What’s next for the European Union and the eurozone? As the smoke dissipates from this weeks summit, more questions remain.
We’ll begin with some speculation, then follow up with a surprising development: A call from British Prime Minister David for a public referendum on German Chancellor Angela Merkel’s demand for consolidation of control over national budgets in Brussels.
We have new political developments in Berlin, the latest from Cyprus, the latest from Greece, and an election in Iceland — and more.
More smoke than fire from Brussels?
It’s becoming clear that what really happened wasn’t a rela agreement but rather an agreement to reach an agreement.
From Valentina Pop of EUobserver:
The EU summit has failed to produce a big step towards a political and economic union, say analysts, with measures adopted to help out Spain and Italy seen as “palliative” and vague plans to establish a central banking supervision
The decisions were enough for markets to rejoice on Friday, with the euro gaining ground and Italian and Spanish borrowing costs going down. But as with all previous EU summits, markets are set to fret once they have a closer look at the deal.
In their statements after the summit, leaders spoke of a €120 billion growth pact – although it mostly consists of existing unspent money – a “historic” deal on the EU patent and a “breakthrough” for Italy and Spain.
But on the long-term confidence-boosting plan for the eurozone, there was little headway on the actual proposals – mutualising debt, establishing a eurozone treasury, ceding budgetary powers to Brussels.
Bloomberg reporters Rebecca Christie and Jim Brunsden point to other unanswered questions:
The Frankfurt-based ECB [European Central Bank] might end up serving as an umbrella over national supervisors, rather than building a separate organization, EU officials said in the run-up to this week’s summit. EU members would need to decide how many banks to include and how the ECB would work with the European Banking Authority, which was created to help supervisors coordinate across the 27-nation bloc.
EU Financial Services Commissioner Michel Barnier called on all the bloc’s nations to broker deals on draft financial regulations in the coming weeks as a “cornerstone” of the banking union that EU leaders seek to secure the long-term future of the euro, in an interview in Brussels yesterday. He said decisions on whether the ECB or the London-based EBA gain enhanced powers depends on how all 27 nations agree to further pool their bank-oversight powers.
The EBA, which began work last year, was set up as part of the EU’s response to the crisis that followed the 2008 collapse of Lehman Brothers Holdings Inc. It coordinates the work of national regulators and has some power to resolve disputes between them.
Where to place enhanced supervisory power becomes a trickier decision if individual countries opt out of a banking union, Barnier said, in part because the ECB decides monetary policy for the 17 countries of the euro area, and in part because of other aspects of the EBA’s mandate. Should all 27 EU countries sign up for the banking union plans, then the enhanced power for the EU to supervise lenders should “probably” be handed to the EBA, Barnier said.
Hollande calls for tiering Europe
The recently elected French President says only the interests of the common currtency zone should be considered when it comes to that Merkel push for reduced national sovereignty.
Th reason, François Hollande says, is that waiting for the other countries to sign on would take too long.
From EUobserver’s Honor Mahony:
The eurozone has priority when it comes to further integration, says French President Francois Hollande, something that will eventually have to be reflected in the European Parliament.
“My position is that the solidarity integration has to happen first among the 17 [euro states], he said early Friday morning during a summit in Brussels.
Countries that have a “vocation” to join the single currency can also be involved.
He noted: “If we wait for the 27 to come to an agreement we risk waiting for a long time.”
His remarks chime with recent ‘two-speed-Europe’ comments by German Chancellor Angela Merkel that she would prefer to proceed with all member states, but those who want to press ahead should not be held up by others.
Cameron threatens a British referendum
One of the stranger stories coming out of Europe concerns the contrary Brits, who have embraced the European Union but not the euro, preferring the British pound to the common currency.
Prtime Minister David Cameron has also embraced austerity, exemplified in ongoing cuts to social services, healthcare, education, and local governments.
But the Brits are leery of surrendering sovereignty to Brussels, especially when it comes to threats to reign in the rapacious banksters of The City, those same folks who’ve been manipulating bank financial instrument exchange rates.
