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Spanish government denies asking ECB to take part in Bankia recapitalisation plan; El País: European Commission will demand relaxation of Spain’s deficit targets

30 May 2012

Spanish government denies asking ECB to take part in Bankia recapitalisation plan;
El País: European Commission will demand relaxation of Spain’s deficit targets
According to EU officials quoted by the FT, the ECB has rejected the Spanish government’s plan to recapitalise Bankia with sovereign bonds, which would then have been used as collateral for ECB cash. The ECB argues that the plan would breach the ban on ECB direct funding of national governments. However, a spokesman of the Spanish Economy Ministry quoted by Expansión notes, “Spain hasn’t made any proposal on the financing of the Bankia recapitalisation plan to the ECB. Therefore, the ECB can’t have said anything on the issue.” The ECB has also discussed the reports.

Meanwhile, El País reports that the European Commission will demand that EU finance ministers give Spain one more year to bring its public deficit down to 3% of GDP. Separately, Miguel Angel Fernández Ordóñez, the Governor of the Spanish central bank, announced yesterday that he will step down at the end of next week, one month earlier than planned.

Writing in City AM, Open Europe’s Vincenzo Scarpetta looks at the potential impact of the eurozone crisis on Spain’s public finances, and argues, “Spain is not going to become France – a highly centralised country where the national capital rules supreme over public spending. Spanish regions will remain a liability, and pushing them too far may trigger a huge political backlash, which would hardly benefit the Eurozone either. But second, there’s a bigger lesson. If Spain faces difficulties in achieving more fiscal centralisation in its own country, due to political constraints, how much more difficult will it be for the single currency to achieve similar centralisation at the level of all 17 Eurozone members – considering its own number of different parliamentary and economic models, government structures, and cultural preferences?”

In an auction this morning, Italy had to pay an interest rate above 6% on its ten-year bonds for the first time since last January. The interest rate on five-year bonds was also higher than in the previous auction, reports Il Sole 24 Ore. The interest rate on Spain’s ten-year bonds reached above 6.6% this morning, reports Expansión.

In Süddeutsche, columnist Markus Zydra asks what the point would be of further ECB intervention in Spain, noting “If the ECB once again buys Spanish bonds, the interest rates will decrease. But then what? As soon as the ECB ends its purchases interest rates will go up again.”
Il Sole 24 Ore Expansión El País El País 2 El País 3 City AM: Scarpetta Irish Times Le Figaro Le Monde Les Echos Les Echos 2 Les Echos 3  WSJ FT Guardian Telegraph Mail Times WSJ ORF Handelsblatt: Bastian

Ireland set for Yes vote to Fiscal Treaty as critics hit at “illusion of democracy”
The Independent reports on tomorrow’s fiscal treaty referendum in Ireland saying that although the treaty change is likely to be approved there will also be a substantial No vote fuelled by a general wave of anger and disenchantment. In the Irish Examiner, Colette Browne argues that “What we have tomorrow is the illusion of democracy” noting that Ireland is losing control over its “economic destiny”. A leader in the Irish Times urges voters to vote Yes “Not just out of an incurable and uncritical Europhilia, but also a pragmatic assessment of Ireland’s vital interests at the time.” Ireland’s Newstalk radio reports that latest polls indicate 47% in favour of a ‘Yes’ vote compared with 35% in favour of a ‘No’ vote, while 18% still remain undecided.
Independent WSJ: Editorial Irish Times: leader Irish Examiner: Browne Newstalk Radio

Latest Greek poll suggests New Democracy and PASOK could form pro-bailout coalition
Reuters reports that the latest Greek poll, by GPO for Mega TV, suggests that New Democracy and PASOK, both supportive of Greece’s bailout programme, have regained a slim lead and may have a chance of forming a coalition government following the June 17 elections. Support for the New Democracy party stands at 23.4%, SYRIZA stands at 22.1%, while PASOK is third on 13.5%. Of those surveyed, 80.9% said the country should do whatever it takes to stay in the euro. However, 77.8% also said that the next government should renegotiate the bailout terms.

