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Moody’s downgrades six eurozone countries; UK and France face EU investigation over economic imbalances

14 Feb 2012

Moody’s last night downgraded Italy, Portugal, Slovakia, Slovenia and Malta by one notch, Spain by two and put the UK, France and Austria on negative outlook (but held their triple-A ratings). Moody’s cited these countries “susceptibility to the growing financial and macroeconomic risks emanating from the euro area crisis” as the key motivating factor for the ratings adjustments. The rating agency raised concerns over the size of the bailout funds available in the eurozone and the uncertainty over the plans to increase them. Separately, the other big rating agencies, S&P and Fitch, downgraded numerous Spanish banks yesterday.

Meanwhile, the FT reports that 12 EU countries, including the UK and France, will be subject to an in-depth analysis by the EU due to the large level of imbalances present in their economies. Citing a copy of a draft Commission report, which is due to be officially released today, the article suggests that countries will be investigated under the new ‘enhanced surveillance’ powers which aim to measure economic danger signs like asset bubbles, high labour costs and persistent trade deficits. Unlike eurozone countries, the UK can be investigated but cannot be sanctioned if it is found to have persistent imbalances.
FT Moody’s CityAM WSJ Süddeutsche Spiegel Welt FAZ Sun Le Point La Tribune Telegraph Mail Telegraph Monde Monde 2 La Tribune Nouvel Observateur FT 2 CityAM 2 IHT EUobserver Independent Le Figaro Reuters BBC Il Sole 24 Ore La Stampa blogs: Zatterin

Eurozone finance ministers may delay approval of second Greek bailout again;
Schäuble: We’re better prepared for a Greek default than two years ago
Reports suggest that eurozone finance ministers may not sign off on the second Greek bailout at tomorrow’s meeting as expected, after they called for even further commitments from Greece. Specifically, proof of the extra €325m in cuts, clarification on how Greece intends to reduce labour costs by 15% and a written commitment from all party leaders to adhere to the programme. The final point is especially important after New Democracy leader Antonis Samaras said on Sunday that he planned to renegotiate the deal if he wins the April elections. François Hollande, the Socialist candidate to the French presidential election, has criticised the new austerity plan being forced on Greece calling it a “purge.”

However, even if the demands are not met, eurozone finance ministers may give approval for the voluntary debt restructuring to go ahead and agree in principle to release the €30bn in funds necessary to complete the process. Speaking to the FTD, Bundestag President Norbert Lammert raised concerns over the timetable for the Bundestag approval of the second Greek bailout, since the vote is due on 27 February, but the package is yet to be completed or all conditions met.

The front page of Handelsblatt reports that according to Central Bank sources, not enough private creditors will be found to participate in a voluntary write-down of Greece debt, meaning the aim of reducing Greek debt by €100bn will not be achieved. Central Bankers are therefore assuming that Greece will legally change the terms of the loans, under which private creditor participation will be binding if at least 50% of investors agree.

Separately, Finnish Finance Minister Jutta Urpilainen said yesterday that she expects a deal on the collateral which Finland will receive in exchange for its part in the Greek bailout to be agreed in the next few days.

In an interview with Liberation ECB Executive Board member Benoît Cœuré seemingly became the first ECB member to endorse the prospect of the ECB playing some role in the Greek bailout, saying, "Should there be a profit [on the ECB’s holdings of Greek government bonds]…it is to be distributed to the [member] states…They could use it to contribute to the sustainability of Greek debt.”

German Finance Minister Wolfgang Schäuble said on ZDF TV on last night, “We're better prepared [for a Greek default] than two years ago"
Les Echos FT WSJ European Voice CityAM FT 2 FT 3 CityAM 2 EUobserver Mail Mail 2 Independent Reuters BBC BBC 2 Guardian Liberation Les Echos 2 Les Echos 3 Liberation: Coulisses de Bruxelles Jornal de Negocios Bloomberg Handelsblatt BBC 3 Irish Times Welt Reuters.de Focus WSJ 2 WSJ 3 FTD Welt Spiegel Le Point Les Echos 4 Le Monde IHT

Raoul Ruparel: Greek riots highlight the potential cost of trying to keep the eurozone together
In an op-ed in City AM, Open Europe’s Raoul Ruparel argues, “There is a sense of malaise in Brussels after the terrible riots in Greece over the weekend. Their growing ferocity and frequency mean that EU politicians dismiss them at their own peril. In fact, this could be a glimpse into Greece’s future… Even in an optimistic scenario, Greece will need significant fiscal transfers for the best part of a decade. Given that taxpayers from around Europe are likely to demand some level of control over how their money is spent (as they rightly should) the Greek public could be forced to accept tough economic policies decided by people sitting in foreign capitals for years to come. This also means that the protests we saw in Athens yesterday could be but a prelude of what is to come, as the numerous rounds of austerity really start to bite on the Greek population.”

Raoul concludes, “The economic and political costs of a break-up or default are widely cited. But the costs and risks of the current bailout and austerity policy approach are now coming to the surface. It may not have reached tipping point yet but it is only a matter of time before more and more people start to question whether this economic and social pain is a price worth paying for a shared currency.” Raoul also appeared on BBC Wales discussing the euro-crisis.