Consider it a case of doing a partly right thing for a wholly wrong reason.
From the London Telegraph’s Patrick Hennessy:
David Cameron has opened the door to a historic referendum on Britain’s future relationship with the European Union — declaring that voters need a “real choice”.
The Prime Minister uses an article in The Sunday Telegraph to say that Britain is in danger of getting swamped by EU legislation and bureaucracy which he would like to see scrapped. He makes clear for the first time that changes will need the “full-hearted support of the British people” down the line and adds: “For me the two words ‘Europe’ and ‘referendum’ can go together.”
Mr Cameron’s landmark move comes as Liam Fox, the former defence secretary, prepares to up the stakes by calling for an immediate renegotiation of Britain’s relationship with the EU. If other member states fail to back this solution, Dr Fox believes, there should be a referendum with the government recommending pulling the UK out of the EU.
This newspaper has learned that Dr Fox, the standard bearer of the Tory right, will tell activists tomorrow: “For my own part, life outside the EU holds no terror. We have not moved the goalposts. But they have been moved nevertheless. We must now respond.”
The former cabinet minister’s clarion call is likely to be greeted with delight by Eurosceptics on the Right of the party — a constituency which Mr Cameron has had difficulty in the past convincing that he is on the correct track.
Cameron’s electoral call is here.
German legislature gives Merkel her toys
Both the financial controls and the cash for the bailout fund.
From Agence France-Presse:
The German parliament overwhelmingly approved two euro-crisis fighting tools Friday rallying to a call by Chancellor Angela Merkel to show the world Germany’s commitment to the single currency.
Hard on the heels of a “breakthrough” EU summit, Merkel dashed back from Brussels to address lawmakers before the Bundestag lower house and Bundesrat upper chamber voted by a two-thirds majority to back new budget rules and a permanent bailout fund.
“What we decide today is an important step to make clear to the world that we stand by the euro, we want it as our stable currency,” Merkel said earlier in her second speech to parliament on the euro crisis in three days.
As they have done since the start of the eurozone debt crisis, members of the two main opposition parties backed Merkel who needed their support since the fiscal pact entails changes to the German constitution and thus required a two-thirds majority of lawmakers in both chambers.
Schäuble denies he called for Grexit plans
We suspect this is another example of that classic political ploy, floating a deniable proposal that’s planned for implementation down the line.
From Matthias Inverardi and Erik Kirschbaum of Reuters:
A deputy German Finance Minister dismissed a magazine report saying Finance Minister Wolfgang Schaeuble had told conservative members of parliament on Friday to prepare for a looming Greek bankruptcy and euro zone exit.
“This report is nonsense,” Deputy Finance Minister Steffen Kampeter told Reuters on Saturday on the sidelines of a regional meeting of Christian Democrats in the western town of Krefeld.
Kampeter said that Schaeuble had spoken to the conservative MPs on Friday about the need for the austerity and reform measures in Greece to be implemented.
German newsweekly Focus reported that Schaeuble had told MPs in Chancellor Angela Merkel’s Christian Democrats (CDU) and the sister party, Christian Social Union (CSU), to get ready for Greece leaving the euro zone and a Greek state bankruptcy.
Cyrpus plans for kinder, gentler austerity
Put this one in the we’ll-believe-it-when-we-see-it category.
The Cypriot president paused on his way to taking the helm of the European Union to ensure his constituents that the consequences of the pending bank bailout won’t be all that painful.
The basnk problems, he says, stem from investments made by his country’s banks in those pesky Greek bonds.
From George Georgakopoulos of Ekathemerini:
One day before Nicosia takes over the rotating presidency of the European Union, Cyprus President Dimitris Christofias told Greek state television that his government will try to reach a compromise among all bloc members for the growth package agreed this week in Brussels, as well as enforcing measures to streamline the island’s economy without making its people suffer.
