhere in the neighbourhood of 190 per cent of economic output. Haircuts for private bondholders could be one option to lower that, though for the time being Jean-Claude Juncker, outgoing head of the eurogroup of finance ministers, insists it’s off the table.

Which takes us to controversial option two: wiping out senior creditors in Cypriot banks. If creditors don’t need to be repaid, than the size of the bailout can be much smaller. This may appear more palatable to eurozone leaders – after all, about €12bn of the €17.5bn in bailout funding is need to recapitalise Cyprus’s collapsing banking sector – but it would also break unspoken rules. Read more

Berlusconi, right, hands over ceremonial bell to Monti, marking the transfer of power last year.

With Silvio Berlusconi’s vow to run again for prime minster in February’s snap elections on an avowedly anti-German and anti-austerity platform, Italian attitudes towards Berlin and the EU’s handling of the eurozone crisis are suddenly back on the front burner.

Fortuitously, we just completed one of our regular FT/Harris polls, which surveyed 1,000 adults in the EU’s five biggest countries – including Italy– in November. And it’s no wonder Berlusconi believes his new attacks will be receptive at home: Italian attitudes against Germany and austerity are hardening.

We’ve posted the 16-page report with the complete results here for anyone who wants to wade through them, but it’s worth highlighting the Italian findings. Fully 83 per cent of those polled believe Germany’s influence in the EU is “too strong” – the same total as Spaniards, but a stunning jump since October 2011 when only 53 per cent of Italians felt that way. Read more

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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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

Van Rompuy is, once again, asking summiteers to endorse the idea in draft conclusions.

When José Manuel Barroso, the European Commission president, unveiled his blueprint for the future of the eurozone last week, aides acknowledged it contained some blue-sky ideas that were meant to provoke debate as much as set firm policies.

But EU presidents and prime ministers may be asked to endorse some of its more controversial ideas if a leaked copy of the communiqué for next week’s EU summit is any indication – including a plan to have all eurozone countries sign “contractual” agreements with Brussels akin to the detailed reform plans currently required only of bailout countries. We’ve posted a copy of the draft, dated Monday, here.

The idea of the Brussels contracts was originally advocated by the summit’s chair, European Council president Herman Van Rompuy, ahead of October’s gathering. But in the end, summiteers only agreed that such a plan should be “explored”Read more

Cyprus finance minister Vasos Shiarly, left, with EU economics chief Olli Rehn.

With the Greek government announcing the details of its highly-anticipated debt buyback programme this morning, there really is only one major agenda item offering any suspense at tonight’s meeting of eurozone finance ministers in Brussels: Cyprus.

Brussels Blog has got its hands on the draft deal between Nicosia and the “troika” of international lenders (with the words “contains sensitive information, not for further distribution” on top of each of its 29 pages) that, for the first time, lays out in minute detail just what the Cypriots are being asked to do in return for bailout cash. We’ve posted a copy here.

Senior Cypriot and eurozone officials have cautioned that the whole deal cannot be completed until Pimco, the California-based investment firm, finishes a complete review of the teetering Cypriot banking sector. But the Memorandum of Understanding pencils in €10bn to recapitalise banks.

Considering Cyprus’ entire economy is only €18bn, that’s a whopping sum, equivalent to 56% of gross domestic product – much higher than either the Irish or Spanish bank bailouts.

Which raises a problem: Cypriot sovereign debt is already at almost 90 per cent of GDP. The bank rescue, plus additional cash that will be lent to run the Cypriot government, will take that debt to levels the International Monetary Fund has, in the past, argued is unsustainableRead more