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Moody’s downgrades 28 Spanish banks; El Mundo: Spanish Economy Minister considering asking for €50bn bailout package

26 Jun 2012

Moody’s downgraded the credit rating of 28 Spanish banks yesterday, with a total of 21 banks now relegated to ‘junk’ status. Meanwhile, El Mundo reports that Spanish Economy Minister Luis de Guindos is considering asking for a rescue package of around €50bn to recapitalise Spanish banks – in between the estimates provided by the IMF and the two independent auditors hired by the Spanish government. Despite solid demand, Spain had to pay an interest rate of 3.24% on six-month debt and 2.36% on three-month debt in an auction this morning, RTVE reports.    

Open Europe’s new briefing estimating that contrary to the estimates from private auditing firms, the funding needs of Spanish banks could top €110bn received widespread coverage across Europe, and is cited by Zerohedge, the Telegraph, the Telegraph and Guardian live blogs, City AM, the Washington Times, Italian business daily Il Sole 24 Ore and news site Linkiesta, Swedish business dailies Dagens Industri and Affärsvärlden, Swiss daily Le Temps, Finnish daily Kauppalehti, Latvian daily Lietuvos Rytas and German daily Deutsche Wirtschafts Nachrichten.
Open Europe research Open Europe press release RTVE Dagens Industri Kauppalehti DWN Le Temps Lietuvos Rytas City AM Telegraph Affärsvärlden Linkiesta Telegraph: Live Blog Guardian: Live blog FT FT 2 WSJ Irish Times BBC Moody’s PR El País El Mundo El Mundo 2 Telegraph European Voice Irish Independent Il Sole 24 Ore Washington Times FT: Wolf WSJ: Lacalle

Proposals for banking union include common EU supervisor;
Merkel issues strong warning against joint debt liabilities in the eurozone
A draft version of a report to be discussed at this week’s EU summit was published by the European Council this morning, which suggests that the European Commission should be given the power to rewrite the budgets of member states who run excessive debts and/or deficits, which would then be voted on by other member states and could result in fines. The report also supports measures such as ‘eurobills’ or a debt redemption fund, and also includes proposals for the creation of a common supervisor with ultimate responsibility for the all financial sectors in the EU, though it remains unclear how the UK would fit into such proposals. The finance ministers of France, Germany, Italy and Spain will meet in Paris today to prepare for the summit.  

Handelsblatt reports that German Chancellor Angela Merkel has warned France, Italy and Spain not to push too hard for debt pooling, saying she is “concerned” that discussions at the summit may be "far too much about all kinds of common liability [including] eurobonds, eurobills and a European common deposit guarantee fund with common liability". She called the proposals "economically false and counterproductive" and asked Herman Van Rompuy, European Council President, to rework the report with greater focus on budget discipline. FT Deutschland reports that Merkel has also distanced herself from Finance Minister Schäuble’s comments about further EU integration requiring a referendum in Germany, with her spokesman saying “clearly we are not there yet.”  

Meanwhile, Bild reports that for the first time, Germany’s public debt liabilities crossed the €2 trillion threshold yesterday, even before Friday’s Bundestag vote on the establishment of the eurozone bailout fund, the ESM, which will add another €190bn onto that amount.
Herman Van Rompuy report (full version) FT Telegraph Le Figaro Handelsblatt CityAM FT 2 FT: Soros El País El Mundo Corriere della Sera Il Sole 24 Ore La Stampa blogs: Zatterin La Stampa Cinco Días CityAM: Heath Bild  

Eurozone official: Bailout for Cyprus could top €10bn;
Greek President to attend EU summit
Cyprus yesterday became the fifth eurozone country to seek a bailout. The Cypriot government made the request “to contain the risks to the Cypriot economy, notably those arising from the negative spill-over effects through its financial section, due to its large exposure in the Greek economy.” Although the details of the rescue package have yet to be finalised, sources have suggested that Cyprus could eventually receive a fully-fledged bailout. Kathimerini quotes a eurozone official saying, “The exact number has not been decided yet. It was to be €6bn for state financing and €2bn for the banks but that is optimistic – it is more likely to be seven and three – up to €10bn in total.” The paper notes that €10bn is more than half the size of the entire Cypriot economy.  

