At the Ambrosetti forum in northern Italy, Nouriel Roubini, the US-based economist, weighs in on the health of Europe’s banks and sides with IMF chief Christine Lagarde on the need for the sector to raise even more capital.
Mario Draghi meets German chancellor Angela Merkel in Berlin last week
UPDATE: Draghi has been confirmed, but not before lots of horse-trading. See our story here.
Day two of the European Union summit is already underway, and among the issues we will be watching closely is the nomination of Mario Draghi to become head of the European Central Bank, which even at this late date appears not entirely a done deal.
As we’ve been reporting for several weeks, France has been grumpy that Draghi’s confirmation will lead to two Italians on the ECB’s executive board and no Frenchman, since the current president, Jean-Claude Trichet, is retiring. Nicolas Sarkozy, the French president, thought he had a deal with Italian prime minister Silvio Berlusconi for the second Italian, Lorenzo Bini Smaghi, to resign.
But Bini Smaghi, citing the ECB’s independence, has resisted political pressure, and is rumoured to be holding out for Draghi’s current job: head of the Bank of Italy. Berlusconi, however, has an alternate candidate in mind and has thus far resisted French pressure.
Monday night, the work of EU finance ministers meeting in Brussels today to unravel the Greek debt crisis got a whole lot harder: Standard & Poor’s downgraded Greek sovereign bonds to just a few notches above default.
If ministers were hoping to “re-purpose” Greek debt in a way that would prevent the eurozone’s first-ever default, S&P is basically telling them: Good luck; we don’t believe you can do it.
But a closer reading of the S&P report may give the eurozone leaders an out: the credit rating agency seems to have ignored the possibility that the new Greek bail-out will opt for a roll-over of Greek bonds, a plan backed by the European Central Bank, instead of a debt swap, which is supported by Germany.
A decision about how to keep Greece solvent is coming to a head, and for those keeping tabs, here’s a quick primer on what to watch for in the next few days.
With all the controversy surrounding succession at the head of the European Central Bank, at least European finance ministers could agree on another ECB succession challenge with quite a bit less conflict.
Peter Praet, a regulation expert from Belgium, has been selected to replace Austria’s Gertrude Tempell-Gugerell on the European Central Bank’s governing council, eurozone finance ministers unanimously agreed during their afternoon gathering in Brussels.
The outcome doesn’t come as much of a surprise: the only other nominee, Slovakia’s Elena Kohutikova, had a lacklustre hearing at the European parliament, even as Praet’s star continued to rise.
But his nomination means there will be no women on the 23-member council, comprised of 17 central bankers from the countries that use the euro, and six executive board members, of which Praet will be one.
Speaking with one voice. Singing from the same song sheet. Communicating clearly with financial markets. Avoiding needless disputes with governments. These are essential attributes of high-level policymakers at a modern central bank. So what are we to make of an extraordinary speech given last Friday in the Moroccan city of Rabat by Lorenzo Bini Smaghi, an executive board member of the European Central Bank?
To put it bluntly, Bini Smaghi told the German government that it had screwed up Europe’s response to the Greek debt crisis. Germany’s ineptitude meant that the final price of the emergency rescue package ended up being far higher than necessary, he complained.
The European Union is often derided for policy confusion and speaking with a multitude of voices – but sometimes it’s not the EU’s fault, it’s the fault of one of the member-states. Take the idea of setting up a European Monetary Fund. This emerged as a serious possibility for the first time when Wolfgang Schäuble, Germany’s finance minister, offered support for it in an interview last weekend with Welt am Sonntag.
Within a couple of days, however, Germany’s two most important central bankers – Axel Weber, the Bundesbank president, and Jürgen Stark, an executive board member of the European Central Bank – had distanced themselves from the idea. Even more confusingly, Chancellor Angela Merkel chipped in with the remark that it wouldn’t be possible to set up a European Monetary Fund without changes to the EU’s governing treaty. As she well knows, after the agonising experiences first with the EU’s failed constitutional treaty and then with the Lisbon treaty (which finally came into force in December), there is next to no appetite for such changes among the EU’s 27 governments.
Today’s European Union summit in Brussels will set out the framework for a financial rescue operation for Greece. This much is clear is from various briefings being given by officials from countries as varied as Austria, Lithuania, Poland and Spain. But financial markets will have to wait until next week to see the full details of the plan.
The central question is how far Germany has been pushed to swallow its words and offer help for Greece, after weeks of denying that it would do anything of the sort. Only this morning Otmar Issing, the German former chief economist of the European Central Bank, was telling German television viewers that Greeks enjoyed “one of the most luxurious pensions systems in the world” and it was unreasonable to expect German taxpayers to fund it.
There is a need to clear up some misconceptions about how Greece, or some other fiscal miscreant in the 16-nation eurozone, would be rescued by its partners in the event that it was unable to refinance its debts.
Quite a few commentators seem to think eurozone governments would find it hard to sidestep the ban on bail-outs specified in European Union treaty law. The European Central Bank, the European Commission and certain EU governments, not least that of Greece itself, have contributed to the confusion by insisting in public that a rescue is undesirable and unnecessary (while quietly planning for precisely this contingency).