Blue sky thinking reaches Frankfurt (Getty)
Mario Draghi, European Central Bank president, has revived the idea of “reform contracts” — a policy that emerged in Brussels wonk circles last year and entails the EU contractually binding eurozone countries to economic reforms.
Speaking in Berlin on Monday, Mr Draghi told an audience of businesspeople that the eurozone needed two things to achieve sustainable growth: stabilisation and greater competitiveness.
To achieve the latter, he mentioned the need for “better ways of measuring economic performance – for example, more structural indicators of competitiveness.” And went on: Read more
The tests on 88 EU lenders holding 65 per cent of the bloc’s total assets over the coming months are structured to determine how well banks would hold up in a severe economic crisis. Criteria for banks’ passing or failing the test are due to be set next month.
The documents, seen by Reuters, show that the adverse scenarios include: Read more
Irish bond yields have dropped back as European officials have dramatically scaled back the impact of a sovereign default on bondholders.
Bondholders had been selling off peripheral eurozone debt – particularly Irish – since Brussels announced they might need to accept a loss – or haircut – in the value of their holdings should a default occur. This effectively reduced the future value of bonds held. The precise nature of who would lose what has remained unclear, as the sell-off sent bond prices down and yields above 9 per cent yesterday for Irish 10-year debt.
Now finance ministers appear to have backtracked, saying Read more
In the early days of the telephone, human operators played a crucial role: you called the operator, asked for the Joneses at a certain address, and she called them for you and connected you. Telephones were never forecast to be ubiquitous: their number would be forever constrained by the cost and availability of human operators required to make the system work.
Few people – if any – envisaged automatic connection. When it finally came along, no doubt it was unpopular with telephone operators. But the sacrifice of their jobs – painful as it was – paved the way for the highly efficient system we know today. It is unlikely the telephone operators were consulted on the matter, much less given the deciding vote.
So there is a level on which it seems strange that EU policymakers should get to choose whether or not they remain a part of the fiscal sanctions process. Euro member states might be punished if they are fiscally irresponsible, going forwards, but then again they might not: it will depend upon votes by policymakers. The ECB’s proposal for semi-automatic sanctions has been thwarted: the decision to punish will remain lengthy – and political.
There is a problem with this. Read more
Stephanie Flanders reminds us that it takes two to tango in her latest blog post. The story concerns proposals that might fine euro members for failing to keep public finances within certain boundaries. Over to Ms Flanders:
There would be fines in the region of 0.2% of GDP for countries who borrow too much, and also smaller financial penalties for countries that don’t try hard enough to improve their competitiveness.
I’m told that competitiveness would be measured by a “persistent current account imbalance”. But as this blog has pointed out many times, it takes two to create a current account gap: if one country has a deficit, someone else must have a surplus.
In fact, all the signs are that the new system will have the same asymmetry that we see in the global economy more generally. Countries with deficits are pressured to reform, but the countries with surpluses are under no pressure to change their policies at all.
Personal and company savings* have fallen significantly in Greece and Hungary since the start of the year, while rising across most EU members. Perhaps more surprisingly, deposits in the Netherlands also fell.
More than offsetting the falls, deposits increased in the UK, Italy and Cyprus – the latter may be because, as Ralph points out, withdrawals from Greece are flowing into neighbouring Cyprus. Read more
Irish unemployment rose to 13.3 per cent in May, the highest rise among the 30 countries reported by Eurostat in its monthly unemployment bulletin. The previous rate, in April, was 12.9 per cent.
Hungarians, by contrast, recorded the greatest drop in unemployed, with 10.4 per cent, down from 10.9 per cent last month. Overall, six countries reported increasing unemployment, 10 recorded falling unemployment, and 14 remained static. Latvia, Spain and Estonia are still at the top of the European league with almost one in five of their labur force out of work, although two of these have not yet recorded up-to-date May figures. Read more
European Union governments that persistently violate the bloc’s rules on low budget deficits and public debts could be denied EU financial aid under proposals unveiled on Wednesday by policymakers in Brussels.
The European Commission, which enforces the EU’s fiscal rules, also suggested that countries in the 16-nation eurozone should have to pay interest-bearing deposits into an EU fund if they ignored warnings to keep their public finances in order. Read more
Anti-contagion measures being discussed right now by EU finance ministers might be just a smokescreen for unprecedented action by the ECB. So says Erik Nielsen, chief European economist at Goldman Sachs.
Markets reacted negatively to the Greek bail-out, with equities falling, the euro falling and a rising cost of risk. In other words, markets began to price in a greater chance of contagion. EU finance ministers meeting today want to agree anti-contagion measures before markets open tomorrow. A statement issued Friday said all institutions of the euro area agreed “to use the full range of means available to ensure the stability of the euro area”. Read more
Below is a table showing the size of bilateral loans we believe will be due from each eurozone country. Figures are based on the ECB subscriptions ratio.
We are filling in the right-hand side as we see parliamentary approvals. Read more