Cyprus will preside over the EU from Sunday until the end of the year and Christofias told NET on Saturday that “the Cypriot presidency will have to manage the package in favor of growth so as to reach a conciliatory conclusion for all of the Union’s members by the end of 2012. The EU consists of governments with conflicting interests.”
Asked about the June 28-29 European Council summit, he expressed his satisfaction: “The direct recapitalization [of banks] constitutes a step forward. There have been some positive decisions for the countries of the South.”
Cyprus will not withdraw its application to the European Stability Mechanism even if it secures bilateral loans from Russia or China, the Cypriot President stressed: “We have referred to these two countries and we are waiting for their answer. But even if we agree we shall not withdraw our application to the Mechanism.”
“We will not require huge amounts of money. We will have to recapitalize at least two banks of ours with over 2 billion euros. By July 9 the representatives of the European Commission will come to Cyprus for consultations,” said Christofias, whose term in office ends in February 2013.
But it wasn’t just Greek bonds
Cypriot banks have Greek branches, which are really feeling the pain.
The only solution? A corporate separation.
Yiannis Papadoyiannis of Ekathemerini:
Cyprus authorities are seeking to isolate the Greek risk from their credit system as they are examining the possibility of separating the activity of Cypriot lenders in Greece through transforming the branches into subsidiaries.
Central Bank of Cyprus Governor Panikos Demetriades told Cypriot website Stockwatch this week that the central bank, in order to handle the risk created by the major exposure of Cypriot lenders in Greece, is considering «to turn the annexes of Cypriot banks in Greece to subsidiaries.”
“We intend to have as soon as possible such structures in the system that would not allow rating agencies to downgrade us due to the exposure of Cypriot banks to Greece anymore,» said Demetriades.
Meanwhile, Greek banks out to buy French branch
Cypriot banks aren’t the only foreign banks out to sever ties with their Greek subsidiaries.
France’s dominant retail bank is selling off it’s Greek operation, and Greek banks want to buy.
National Bank of Greece, Alpha Bank and Eurobank EFG have shown interest in buying Credit Agricole’s Greek unit, Emporiki Bank, the Financial Times reported on Saturday.
France’s Credit Agricole asked local Greek banks to submit bids for a majority stake in its Emporiki Bank SA unit earlier in June amid concerns of a bank run in Greece, the FT said, citing an unidentified source.
The three banks indicated they were prepared to make bids for Emporiki if they get approval from the Hellenic Financial Stability Facility (HFSF), according to the report. The French bank declined to comment, the report said.
Bad news/good news for Greek tourism
The bad news: Business has been bad. The good: There’s been a post-election pickup.
From Greek Reporter’s Marianna Tsatsou:
Hotel owners and other professionals of the broader tourism sector are trying hard to change the negative climate. In an interview with Ethnos newspaper, they describe this year’s tourism as “catastrophic,” adding that many tourists have cancelled their reservations during the past months.
Fortunately, after the election and Greece’s remaining in the euro zone, there was a slight increase in bookings, but not so big to “cover” their financial losses.
And a reelection in Iceland
Challenged by a pregnant television reporter, Iceland’s president won reelection.
The guy was hard to beat, given that he’d actually broken with precedent and refused to sign on to a bankster bailout.
From the BBC;
Iceland’s serving President Olafur Ragnar Grimsson looks set for a record fifth term in office, partial results from the country’s election suggest.
With 20% of the votes counted, Mr Grimsson secured more than 50% support.
Main challenger Thora Arnorsdottir, a journalist who gave birth during the campaign, acknowledged defeat.
The presidency is a largely ceremonial post, but Mr Grimsson came under fire from his opponents who accused him of politicising the role.
Mr Grimsson, 69, who has been in office for 16 years, has courted controversy by using this power three times to veto bills he disagreed with.
One such instance – his refusal to sign off plans to pay 4bn euros ($5.1bn, £3.2bn) to Britain and the Netherlands for debts incurred during the 2008-9 financial crisis – proved popular with Icelanders.