Daily Press Summary
EU leaders agree to massive €500 billion bailout package; UK taxpayers could become liable for up to €8 billion of eurozone loans; ECB intervenes in bond markets
EU finance ministers last night agreed to a two-part package worth €500bn, designed to support eurozone countries with liquidity problems and preventing the European sovereign debt crisis, which began in
This mechanism, labelled the ‘stability fund’, allows the EU Commission to borrow up to €60 billion a year on international markets, in addition to the €50 billion that was already in the pot, using the EU budget as collateral. If a receiving country fails to pay back the loan, all 27 EU member states would be forced to pay into the EU budget to cover the default, meaning that British taxpayers would be liable for about 13 percent of any losses.
Speaking to the BBC Today programme, Chancellor Alistair Darling insisted that the UK was “not indemnifying the euro”, but said that “our exposure for the additional amount of money could be £8bn, not the larger numbers that I’ve seen quoted, that would only arise though if there were a 100 percent default.”
Extraordinarily, the legal basis for the extension of the stability fund will be Article 122 of the Lisbon Treaty, which allows money to be sent to countries within 48 hours in the event of a natural disaster or other “exceptional event” beyond its control. The European Council had previously insisted that the use of Article 122 could not breach the EU Treaties ‘no bailout’ rule. Alistair Darling said this morning that the deal was “actually quite a good insurance scheme for us”, saying that
In an additional sign of the desperation growing in the eurozone, the ECB caved in to political pressure and announced it would buy eurozone government and private debt "to ensure depth and liquidity in those market segments which are dysfunctional". The EU Treaties prevent the ECB from buying bonds directly from governments, so to circumvent the rules it will instead be buying debt second-hand from banks.
European media reports that the deal was preceded by a major clash between
Welt reports that in the worst case scenario, i.e.
PA quotes Mats saying: “It's time to consider whether the cost of keeping the eurozone intact, both for Europe as a whole and individual countries, is actually higher in the medium and long term than allowing for one or more countries to exit the single currency, and undergo restructuring and devaluation.”
The euro rose against the dollar as markets reacted positively to news of the package. But uncertainty persisted over whether the package would give the euro lasting support since
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German government loses majority in Bundesrat following regional elections;
German Chancellor Angela Merkel’s CDU party and their governing coalition partners the FDP were defeated yesterday in regional elections in North Rhine-Westphalia, receiving 41.3 percent of the vote combined, while the Social Democrats polled 34.5 percent and their allies the Greens polled 12.1 percent. The Independent quotes Hermann Gröhe, a top conservative official, admitting that “worry about
Handelsblatt reports that although CDU politicians have rallied around Angela Merkel following the election result, liberals have not done so and FDP Deputy Finance Spokesman Frank Schäffler is quoted saying “The collective breach of law will continue to stand as the status quo after the Greek bailout.”
On a national level, the result means Merkel will lose her automatic majority in the upper house of parliament, the Bundesrat, and will have to rely on opposition support to push through policy.
Meanwhile, the FT reports that
Five constitutional professors then tabled an immediate challenge to the ruling, arguing that the aid package is in defiance of EU law banning bail-outs, and that it damages the rights of German citizens to the protection of property by the federal government.
German reaction to eurozone bailout;
Die Welt: Belief in the stability of the euro will be buried in
The reaction in Germany to the bailout has been largely concerned with the damage to the single currency, and in a frontpage comment in FAZ Holger Stelzner argues that “the Euro as weak currency” is now a prospect, adding: “All stability rules are being broken”.
A comment by Die Welt argues that, “This [the involvement of the ECB] will harm the stability of the euro in the longterm and bury the belief in the stability of the euro in
The Telegraph quotes Anton Börner, head of
The FTD quotes Viktor Hiort, credit analyst at Morgan Stanley, saying: “The package does not change the fact that the solvency of several euro-states in danger is. Above all, these countries must get their budgets under control. The package just gives time”.