On his Telegraph blog, Open Europe’s Director Mats Persson argues that, “Everyone recognises that Greece needs fundamental reform – the country has for too long epitomised reckless economic behaviour. But as Andreas Vosskuhle, the heavyweight President of the German Constitutional Court, said in a recent speech: ‘It would be tragic and fatal if we were to lose democracy on the road to saving the euro.’ Beyond everything else, this is the central dilemma the eurozone faces: necessary economic reforms are constantly pitted against basic democratic principles.”

In the Telegraph, Andrew Lilico of Europe Economics argues, “Despite the vote yesterday, the Greeks probably won’t ever see a single cent of that second bailout. In particular, the Slovakians, Finns, Austrians and Dutch would never have agreed to the [second bailout] if they had thought there was any chance of them actually having to pay.”

In Italian daily La Stampa, Editorialist Stefano Lepri argues that the vote in the Greek parliament “doesn’t solve anything…The key deadline is now another one. During 2012, Greece’s budget will achieve a ‘primary surplus’, meaning that all deficit not caused by interest payments on Greek debt will be eliminated. At that stage, total default will become a temptation.”

In FAZ, Foreign Affairs Editor Klaus-Dieter Frankenberger argues “Germany offers assistance – yet is demonised by people who swindled their way into the monetary union and have driven it to the edge of the abyss. They are using the fine principle of solidarity as a means for extortion. The EU has no future as such an extortion community.”
City AM: Ruparel Telegraph blogs: Persson FAZ: Frankenberger Welt: Stürmer La Stampa Telegraph: Lilico FT: Rachman FT: Buiter WSJ: Carney WSJ: Review&Outlook Telegraph: Warner Mail: Heffer Mail: Kite BBC: Hewitt BBC: Flanders Independent: Leader Independent: Kesidou

The Telegraph reports that the CBI and TUC have written to the President of the EU Commission to warn that the EC proposals for a new pension fund regime under the Solvency II rules would impact on British jobs, business and savers.
Telegraph Mail CityAM Express

An article in El País notes that Spanish Prime Minister Mariano Rajoy secretly hopes that, in light of the drastic reform of the labour market adopted by the Spanish government last week, Germany and the European Commission will become more flexible about the possibility of reviewing Spain’s deficit reduction targets. Meanwhile, El Mundo notes that the opposition Socialist party is threatening to take the reform to the Spanish Constitutional Court.
El País El Mundo

Hollande softens line on financial regulation;
Sarkozy set to become official candidate
Francois Hollande, Socialist frontrunner in the Presidential elections, will visit London on 29 February, “we need Great Britain to feel part of Europe” and that financial market regulation would not be “overboard”, but maintained that it is “not acceptable” for Britain to “create a sanctuary …for the City of London”. Hollande will meet Ed Miliband, and awaits David Cameron’s reply to his invitation.

Le Monde predicts that Sarkozy will officially announce his candidacy for re-election on TV1 tomorrow.
Monde Monde 2 Les Echos Les Echos 2  Le Point Le Point 2 Liberation Liberation 2 Les Echos 3 Nouvel Observateur Nouvel Observateur 2 Telegraph FT Independent Les Echos

The FT reports that François Hollande, the Socialist candidate for the upcoming French presidential elections, has questioned whether the new European fiscal treaty on budgetary discipline goes far enough in guaranteeing stronger economic governance in the eurozone, adding, “Some have proposed...the idea of a minister of finance for the eurozone who reports to the European parliament – that is a potential solution.”

City AM reports that France and Belgium have ended the ban on short-selling of particular financial stocks only six months after the scheme was introduced. This is expected to bring greater liquidity on trading.

The German constitutional court has announced it will present its judgement on the EFSF decision-making powers of the budgetary sub-committee on 28th February, reports FAZ.
No link

On his Coulisses de Bruxelles blog, French journalist Jean Quatremer reports that, ahead of Sunday’s vote on the latest austerity package, Greece’s former Prime Minister George Papandreou told Greek MPs, “Our political system is collectively responsible for all the civil servants that we have recruited by favouritism, for the privileges that we have accorded by law, for the scandalous demands that we have satisfied, for the trade unions and business people that we have favoured and for the thieves that we haven’t sent to prison.”
Liberation: Coulisses de Bruxelles

EUobserver reports that France, Italy and the UK have backed a call to send in UN peacekeepers to Syria. David Cameron is due to discuss Syria at an Anglo-French summit in Paris on Friday.
Le Figaro EUobserver Guardian

European Voice reports that the European Parliament’s Budget Committee has recommended a freeze in MEPs allowances and travel budgets.
European Voice

Liberation reports that French nationalist leader Le Pen’s candidacy for the French Presidential election is under threat as the main parties refuse to help her gain the requisite nominations from French officials.

The head of Airbus Thomas Enders has warned that the EU’s Emissions Trading Scheme (ETS) could spark an international trade war due to its imposition on airlines using EU airspace amid signs that Siim Kallas, the EU's transport commissioner is willing to show flexibility on the issue.
FT  WSJ BBC Le Figaro

The Irish Times reports that Hungary must meet an EU deadline this Friday that calls for the country to address its central bank, judiciary and data protection systems. Failure to do so could mean the case being resolved in the ECJ.
Irish Times

The BBC reports that the president of the European Parliament, Martin Schultz has criticised the EU’s Anti-Counterfeiting Trade Agreement, which seeks to standardise intellectual property protection.

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