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Eurozone set to ease Greek bailout terms if ‘pro-bailout’ government is elected; Weidmann warns that a euro exit would be worse for Greece than the rest of Europe

15 Jun 2012

Eurozone set to ease Greek bailout terms if ‘pro-bailout’ government is elected;
Weidmann warns that a euro exit would be worse for Greece than the rest of Europe
The FT reports that the EU is preparing to further ease the terms of the Greek bailout following Sunday’s election, although they may not offer the terms if the government is headed by SYRIZA. The plans include lower interest rates, extended repayment periods and EIB funds for Greece. The Greek stock market rallied yesterday amid expectations of a New Democracy victory. In a speech yesterday SYRIZA leader Alexis Tsipras continued his overt attacks on PASOK and New Democracy and hinted that he would not look to form a coalition with PASOK. Le Monde reports that Tsipras also said his first act would be to “exploit the ten days until the European summit on June 28 to lead a series of real negotiations” over Greece’s place in the euro.

In an interview conducted jointly with Corriere della Sera, El Pais, Publico and Kathimerini, Bundesbank President Jens Weidmann warned that any changes to the current programme in Greece would be “dangerous” and stressed that if it did exit the euro, although everyone would be affected, Greece would be “worse off than everybody else”. City AM reports that, according to a G20 aide, “The central banks are preparing for coordinated action to provide liquidity,” in case of a negative outcome from Greek elections. Eurozone finance ministers also stand ready to hold an emergency conference call on Sunday evening depending on the result.

Slovak Prime Minister Robert Fico told his country’s parliament yesterday that “If the Greeks do not meet the commitments they have made, do not meet their financial commitments, do not repay loans, Slovakia will demand that Greece leaves the eurozone.” Speaking in Bejing, Belgian Foreign Ministers Didier Reynders has warned that "the Greeks should no longer expect support if they decide to leave the euro after the elections".
FT Les Echos CityAM Kathimerini Reuters BBC Reuters 2 Kathimerini 2 Le Point Le Monde Trends WSJ EurActiv Telegraph Guardian IHT FT 2 Les Echos 2 CityAM 2 Welt Le Figaro WSJ 2 Süddeutsche  Kathimerini 3

Hollande and Monti present united front as Germany plays down moves towards fiscal union
In a joint press conference following a meeting in Rome yesterday, French President Francois Hollande and Italian Prime Minister Mario Monti supported the creation of growth policies and debt mutualisation in order to tackle the eurozone crisis, despite German Chancellor Angela Merkel yesterday playing down the prospect of such measures. Bundesbank President Jens Weidmann said yesterday that Europe faced decisions “which can no longer be delayed”, but warned that a fiscal union could not be created without a “clear expression of willingness” from all populations involved. Weidmann also laid out his view of a possible fiscal union, stating that any countries which breached the budget rules would need to cede power to a central authority.

The Telegraph cites Arnaud Montebourg, the French Minister for Industry, as saying that “We need an ECB that does its job”, and lashing out at Chancellor Merkel and the "German right" for driving much of Europe into slump, claiming that "Certain European leaders, led by Mrs Merkel, are fixated by blind ideology."

The FT reports that Italy will look to sell off some state assets to boost its reform plans with two funds being set up and managed by the state financing agency to purchase assets from the central government. Moody’s last night downgraded five Dutch banks and warned of a Greek exit from the eurozone and further fiscal consolidation in the Netherlands. Inflation in the eurozone fell to 2.4% in May, its lowest level for a year.
FT WSJ FT 2 FT 3 FT 4 Le Figaro CityAM BBC Le Figaro Les Echos La Tribune WSJ 2 Irish Times Irish Independent Le Figaro 2 Les Echos 2 Le Monde Le Monde 2 Telegraph Telegraph 2 Welt

Reuters: Independent auditors to put recapitalisation needs of Spanish banks at €60-70bn;
Rajoy convenes emergency cabinet meeting as borrowing costs reach unsustainable levels
According to sources quoted by Reuters, the two independent auditors hired by the Spanish government to evaluate the real estate portfolio held by Spanish banks will put the recapitalisation needs of the banking sector at between €60bn and €70bn. Separately, Expansión reports that new data from the Bank of Spain show that Spanish public debt doubled since the beginning of the financial crisis, as it increased from 35.5% of GDP in the first quarter of 2008 to 72.1% in the first quarter of this year.