Kathimerini reports that European Commission sources have confirmed that the next tranche of funding due to be released in July is to be frozen until the formation of a government that is prepared to make good on the commitments set out in the deal. Separately, the National Bank of Greece, the country’s largest bank, yesterday suggested that Greek per capita income would shrink from 19,400 a year today to just €8,700 following an exit from the eurozone.

Meanwhile, the Telegraph and the Mail note that De La Rue, the money printer, has failed to dampen speculation that it has been secretly awarded a contract to start printing drachmas the moment Greece is forced out of the euro.
Reuters Les Echos Les Echos 2 Le Monde IHT Telegraph Mail Kathimerini Kathimerini 2 Athensnews

LSE Professor Chris Pissarides: Greek exit from the euro would benefit the wealthy and hurt the poor
At an Open Europe event this morning, Nobel Prize economics winner LSE Professor Chris Pissarides warned against Greece exiting the euro, saying that would “benefit the wealthy and hurt the poor” as the latter could not afford to move their money out of the country. He also said that a Greek exit “could be used as an excuse not to implement structural reforms.” Thanasis Gavos, the London Correspondent of SkAI TV and Radio, said that, in the short term, eurozone countries may breathe “a sigh of relief” following Greece’s euro exit, but warned of the consequences in the longer term, noting that if Greece were to leave, “the irreversibility of euro membership would be declared void.” He also said that he expected the result of the 17 June elections to be “inconclusive”, potentially leaving Greece with either a weak government or no government at all, and forcing the country to hold a referendum on its euro membership.
Open Europe events

David Rennie: Britain’s EU membership cannot be taken for granted
In a report for the CER think tank, entitled “The Continent or the open sea: does Britain have a European future?”, the Economist’s David Rennie argues that British membership of the EU can no longer be taken for granted: “if eurozone integration proceeds without Britain, and so deeply that the single market starts to fragment into inner and outer cores, the strongest argument for British membership will be undermined.” He writes that Open Europe enjoys a “central role” the shaping the debate about the UK’s role in Europe and “cannot be ignored.”
CER

Les Echos
reports that German inflation has dropped on a local indicator to 1.9%, raising hopes the ECB can reduce interest rates.
FT: Wolf Times: King Telegraph German Council of Economic Experts Les Echos FT Telegraph Handelsblatt

Hollande: Syria intervention “cannot be ruled out”;
Measures to limit pay for company directors implemented regardless of existing contracts
During his first televised appearance since his election on May 6, French President Francois Hollande claimed that a military intervention in Syria “cannot be excluded, as long as it carried out with respect to international law, and deliberated by the [UN’s] Security Council”.

The Socialist leader also defended his election proposal to “boost” the minimum wage level, but stressed that this would occur without “destabilising businesses”. Yesterday, Prime Minister Jean-Marc Ayrault announced that heads of publicly owned companies would be subject to legislation limiting their salaries to 20 times that of the company’s lowest paid employee, regardless of their existing work contract.
Le Figaro Le Monde WSJ Le Figaro 2 L’Express

The House of Commons Transport Select Committee have criticised proposals by the European Aviation Safety Agency (EASA) to increase pilots' flying hours.
Guardian Open Europe Research: EU Social and Employment Law

The EU Commission will on June 6 propose new rules for dealing with failing banks. This marks a move towards greater integration of member states’ banking systems, and could also see all countries contributing to future bail-outs. The new rules will also give regulators "aggressive intervention powers", enabling them to take control of stricken banks, break them up and impose losses on their bondholders.
Reuters Commission Proposals Eleconomista

The WSJ reports that Portugal’s Central Bank said yesterday that the country’s residents are increasing deposits, but added that instability in the eurozone could prompt more non-residents, mainly institutional investors, to pull money out of the country, starving banks of liquidity.
WSJ Les Echos

The European Commission will publish its recommendations for member states’ economies today. Twelve states, which include the UK, Spain, Sweden, France and Belgium, have been put at risk due to “macro-economic imbalances”.  
EUobserver Le Figaro Volkskrant Guardian ARD

The Hungarian parliament has adopted changes to the controversial reform of Hungary’s central bank. However, Les Echos notes that the amendments do not address all the objections raised by the European Commission and the IMF.  
Les Echos

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