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Eurozone to withhold €1bn from next tranche of Greek bailout funds; German FM: If Greece stops reforms, future tranches of funding will not be paid

10 May 2012

The mandate for forming a coalition government in Greece today passes to the Socialist PASOK party, the third placed in the elections, after left-wing SYRIZA’s attempts failed yesterday. PASOK’s chances of forming a stable government look slim, given its continued support for the EU-IMF bailout programme – something not shared by most of the other parties. Meanwhile, the eurozone announced yesterday it will hold back €1bn of the €5.2bn tranche of Greek bailout funds due to be paid out today, on the back of strong opposition to releasing the funds from Germany and Finland. Around €3.3bn of this tranche will be used to pay off debt which matures next week and is thought to be held by the ECB.

German Foreign Minister Guido Westerwelle said yesterday, “If Greece ends the reform process it has undertaken, then I can’t see that the respective tranches [of aid] can be paid out,” while German Finance Minister, Wolfgang Schäuble, added that “if Greece does not decide to stay in the eurozone we can't force them to stay in it.” Reuters Deutschland quotes Germany’s former SPD Finance Minister Peer Steinbrück saying, “If I had political responsibility, I would want to prepare myself for a plan B in which the eurozone is no longer necessarily composed of 17 members.”

Open Europe’s blog outlining the possible scenarios after Sunday’s Greek elections is cited by Greek business daily Kerdos.
Kathimerini IHT BBC FT CityAM WSJ EUobserver Il Sole 24 Ore BBC 2 Welt Kathimerini 2 Times Times 2 WSJ: Walker FAZ Le Monde Le Monde Les Echos Les Echos 2 Les Echos 3 Le Monde Les Echos 4 Les Echos 5 Kerdos Reuters Deutschland

Bundestag ratification of fiscal treaty likely to be postponed;
CDU parliamentary leader to Hollande: “This government will not agree with growth programmes financed by debt”
The Bundestag vote on the ratification of the fiscal treaty, scheduled for 25 May, looks set to be postponed until mid-June, or possibly even after the summer recess, with the opposition SPD and Green parties complaining that there are “too many unanswered questions” over how the debt brake would be implemented.  

The delay could also affect the ratification of the treaty establishing the eurozone’s permanent bailout fund, the ESM, due to be held alongside the vote on the fiscal treaty. CDU parliamentary leader Volker Kauder insisted that “we will not make any lazy compromises…this link is mandatory.” The ESM is supposed to come into force on 1 July.

Meanwhile, French President-elect François Hollande met European Council President Herman Van Rompuy in Paris yesterday, and had a telephone conversation with Irish Taoiseach Enda Kenny. Talks focused on the eurozone crisis, proposals to boost growth and the fiscal treaty. Handelsblatt reports that Kauder has warned Hollande that “at the European level, this government will not agree with growth programmes financed by debt.” A separate article in the paper notes that the CDU’s Bavarian sister party, the CSU, sees France as being of bigger concern than Greece.
FT  WSJ Telegraph Irish Times Irish Independent EurActiv Süddeutsche FAZ Spiegel Welt Reuters Handelsblatt Handelsblatt 2 Les Echos La Stampa blogs: Zatterin

Open Europe’s Mats Persson yesterday gave oral evidence to the Department for Communities and Local Government parliamentary select committee’s inquiry on the effectiveness of the EU’s European Regional Development Fund in reducing regional disparities and boosting jobs and growth in England.
Parliament Live Open Europe research: Off target: the case for bringing regional policy back home

Jitters spread through European markets as Spain partially nationalises Bankia
The Spanish government moved yesterday to partly nationalise its fourth-largest bank, Bankia, taking a 45% stake in the lender by converting €4.5bn in state aid into shares in the bank. The government is on Friday expected to call on all Spanish banks to increase their general provisions against property loans from 7% to 30%, likely amounting to a €30bn increase in provisions, with state aid available for those banks unable to raise the funds. The moves prompted huge falls in bank stocks across Europe, but particularly in Spain and Italy.

Reuters España reports that, in its new economic forecasts due to be published tomorrow, the European Commission will warn that Spain is set to miss its deficit targets for 2012 and 2013, unless the Spanish government adopts additional austerity measures. The WSJ reports that Spain may be given some leeway on its deficit targets, citing unnamed European officials.
EUobserver El País Expansión Times FT FT 2 FT 3 CityAM CityAM 2 WSJ Telegraph Irish Times Expansión 2 EurActiv WSJ 2 FT: Roubini & Greene FT Editorial

Bundesbank willing to accept higher inflation in Germany
In evidence submitted to German MPs yesterday, the Bundesbank has signalled that it would accept higher inflation in Germany in order to help peripheral eurozone countries to regain international competitiveness and return to growth. Meanwhile, EurActiv reports that the European Commission is studying a proposal put forward by Italian Prime Minister Mario Monti not to count the reimbursement of outstanding debts contracted by eurozone governments with the private sector as additional public deficit.
FT  Bundesbank’s evidence WSJ  FT 2 EUobserver  EurActiv Les Echos FTD

Conservative Home features Open Europe’s response to the proposed Bill, announced in the Queen’s Speech, to ratify the EU treaty change establishing a legal base for the permanent eurozone bailout fund, the ESM.
Conservative Home Open Europe blog

The Times reports that secret papers released under freedom of information laws yesterday reveal that German officials gave numerous warnings that Italy was not ready to join the euro but were ignored because Helmut Kohl believed the single currency was ‘Europe’s destiny’.

In the Spectator, James Forsyth argues that London Mayor Boris Johnson’s support for a referendum and UKIP’s rise taken together “make it highly likely that Britain will have its first vote on Europe since 1975 within the next five years.”
Spectator: Forsyth

EU Economic and Monetary Affairs Commissioner Olli Rehn said yesterday that the Netherlands must stick to a plan to cut its budget deficit to 3% of GDP in 2013, adding, “Rumours of a relaxation of the rules of the stability and growth pact are unfounded.”
Reuters NOS TV Nu.nl

Czech Prime Minister Petr Necas has said that his country will introduce the euro “only in eight to ten years’ time”, reports ORF.

The Mail reports that Diana Banati, chairwoman of the European Food Safety Authority (EFSA) management board, has been ordered to resign due to concerns over her links to companies involved in developing GM crops.
Mail The Parliament Open Europe research

The FT reports that the Government’s decision to opt for jump-jet versions of the F-35 aircraft for its new carriers is a blow to Franco-British military co-operation as it means that France will not be able to operate its Rafale jets on UK carriers.

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