Meanwhile, Greek Finance Minister Vassilis Rapanos resigned due to poor health conditions yesterday. Kathimerini reports that Greek President Carolos Papoulias will attend this week’s meeting of EU leaders in Brussels instead of Prime Minister Antonis Samaras, who is still recovering from eye surgery.
Les Echos Fileftheros Kathimerini FT CityAM WSJ BBC Irish Times Irish Independent Kathimerini Kathimerini 2 Guardian 2 FT CityAM WSJ Telegraph Guardian Irish Times Mail BBC European Voice EurActiv Irish Independent EUobserver IHT Le Parisien Le Monde  

The FT reports that the Dutch government is moving away from its usual line of closely supporting Germany, speaking out against the strict austerity measures for countries such as the Netherlands and against the recent vocal support by the German government for fiscal union in the eurozone.
FT

Thomas Silberhorn: Fiscal and banking union would have to be put to referendum in Germany
Open Europe hosted a panel debate in London yesterday, entitled, “The Franco-German alliance: Where does it stand after the French elections?” Speaking on the panel were, CSU Bundestag MP Thomas Silberhorn, who has voted against the eurozone bailout funds, Senior Fellow in European Politics at the LSE, Maurice Fraser, and the UK Correspondent for Libération, Sonia Delesalle-Stolper. The event was chaired by Open Europe’s Director Mats Persson.  

Thomas Silberhorn noted that the basis of the Franco-German relations has always been “the divergence, not the convergence of political views”. Thomas also warned that the in view of the fiscal and a banking union currently being discussed by eurozone leaders, the German Constitution would have to be amended, which would require the approval of German voters via a referendum, however he added that “the loss of sovereignty is much more an issue for the French people than it is for the German people.”    

Maurice Fraser argued that France and Germany remain the only two countries which can “persuade the markets that someone is in charge” in the eurozone. However, he said that Berlin and Paris “should not feed expectations they cannot meet”, notably on what expressions such as “more Europe” or “political union” would mean in practice. Sonia Delesalle-Stolper noted that “it will take some time” before the political position of the new French government is clarified, although she added, “We won’t see a Franco-German divorce anytime soon”. She argued that Hollande’s political rhetoric is perceived in differently abroad compared to at home in France where he is widely seen as a “pragmatist”.
Open Europe Events

Peter Sands, Chief Executive of Standard Chartered, warned Prime Minister David Cameron that the biggest threat to the City is the possibility of Britain leaving the EU.
FT Telegraph Mail Times Open Europe Research: Financial Services Open Europe Research: EU Trade  

French Prime minister Jean-Marc Ayrault yesterday told his cabinet colleagues that the budgetary situation of France and the country’s obligation to meet the 3% deficit target next year required a spending freeze from 2013 to 2016, reports Les Echos.
Les Echos  

Süddeutsche reports that at the ESM ratification vote on Friday, Chancellor Merkel will aim to achieve a two-thirds majority in the Bundestag despite having previously considered a simple majority to be sufficient. Merkel has reportedly changed her mind in view of the pending challenges to the constitutionality of the ESM at the German Constitutional Court.
No Link  

Danish Prime Minister Helle Thorning-Schmidt has U-turned on her promise of a referendum on Denmark’s EU opt-outs. She told Politiken that there is so much “anxiety and uncertainty” about the European project that it may take several years before the Danes come to an EU referendum again.
EUobserver Politiken: Thorning-Schmidt  

The latest INSA opinion poll for Bild shows Angela Merkel’s CDU in the lead on 34% followed by the SPD on 31% and their likely coalition partners, the Greens on 14%. They are followed by the Pirate Party on 7%, the far-left Die Linke on 6% and the FDP on 5%.
No Link  

EU Foreign Ministers have condemned Syria for shooting down a Turkish military jet, imposed a 16th round of sanctions and called for the UN to also impose sanctions reports the Irish Times.
Irish Times  

Euobserver reports that EU member states yesterday agreed to set up a European endowment for democracy to encourage "deep and sustainable" change in societies struggling under repressive regimes. This fund should become operational by next year and will primarily target EU neighbouring countries such as Belarus.
Euobserver

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