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Germany considering limited rescue plan for Spain; ABC: IMF estimates Spanish banks will need at least €40bn

07 Jun 2012

German government sources have told Reuters that Germany is studying plans to grant Spain a bailout with softer conditions attached than those imposed on Greece, Ireland and Portugal. One of the options would transfer money from the eurozone rescue funds directly into Spain’s bank restructuring fund, the FROB. A senior German official explained that, under this plan, “conditionality would be focused mainly on the banks, because Spain has already tackled the other reforms.”

Meanwhile, Spanish Economy Minister Luis de Guindos suggested yesterday that the government will make a decision on bank recapitalisation only after the publication of an IMF report, due next Monday, and the results of the two independent audits of the real estate assets held by the Spanish banking sector, due by the end of the month. Spanish daily ABC quotes sources who have seen the IMF report, revealing that the IMF estimates that Spanish banks will need at least €40bn in new capital. The figure could increase to up to €80bn in a worst-case scenario, which the sources describe as “unreal” at the moment.

Expansión reports that Austrian central bank governor Ewald Nowotny has said that it would be “a reasonable option” for Spain to seek a bailout to recapitalise its banks. A separate article in the paper reports that Valeriano Gómez, the economic spokesman of the opposition Socialist party in the Spanish parliament, said yesterday that the government should seek a bailout “as soon as possible” if it thinks that it will not be able to recapitalise the banking sector with its own resources.

Cinco Días reports that Spain managed to sell over €2bn of debt in a bond auction this morning, but despite solid demand the interest rate on ten-year bonds was above 6%. Separately, a new report by the Spanish Savings Banks Foundation (FUNCAS) has warned that, if the disposable income of Spanish households does not increase over the next few years, housing prices in Spain could fall by a further 35.4%.
Expansión Reuters AFP Cinco Días Guardian: Editorial FT CityAM WSJ Times Telegraph Independent IHT Sun Irish Times  Les Echos El País El Mundo Expansión 2 Kathimerini  FT: Editorial Irish Independent Guardian Times El País 2 El País 3 EUobserver El Mundo 2 Expansión Expansión 3 Les Echos Les Echos Independent: Leader FAZ: Steltzner

Osborne: If eurozone banking union requires treaty change the UK will ask for financial services “safeguards”
In an interview with the BBC’s Today Programme, Chancellor George Osborne said that solving the eurozone crisis would require “elements of a banking union” such as “common depositor protection” but that the UK would not be a party to it. He added that “The most ambitious end of that kind of activity requires treaty change” and in that case the UK would require “certain safeguards” on banking and financial services.

Writing in the Telegraph, Andrea Leadsom MP, co-chair of both the APPG on EU reform and the ‘Fresh Start’ group of Conservative MPs, argues that “ironically, out of the Eurozone misery will also come the perfect opportunity for the 'fresh start' we crave in the EU - the UK has never had a better chance to negotiate a new and improved deal for our country.”

In the Times, former UK Foreign Secretary Lord Own argues that the EU is likely to evolve into an inner core of nations that share the euro and a wider reformed “European Community” based on the single market. Lord Owen recommends a referendum to decide if the UK wishes to be a part of either arrangement. Separately, Conservative MP Douglas Carswell has announced that he will use his position as the winner of the Parliamentary Private Members Bill ballot to introduce a Bill to leave the EU.
BBC Today Telegraph: Reece Telegraph Les Echos Les Echos 2 Telegraph: Leader Telegraph: Kirkup Telegraph: Leadsom Times Times: Owen Times: Leader Douglas Carswell Open Europe: research

Raoul Ruparel: European banking union isn’t the solution to immediate euro crises
Writing in City AM Open Europe’s Raoul Ruparel argues that a banking union “sounds promising and it is a worthwhile idea. In particular, if Europe is ever going to get its act together, there has to be a way for bust banks to fail. Additionally, no-one can dispute that, if the Eurozone is to ever become workable in the long term, ensuring it has efficient and effective cross-border financial markets – most importantly interbank lending – will be vital. Unfortunately, there are three key reasons why a banking union – as with any other union – does not present an answer to the immediate crisis: it would require complete harmonisation of financial regulation, the creation of new institutions to enforce these rules and the fact that it can only protect against solvency risk not redenomination risk, or the fear of a euro exit.”

