By Mehreen Khan in London
The International Monetary Fund’s latest recommendations on Greek debt relief have leaked.
Yesterday, ahead of the latest meeting of eurozone finance ministers on May 24, the IMF repeated it would take part in Greece’s €86bn bailout only if its European partners could prove “the numbers add up”.
A key part of this calculation is for the fund to be fully assured that Greece’s debt mountain is finally placed on a sustainable downward trajectory. Read more
Mr Moscovici, right, chats with Mr Juncker. He will present the new tax measures next week.
Next week, the European Commission will take its latest step in its ongoing quest to move beyond the LuxLeaks corporate tax avoidance scandal that has periodically dogged President Jean-Claude Juncker.
Pierre Moscovici, the EU’s tax policy chief, is set to unveil a flurry of proposals aimed at tackling so-called base erosion and profit shifting: in other words the aggressive tactics used by multinationals to shrink their tax bills by as much as possible. This morning, we’ve done a story about the new proposals, which we obtained. But we’ve also now posted them here for others to read.
The so-called LuxLeaks revelations emerged shortly after Mr Juncker became commission president in November 2014, and dogged his early days in office. They documented how during his two decades as Luxembourg prime minister, up to 340 multinational companies, ranging from Ikea to Pepsi, funnelled profits through the tiny country to lower their tax bills to as little as 1 per cent.
The commission has embarked on a wave of regulatory changes to close loopholes, including making a renewed push for the longstanding EU goal of having a common consolidated corporate tax base for companies. It is also pursuing high profile competition cases against tax deals Luxembourg and others struck with multinationals such as Apple, Amazon and Fiat.
Most recently, the European Commission ordered Belgium to recoup about €700m from 35 multinational companies that have benefited from the country’s generous fiscal incentive scheme.
Mr Moscovici’s plans, which are outlined in a 13-page summary posted here, enshrine international agreements reached by the Organization for Economic Cooperation and Development into EU law, and in some cases go even further – notably when it comes to restricting the ability of companies to shift of profits from parent companies to lightly taxed subsidiaries. Read more
German finance miniser Wolfgang Schäuble with Finland's Jutta Urpilainen at Monday's eurogroup
The German finance ministry is on the brink of an extraordinary achievement. Like many power shifts within the EU, it is happily hidden behind the most fiendish jargon. But if all goes to plan, Berlin is securing something rare and coveted in Brussels: the effective power to block future EU banking regulation.
Put another way, it is quietly resetting the ground rules of the single market in financial services without the need for treaty change or a referendum or a big speech. Take note David Cameron.
How has Berlin managed it? It is all concealed in the thicket of legal arguments over establishing Europe’s €55bn bank rescue fund via an intergovernmental agreement, rather than through the EU’s normal “community method”, where majority (or at least qualified majority) rules.
To translate: at German behest, the rules for pooling banking union rescue funds are laid out in a side-deal between governments, rather than under legislation agreed between EU member states and European parliament. Such intergovernmental pacts are allowed; remember the fiscal compact? But they are not supposed to change or impact the EU’s common rulebook, outlined in the EU treaties. Read more
Do last week’s German constitutional court ruling lambasting – but failing to overturn – the European Central Bank’s crisis-fighting bond-buying programme and today’s political upheaval in Italy have anything in common?
In the view of many ECB critics, particularly in Berlin, the two are not only related, but one may have caused the other. Read more
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
Did tight-fisted budget policies in Germany help make the eurozone crisis deeper and more difficult for struggling bailout countries like Greece and Portugal?
That appears to be the conclusions of a study by a top European Commission economist that was published online Monday – but then quickly taken down by EU officials.
Our eagle-eyed friend and rival Nikos Chrysoloras, Brussels correspondent for the Greek daily Kathimerini, was able to download the report and note its findings before the link went dark (Nikos kindly provided Brussels Blog a copy, which we’ve posted here).
Shortly after being contacted by Brussels Blog, officials said they would republish the 28-page study, titled “Fiscal consolidation and spillovers in the Euro area periphery and core”, once a few charts were fixed. And as Brussels Blog was writing this post, it was indeed republished here.
Still, the paper’s day-long disappearance looks suspicious given the hard-hitting nature of its findings. For some, they may not be surprising. Many economists have argued that it was the simultaneous austerity undertaken by nearly all eurozone countries over the course of the crisis that pushed the bloc into a deeper recession than predicted, hitting Greece and other weak economies particularly hard.
But coming from the European Commission’s economic and financial affairs directorate – which was responsible for helping administer Greek and Portuguese bailouts as well as provide semi-mandatory policy advice to other eurozone economies – the criticism of Berlin is unexpected, to say the least. 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.
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.
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
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.
Angela Merkel and José Manuel Barroso talk on the sidelines of Monday's EU summit.
The Deutsche Börse and NYSE Euronext exchange mega-merger is dead, the objections of competition officials prevailed, but it followed a tremendous political tussle in Brussels, full of intrigue and skulduggery. Here are some of the snippets from the final days:
The Merkel change of heart: A great mystery in this merger case was the deafening silence from Berlin. Angela Merkel, the German chancellor, was always said to be on the verge of intervening on behalf of the German exchange. But opportunities to say something came and went. Her reluctance was put down to coalition divisions and a complicated political picture in Hessen, the home state of DB.
