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France and Germany set for showdown over eurobonds and Schäuble’s candidacy to lead the Eurogroup;Vincenzo Scarpetta: Eurobonds are no easy fix for the euro crisis

22 May 2012

Speaking after a meeting with his German counterpart Wolfgang Schäuble yesterday, French Economy Minister Pierre Moscovici said eurobonds are “a strong idea” for France, adding, “We did talk about them, and both of us confirmed our known positions. At the same time, I said [French President] François Hollande intended to put everything on the table.” Eurobonds will be discussed at the informal meeting of EU leaders in Brussels tomorrow. Meanwhile, Spanish Prime Minister Mariano Rajoy said. “The most important thing is to take decisions that can be enacted in 24 hours. We can’t enter debates [about eurobonds] that can last for years.”

Writing in City AM, Open Europe’s Vincenzo Scarpetta argues, “Most of the proposals for eurobonds would see only part of the eurozone governments’ debt underwritten jointly, with the rest remaining national. This option would be a major economic gamble. Not only would it be extremely difficult to implement on existing debt stocks, it could also send borrowing costs on the nationally-denominated debt skyrocketing – which would ultimately outweigh the benefits of having Eurobonds in the first place.” Vincenzo concludes, “In any case, eurobonds would take years to implement. The answer to the current crisis must lie elsewhere.”

Separately, Ségolène Royal – who is tipped to become the speaker of the lower house of the French parliament if the Socialist party wins the legislative elections next month – said in an interview with Canal+ that Schäuble’s appointment as the next Eurogroup chairman would be “a bad signal. He has taken an extremely rigid line [on the eurozone crisis].”

In an interview with Oberösterreichische Nachrichten, Austrian Finance Minister Maria Fekter argues that: “Growth financed by debt? Those are the recipes from the day before yesterday. The arguments that are put forward by France's new president François Hollande are nonsense and got us into this whole mess in the first place.”

Open Europe’s Director Mats Persson is quoted by the Telegraph saying, “Hollande is flexing his muscles, showing that he is willing to block the man [Schäuble] seen as Europe's symbol of austerity. The real battle is over the ECB. It is the only body that can act swiftly enough to underwrite the bond markets. But the crisis may have to get far worse before the Germans yield.” Mats also appeared on BBC news discussing the crisis.
City AM: Scarpetta Telegraph Le Monde Telegraph Guardian BBC Irish Independent WSJ FT Le Figaro Le Figaro 2 EUobserver Independent Times El Mundo El País IHT Les Echos Les Echos 2 Reuters Kathimerini Oberösterreichische Nachrichten

Greek conservatives and liberals form alliance ahead of elections
Antonis Samaras, leader of the conservative New Democracy party, and Dora Bakoyannis, head of the liberal Democratic Alliance announced yesterday that they would run on a common platform in the upcoming Greek elections on June 17.

Alexis Tsipras, leader of the radical left-wing SYRIZA party which currently leads on 28% in the polls, warned in Paris yesterday that German Chancellor Angela Merkel “must understand that she is an equal partner with others in a eurozone which has no tenants and owners. She should not allow herself to behave as if we are a protectorate”.
EUobserver Les Echos Le Monde Le Monde 2 FT Kathimerini Telegraph IHT Les Echos 2 Le Monde 3 Guardian Guardian:Traynor Spiegel FAZ FT: Rachman FT: Blejer Independent: Lawson Mail: Leader WSJ: Swoboda Welt Welt: Eder Bild: Blome

Speaking in Berlin yesterday, Germany’s ECB Executive Board member Jörg Asmussen said, “The benefits of a currency union are so outstanding that they should be stabilised by deepening, which means a fiscal union and banking union as well as a democratic legitimised political union”, the Irish Times reports.
City AM EUobserver Irish Times Irish Independent FTD Reuters

An article in Der Spiegel runs with the headline, “Merkel is losing her Triple A”, noting that “she is getting more and more isolated in Europe.” The article suggests that, also in light of the recent defeats in local elections, Merkel “won’t be able to maintain her strict attitude on austerity policies towards European partners in the long run.”

International Institute of Finance: Spanish bank losses could total €260bn
The International Institute of Finance warned yesterday that Spanish bank losses on bad loans could be as high as €260bn, with up to €60bn of extra capital needed to shore up the country’s troubled banking system, reports Expansión. Separately, El País reports that the European Commission will speed up the disbursement of €939m from the EU’s Cohesion Fund for infrastructure projects which have already been completed in Spain, but are still awaiting payment.

FAZ also reports on analysis by Deutsche Bank, the eurozone’s permanent bailout fund, the ESM, would have to be doubled to a total of €1tr to effectively shield Spain, Belgium and Italy from resorting to capital markets and to prolong the Irish and Portuguese programmes for three years in the event of a Greek exit. The bank also argues that in order to reduce the risk of capital flight from Spain and Italy and to support their banks, the (ECB) will have to launch a renewed liquidity program and loosen its security requirements as well as agree for Target 2 balances to increase.
Open Europe research City AM Expansión BBC Expansión 2 El Mundo Il Sole 24 Ore El Mundo 2 Expansión 3 El País WSJ Real Time Economics FAZ Telegraph

ESM bailout fund treaty change stirs opposition in the Netherlands, Germany and Ireland
The Dutch Christian Union, one of five parties that backed recent budget cuts, will oppose the treaty change establishing the eurozone’s permanent bailout fund, the ESM. Elsevier reports that party leader, Arie Slob has complained that the €40bn the Netherlands will have to contribute equals the Dutch government’s total budget for education and security and considers it undemocratic that only Germany, France and Italy will have an ESM veto.

Separately in Germany, 10 MPs from the governing parties have taken a stance against the ESM, reports the WSJ.

Meanwhile in Ireland, campaigners from both sides of the referendum debate clashed in a televised RTÉ debate, with No campaigner Declan Ganley saying that Ireland could veto a change to Article 136, which would effectively prevent the ESM from coming into being.
Elsevier NRC WSJ.de Schaeffler: 10 demands Irish Times

Frank Field, a Labour MP and former welfare minister, has warned that it would be increasingly difficult for unemployed British people to find work while the “market is flooded with over-qualified applicants from Europe”. He said temporary restrictions on EU free movement would help give “fair wind” to government reforms aimed at encouraging unemployed people back into work.
Open Europe research Telegraph BBC

The European Commission has urged new Serbian President Tomislav Nikolic to stay on the path to EU membership, following concerns about the leader’s nationalist background. Mr Nikolic has said he is committed to pursuing EU membership for Serbia.
WSJ IHT Irish Times

EU member states agreed yesterday on stricter regulation of credit ratings agencies, which would make it easier to sue agencies if they incorrectly ranked the creditworthiness of a country’s debt.
EurActiv City AM

The FT reports that diplomats are set to agree a deal to allocate €230m of EU funds to create ‘project bonds’ for infrastructure projects alongside money from the private sector and the European Investment Bank.
FT  EUobserver

The Mail reports that Conservative MP David Davis has critisised David Cameron for telling the Greeks how to vote.

FAZ reports that an EU Commission strategy paper will argue that, because technologies have developed quicker than expected, subsidies for renewable energy should be phased out.

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