Raoul concludes, “A banking union can’t solve the situation in Greece and may not be needed for Spain, but movements towards a cross border resolution scheme should continue. This can be combined with a recapitalisation of Spanish banks with Eurozone funds – albeit with strong conditions, including winding down banks – as well as moves to encourage the pre-funding of national deposit guarantee schemes to help tackle the solvency risk in countries such as Spain.”
CityAM: Ruparel FT: Peel FT: Sfakianakis CityAM: Heath Telegraph: Oborne

ECB piles pressure onto eurozone leaders to find a solution to the eurozone crisis;
Cameron in Berlin for talks with Merkel
The ECB held interest rates yesterday and refrained from engaging in any further monetary policy easing despite the worsening of the eurozone crisis, although the decision was not unanimous. The FT notes that ECB President Mario Draghi hinted at a potential rate cut and further policy action next month. Draghi also said that "I don't think it would be right for monetary policy to fill other institutions' lack of action." Draghi also warned that a rewriting of the treaty and a redesigning of the mechanism would be needed for the ESM to recapitalise banks directly.

David Cameron will meet German Chancellor Angela Merkel in Berlin today and will call on her to take decisive action to tackle the eurozone crisis. Cameron’s plans will focus on: a bigger fund to provide a firewall against further serious problems; better capitalised banks; shared eurozone bonds and a more active monetary policy from the ECB.

The WSJ reports that Anna Tarantola, Deputy Director-general of the Italian Central Bank, has estimated that 27.4% of Italian GDP is off the books, meaning it goes untaxed.
FT CityAM CityAM 2 WSJ Irish Times Welt Le Figaro Le Monde Le Monde 2 Guardian Irish Times Irish Independent FT 2 Independent Mail Sun FT 3 WSJ 2 WSJ 3 Les Echos

Merkel: “In the future, we have to give up more powers to Europe”
Die Welt: German confidence in euro falling dramatically
Speaking on ARD TV’s Morgenmagazin Programme, German Chancellor Angela Merkel reiterated her calls for further eurozone integration, arguing that: "We need more Europe, not just a currency union but also a so-called fiscal union – in the area of budget policy. Above all else we need a political union. That means that step-by-step in the future we have to give up more powers to Europe and grant Europe more oversight responsibilities." Merkel added that she accepted that this might result in a so-called ‘two-speed Europe’ but argued that “We cannot stand still because one or another [member state] does not want to join in”.

However, a new Infratest Dimap poll for ARD and Die Welt has found that German confidence in the euro has fallen dramatically, with 55% of respondents claiming that it would have been better for the country to have retained the D-Mark, although 70% said they believed the euro would nonetheless survive in the immediate future.

FAZ reports that the parties within the German Coalition have struck an agreement on the introduction of a tax on stock exchange transactions, based loosely on the UK’s stamp duty, after the liberal FDP dropped their demand that it would have to be an EU-wide measure. The opposition SPD and Green parties have demanded a financial transactions tax in return for their support for ratifying the fiscal treaty in the Bundestag.

In Die Welt’s leader today, entitled “Let’s dare to have less Europe”, the paper’s foreign editor Clemens Wergin argues that deeper economic integration “would be the perfect recipe for Europe-wide organised irresponsibility” and that “we must return to a Europe in which the welfare of one nation does not depend on how others organise themselves…When it comes to European issues, there is a form of ‘group-think’ that is far too rarely questioned. According to this creed, only he or she who calls for more integration can be considered to be a good European. Meanwhile, it has long been the opposite.”
EUobserver Irish Times Le Monde  Welt Welt: Wergin

Commission unveils new proposals for failed banks
The European Commission has unveiled draft legislation aimed at shifting the cost of rescuing failed banks from taxpayers to investors. Under the reforms, national authorities would have the power to restructure failing banks and force unsecured creditors to be “bailed-in” and absorb losses. The proposals also include the creation of a network of funds to guarantee deposits and provide emergency loans.

A new TNS Polska poll has found that only 12% of respondents believe that Poland would benefit from joining the euro, compared to 58% who believe it would be detrimental.
Gazeta Wyborcza

Ilias Kasidiaris, an MP for Greece’s far-right Golden Dawn party, has been issued with an arrest warrant after he assaulted two female left-wing MPs during a televised debate on Greek TV this morning. The neo-Nazi activist threw water in Syriza deputy Rena Dourou’s face, and punched Liana Kanelli, a communist MP before fleeing the scene.
Les Echos

The European Commission will propose stricter carbon emission standards for new EU cars next month, according to a draft proposal seen by Reuters. The new binding restrictions would tighten the current emissions threshold from 130g of CO2 emissions per kilometre to 95g, and set long-term targets for new passenger cars in 2025 and 2030.

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