But in the final days, Merkel did have her say, at least in private. Read more
Baltic Sea fisherman. Image by Getty
Has the UK lost its influence in Europe? That has become the conventional wisdom in Brussels after prime minister David Cameron last week spurned France and Germany by refusing to sign up to a new “fiscal compact” to further integrate the bloc’s economies.
A first indication may come over the next 24 hours, during which a group of bleary-eyed ministers will try to close an agreement on the European Union’s annual fisheries quotas. Unlikely as it may seem, the UK is expected to get its way because it has rounded up support from France and Germany.
The December fisheries council is one of Brussels’ quirky annual rites and arguably the world’s ultimate fish market. Working late into the night, European diplomats barter quotas on scores of salt water species – from North Sea cod to the nephrop norvegicus – to piece together a comprehensive agreement governing the fisheries of the world’s biggest seafood consumer.
As my colleague, Andrew Bolger, reported in Thursday’s FT, Scotland’s fishing industry is nervous, thanks to Cameron’s defiance. Read more
Journalists arriving early for the European Commission’s daily midday briefing Monday caught a once-familiar figure in the press room: Karl-Theodor zu Guttenberg, the former German defence minister who resigned in disgrace earlier this year after it was revealed he plagiarised his doctoral thesis.
The aristocratic zu Guttenberg , once widely tipped as a future German chancellor, was in Brussels at the invitation of Neelie Kroes, telecoms commissioner, to work on an anti-censorship initiative targeted at dictatorships blocking parts of the internet.
“This is not a political comeback,” zu Guttenberg insisted, on what looked a lot like the first step of his political comeback. Read more
German chancellor Angela Merkel during a press conference Thursday
Our friends and rivals over at The Daily Telegraph have gotten their hands on an interesting document from the German government detailing its proposals for EU treaty change, and have helpfully posted it online (with an English translation by the Open Europe think thank).
Although the Telegraph focuses on its implications for Britain, there is a significant amount of detail on how Berlin would like to change eurozone economic governance, including yet another stab at enshrining bondholder “haircuts” in the EU treaties.
For those who haven’t followed the debate closely, there is now a closed-door fight going on about whether Greece really will be the only country that sees its bondholders pushed into losses – as the eurozone’s leaders have repeatedly insisted in their summit conclusions – or whether the bloc’s new €500bn rescue fund, which could come into place as early as next year, should allow for organised defaults.
Although almost all EU institutions – including the European Commission and European Central Bank – want to make explicit Greece was a one-off, the German paper makes clear they want to keep the door open. Read more
In a new article, George Soros warns German voters that they risk another Depression.
The Fed pumped dollars into European banks, Timothy Geithner pleaded with EU finance ministers to take quick action, and in today’s FT former Obama administration economic major-domo Larry Summers warned that incrementalism in the eurozone is akin to the slow bleeding of the Vietnam war.
It seems like the week the Americans jumped into the crisis surrounding the euro with both feet.
Now comes a compelling treatise from yet another major American economic thinker, financier George Soros, who has written in the New York Review of Books echoing Summers’ concerns about incrementalism and predicting that a common eurozone treasury is imminent – and may be the only solution to the crisis. Read more
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
Gerhard Schröder’s unexpected re-emergence as a voice for European fiscal integration may or may not change minds in increasingly eurosceptic Germany. But in our half-hour interview, the former chancellor made a pretty heart-felt case that the country’s leadership should be pressing ahead with pro-EU economic policies, even if they are unpopular.
Given the limited space we have in the daily newspaper, we thought Brussels Blog readers might be interested in a fuller account of his views on the issue. As we noted, Schröder was careful not to directly attack his successor, Angela Merkel, for her recent handling of the crisis – something done last month by Helmut Kohl, who unlike Schröder is a member of Merkel’s own political party.
But he did take a more subtle dig. He made the case that politicians need to push through unpopular policies if they believe in them – and then noted he paid the price for reforms in German labour and social benefit policies, collectively known as Agenda 2010, which are now credited with leading to an economic turnaround. Read more
German finance minister Wolfgang Schäuble
Influential Nobel Prize-winning economist Paul Krugman has picked yet another fight with eurozone politicians, this time with Germany’s Wolfgang Schäuble.
On his New York Times blog, Krugman takes issue with the German finance minister’s claim at a panel discussion in Frankfurt on Thursday that “economists worldwide” agree the 2008 eurozone crisis was triggered by excessive public debt “everywhere in the world”.
Krugman says excessive public debt actually triggered a crisis in only one country, Greece. Ireland and Spain’s problems only become a public debt crisis after private-sector bank debt was moved onto the government books through bail-outs. Similarly, until the recent standoff over the US debt ceiling, American problems have originated in the financial sector. Read more
Greek riot police confront protestors in front of parliament in Athens on Wednesday
Just as one Greek crisis appears to be dissipating, another one flares up that risks pushing Athens into default in a matter of weeks. For those struggling to follow along, here’s another one of our quick primers – and a guide for what to watch for in the coming days.
For much of the last month, officials have been fretting that unless they can piece together a new €120bn bail-out for Greece by next week, Athens would run out of money. The first default by an advanced economy in 60 years would ensue, potentially wreaking havoc across the eurozone.
The reason behind the fear was a complicated domino effect that started with the International Monetary Fund: the IMF was going to withhold its €3.3bn in aid due this month unless the European Union could ensure Greece could pay its bills for another year. Greece, however, is going to be unable to pay its bills next year without a new bail-out. Read more