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Spanish crisis reaches critical stage as borrowing costs top 7.5%; Up to six Spanish regions set to request financial aid from Spanish state

23 Jul 2012

Spanish ten year borrowing costs reached a euro area record high of 7.54% this morning, with the rates on shorter term debt even rising as market jitters over Spain increase. Following the news on Friday that Valencia will seek financial aid from the central government, Ramón Luis Valcárcel, the governor of Murcia, said in an interview yesterday that his region could also seek a bailout soon, adding that the request could be for between €200m and 300m. On Saturday, El País suggested that up to five other Spanish regions are considering seeking financial assistance, including Catalonia and Andalusia – the country’s two most populous regions. However, in an interview with Spanish State TV Andreu Mas-Colell, Catalonia´s finance chief, dismissed such rumours. El Pais reported on Saturday that Spain’s 17 regions have €140bn in debt, €36bn of which needs to be refinanced this year. Spanish Economy Minister Luis de Guindos this morning ruled out a full sovereign bailout for Spain and will meet his German counterpart Wolfgang Schäuble in Berlin tomorrow to discuss the Spanish crisis, reports El Mundo.

Meanwhile, Spanish Foreign Minister José Manuel García Margallo launched a fresh call for action from the ECB on Saturday saying, "Somebody has to bet on the euro and now, given the architecture of Europe isn't changed—who can make this bet but the ECB." However, in an interview with Le Monde published the same day, ECB President Mario Draghi pre-emptively dismissed such calls stating that the "[ECB’s] mandate isn't to solve the financial problems of states."
El País El País 2 El País 3 El Mundo El Mundo 2 El Mundo 3 El Mundo 4 Expansión FT FT 2 CityAM WSJ Irish Times BBC Guardian FT 3 CityAM 2 WSJ 2 Telegraph: Evans-Pritchard CityAM: Evans Irish Times: Woodworth Handelsblatt            

IMF set to withhold future funding from Greece due to significant delays in meeting programme conditions;
German government rejects renegotiation of bailout package or further aid to Greece
Der Spiegel reported over the weekend that, according to unnamed EU officials, the IMF is considering withholding future tranches of Greek bailout aid since it is clear that Greece will not be able to make the target of a debt to GDP ratio of 120% by 2020. Bloomberg reports that delays in implementing reforms mean Greece could need between €10bn and €50bn in additional financial aid, something which the IMF and some eurozone states are unwilling to provide.

Meanwhile, Süddeutsche cites German government sources as saying that it would be “unthinkable” for Angela Merkel to ask the Bundestag to approve a third rescue package for Greece, while vice-Chancellor and FDP leader Philipp Rösler is quoted as saying that a Greek exit “had lost its terror”. Both German Foreign Minister Guido Westerwelle and CDU Parliamentary leader Volker Kauder had interviews over the weekend putting pressure on Greece.
Spiegel Süddeutsche Kathimerini Kathimerini 2 CityAM Bloomberg Irish Times WSJ Irish Times 2 WSJ 2 FAZ

UK set to be outvoted on 2013 EU budget, adding £350m to contribution
The Sunday Telegraph reported that the UK is set to be outvoted this week on the size of the 2013 EU budget, which is decided by majority voting. Following what Treasury Secretary Mark Hoban labelled an “unhappy compromise”, the 2013 EU budget is set to rise by 2.8%, adding another £350m to the UK’s annual contribution. The Sunday Telegraph and the Mail quoted Open Europe’s Mats Persson as saying that this shows “how incredibly important it is to get the EU’s long-term budget – over which the UK has a veto – right”, urging the government to seek to repatriate the structural funds in the on-going talks over the EU’s long-term budget, and be prepared to veto the budget to make this credible. Labour’s Shadow Foreign Secretary, Douglas Alexander MP said: “An increase in spending on the EU this year is unacceptable. For all their tough talk, the Government have ultimately failed to deliver a cut in the budget.”
Mail on Sunday Sunday Telegraph Sunday Telegraph: Leader Express Open Europe Research: Reforming the EU Budget

Bild: Eurozone crisis hits German pensions
Under the front page headline “Euro crisis shrinks pensions”, Bild reports that the occupational pensions of 17 million Germans are threatened by a combination of the low interest rates on the government bonds of the remaining creditworthy nations – which pension funds heavily invest in – and by the low rate of interest (0.75%) set by the ECB in an attempt to stimulate the economy, which it is feared will lead to inflation in the longer term, eroding the value of pension payments.

Former Italian Minister of Public Administration: Countries should be able to temporarily opt-in and out of the euro
Renato Brunetta, Italy’s former Minister of Public Administration and a senior member of Silvio Berlusconi’s party, wrote in Il Giornale yesterday, “Countries under pressure could be given the possibility to temporarily leave the euro, while, in substance, sticking to all the commitments on fiscal and budgetary discipline.”

In an interview with the FT, Antonio Martino, former defence and foreign minister under Silvio Berlusconi, has said, “Berlusconi has been cured of his anti-euro ideas. He is convinced that going back to the lira is not a quick fix.” Mr. Martino has been tasked by Berlusconi to set up a panel of foreign experts on economic policy.
FT FT: Giugliano EurActiv Telegraph Il Giornale: Brunetta

CSU urges Merkel to take tough line on SPD and Greens’ euro policies
In an interview with Die Welt, CSU General Secretary Alexander Dobrindt urges Angela Merkel to adopt a hard line on the SPD and Greens in next year’s federal elections, accusing them of a “betrayal of German interests… the SPD and Greens want German taxpayers’ money in exchange for eurobonds. They represent the interests of the Socialist International and not those of German citizens”.

Reuters reports that after 20 years in his post, IMF economist Paul Doyle has resigned in protest at the IMF's failure to head off the global financial and eurozone crises, and accused the Fund of suppressing information. “The substantive difficulties in these crises, as with others, were identified well in advance but suppressed here,” Mr. Doyle wrote in his resignation letter.
Reuters Telegraph

The WSJ reports that the proposal for a single eurozone banking supervisor, which would involve a key role being played by the ECB, is facing resistance from member states to give up national control.

The Sunday Times reports that hopes for an EU ban on bottom trawling, a highly destructive fishing practice, have been renewed after France’s European Commissioner Michel Barnier withdrew his veto.
Sunday Times

In amendments to the Market Abuse Directive to be announced on Wednesday, it is expected that the European Commission President, Jose Manuel Barroso, and Financial Services Commissioner, Michel Barnier, will ensure that anyone caught rate-rigging will be jailed, the Independent on Sunday reports.
Independent on Sunday

The FT’s ‘Big Picture’ reports that asset managers with insurance company clients have yet to work out how to comply with the EU’s Solvency II capital rules’ transparency requirements but sees “many positives”.
FT: Grene

The Guardian reports on concerns that the EU will offer Israel upgraded trade and diplomatic relations including formal acceptance of the authority of Israel over goods produced in West Bank settlements despite EU criticism of Israeli settlement activity.

Le Figaro reports that French companies are moving executives out of France and preparing for lower profits ahead of the planned introduction of a 75% tax rate. The paper notes that David Cameron does not need to “roll out a red carpet” as London already serves as a “refuge”.
Le Figaro

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