Meanwhile, Spanish Prime Minister Mariano Rajoy convened an emergency meeting with some of his ministers yesterday, as the interest rate on Spain’s ten-year bonds reached 7% - a level widely deemed as unsustainable.
El País ABC Reuters El País 2 Expansión Cinco Días CityAM WSJ IHT FT 3 Irish Times CityAM 2 Les Echos Le Figaro La Vanguardia

Handelsblatt: ECB set to be given supervisory powers over eurozone banks
Handelsblatt reports that support is growing for the ECB to take over supervisory authority over eurozone banks, with German Chancellor Angela Merkel joining the French government and central bank in backing the move, although the Bundesbank reportedly has reservations. The decision could be made as soon as June 28 and 29 at the next summit of EU leaders. The decision could spell the end for the current EU banking regulator, the London based European Banking Authority, with an EU diplomat quoted as saying that “the EBA would no longer have a reason to exist”. The paper also cites UK Treasury Minister Mark Hoban as saying that “the ECB would be the appropriate supervisor of eurozone banks", whereas expanding the role of the EBA would threaten conflicts between eurozone and non-eurozone members.
Handelsblatt Les Echos

Mats Persson: Will the UK use its veto over banking union to gain single market safeguards?
Osborne: we will not oppose greater eurozone political integration
Open Europe’s Director Mats Persson writes on his Telegraph blog that “the UK cannot take part in the banking union itself: politically, it would involve a massive transfer of powers to the EU, which no British government will go anywhere near [however] inherent in the creation of a full-scale banking union is the fragmentation of the EU single market… the political dilemma for the UK government is clear: is it prepared to use another veto to block a banking union absent UK-specific safeguards – risking being perceived as hampering efforts to save the euro? Or will it simply nod through potentially game-changing proposals, risking the wrath of its backbenchers?”

In an opinion piece for Le Figaro, UK Chancellor George Osborne writes that resolving the eurozone crisis will require “greater transfers between richer and poorer member states; pooling resources, potentially through the creation of eurobonds; a common safety net for banks, ensured by a banking union; greater oversight and restrictions on budgetary and financial policies”. He adds that “As an EU member outside of the euro zone, the UK considers that this process is of immense importance… We will not oppose greater political integration at a eurozone level”.  He argues that “it is reasonable for EU member states outside of the eurozone and the banking union seek to obtain safeguard clauses” as “the UK, which has an important financial sector, would be unable to take certain measures to protect its taxpayers and financial stability if it had to comply with regulation introduced by eurozone countries”. Osborne stresses “Far from seeking exemptions…we hope to further integrate the single market”.
Telegraph blogs: Persson Economist: Charlemagne FT Editorial FT: Stephens FT: Mallaby WSJ Review & Outlook WSJ: Pissarides et al. WSJ: Rallo IHT: Redwood Telegraph: Warner Telegraph: Blair Open Europe research

Date for German vote on fiscal treaty and ESM finally set
The Bundestag is set to vote on whether to ratify both the fiscal treaty and the ESM treaty on the afternoon of June 29 after Chancellor Merkel returns from the EU leaders’ summit in Brussels. The Bundesrat, the upper house of the German parliament, will also hold a vote in a specially convened session later in the evening, allowing Germany to ratify the ESM two days before the eurozone’s new permanent bailout fund is supposed to officially come into force. However, the opposition and government are still holding talks over the concessions necessary for the opposition to lend its support to the measures.
Welt Reuters ARD Le Figaro Reuters 2 Le Figaro 2

The Guardian reports that the UK has succeeded in watering down the EU’s Energy Efficiency Directive by insisting on member states being allowed to set their own targets for energy efficiency, as opposed to the original mandatory target of 20%.

An Opinionway-Fiducial poll published in Les Echos this morning predicts an absolute majority for the French Socialist party in the final round of the legislative elections this Sunday. The Socialist party and its allies would receive up to 57% of seats, followed by the UMP parliamentary alliance with 39.8% of seats.
Le Figaro Les Echos

The European Parliament announced its decision to suspend negotiations with EU member states on five legislative home affairs packages yesterday, following the Council’s decision to exclude Parliament from participating in reforms to the free movement Schengen area. European Parliament President Martin Schulz said that the decision constituted a “slap in the face of parliamentary democracy”.
EU Observer Le Monde

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