In a comment piece FAZ
Eurozone comment round-up;
Times: “This is a deal being negotiated in the absence of an authoritative British government”
A leader in the Times describes the agreement by EU finance ministers as an “audacious power grab”, adding: “European finance ministers are planning to give the European Commission further powers to borrow tens of billions, potentially hundreds of billions, of euros. This extension of the European Union’s economic powers would not simply constitute a euro-federalist power grab. It would leave British taxpayers liable for tens of billions of borrowing. And, worse, this is a deal being negotiated quite deliberately in the absence of an authoritative British government.”
On his EUobserver blog, Brussels correspondent for the Telegraph Bruno Waterfield argues that what is “truly shocking” about the agreement reached is, “To use a legal clause designed for earthquakes or potentially extreme unforeseen circumstances that threaten the existence of one member state to save the skins of the EU’s political class is profoundly deceitful – quite aside from being legally dodgy.”
Writing in the Telegraph, Ambrose Evans-Pritchard argues that the stabilisation mechanism, “is an EU Treasury in all but name, managing an EU fiscal union where liabilities become shared. A European state is being created before our eyes.” He adds that this agreement is only “chemotherapy for the cancer eating away at the foundations of monetary union. It is not a cure. The rot set it when the South joined EMU before it was ready to cope with ultra-low interest rates or match German wage-bargaining.”
Writing in the NYT, Paul Krugman argues that “Many observers now expect the Greek tragedy to end in default; I’m increasingly convinced that they are too optimistic – that default will be accompanied or followed by departure from the euro.”
European Parliament ECON committee to vote on controversial AIFM Directive;
Hung Parliament leaves
The Economic and Monetary Committee in the European Parliament is today expected to approve a draft version of the AIFM Directive. The Committee’s draft has been substantially amended, compared to the Commission’s original proposal, but still includes contentious – and protectionist – restrictions on managers and funds based outside the EU, including standards on tax, money laundering and the provision of regulatory information.
Both the European Parliament and the Council of Ministers have to agree before the proposal can become law. Member states’ finance ministers will discuss their draft proposal of the Directive in a meeting on May 18. Several papers note that
The Telegraph quotes John Cridland, Deputy Director-General of the CBI, warning that “the proposed legislation would damage companies owned by private equity firms, and discourage investment. We are particularly concerned about the impact it would have on small and medium-sized companies.” The regulation could cost companies with as few as 50 staff members in excess of £25,000 a year, according to some estimates.
The Observer reported on a “leaked memo”, allegedly from Shadow Foreign Secretary William Hague, stating that “the British relationship with the EU has changed with our election.”
EU ‘wise men’ group calls for communication policy to move away from “propaganda”
EUobserver reports that the EU’s ‘Wise Men’ group on the future of Europe, chaired by former Spanish PM Felipe González, has issued its report on the future of the EU, which questions the excessive focus on “communication policy”, suggesting that “instead of focusing on a communication policy which sometimes verges on propaganda, it would be preferable [for the EU] to communicate on policies, explaining frankly what is at stake and the different options available”.
Saturday’s Guardian reported that pressure from the UK Government and British companies has led to the EU agreeing to delay the implementation of aspects of the Large Combustion Plant Directive, which threatened closure of power generation facilities.
Euractiv reports that during the last meeting of EU foreign ministers Catherine Ashton pledged that one third of the diplomats in the European External Action Service (EEAS) will come from EU member States by 2013.
Speaking to the BBC Today programme former Liberal leader Lord David Steel, when asked whether or not the issue of Europe would be an insurmountable hurdle to a Conservative-Lib Dem coalition Government, said: “I think that would be one of the obstacles, together with electoral reform, to doing a deal with the Conservatives, but it’s not impossible.”
Saturday’s Telegraph reported that UKIP may have cost the Conservative party a majority in the Commons by winning significant numbers of votes in 21 marginal seats that the Conservatives were targeting. In Morley and Outwood for example, the Schools’ Secretary Ed Balls’ seat, the Labour majority over the Conservatives was 1,101, but UKIP polled 1,506.