The tussels in Brussels should be in the news, but they’re aren’t many, as German Chancellor Angela Merkel’s More Europe agenda is being fast-tracked in the two-day summit of European Union leaders that ends today.
The banking czar, empowered to take over banking supervisory power from members states, is moving forward, with that stability mechanism to bail out member states ready to roll next year or early in 2014. But the legality of the banking regime is an open question. And then there’s some details being fought out by Merkel and French President François Hollande. Oh, and eurocrats may be facing a pension cut.
The Spailout’s still in limbo, with pressure on Spain mounting — though the Gdermans insist they’re not applying any. Bank of Spain loan defaults are rising, and Sheldon Adelson’s government-funded EuroVegas casino complex may break ground soon. Mexico, a former colony, is promising to help the country, and a general strimke is in the works.
Italian women and elders are falling deeper into poverty and the continent’s oldest bank nears default, while both Italian and Portuguese bonds are selling for lower interest as the promise of bailouts nears.
Germany cuts its growth rate, and a new report reveals the depth of poverty in the continent’s industrial giant.
Banking Czar approved by Europols
European leaders gathered in Brussels gave their collective approval to a key plank in German Chancellor Angela Merkel’s More Europe agenda, the creation of a banking czar with powers to supercede the ability of nations to regulate their own banks.
But much remains to be done, setting the stage for a tangle between the Iron Chancellor and the French president.
From Alexandra Mayer-Hohdahl and Helen Maguire of Deutsche Presse-Agentur:
European Union leaders struck a deal Thursday on the creation of a joint banking supervisor for the eurozone, but it was not clear whether France or Germany had won in a standoff over competing demands.
The measure is a prerequisite for the eurozone’s bailout mechanism to directly assist troubled banks and is seen as key to restoring trust in the common currency area amid its debt crisis.
The leaders decided that a “legislative framework” for the banking supervisor would be agreed by the end of the year, with a gradual implementation to follow in 2013, European Commission officials said.
This replaced the wording of a draft summit declaration, which had called for legislative proposals to be completed by December 31. It was not immediately clear whether the deal would still allow the banking supervisor to take up its work on January 1.
Germany and a handful of other countries had argued that the timetable was not realistic and would create false expectations.
More from Agence France-Presse:
Following almost seven hours of talks, European Commission spokesman Olivier Bailly said there had been an “agreement on a political framework for the end of 2012 and a gradual implementation in 2013.”
However, expectations the new body would begin its work from the start of the new year slipped amid discord between Europe’s two powerhouses.
Diplomats said a final summit statement due after a second day of talks on Friday would commit the 27 EU states to “agreeing” on a supervisor for eurozone banks by the end of the year.
But one European official said that even in the “fastest scenario”, it would be “summer 2013″ before the supervisor saw the light of day.
And a French government source said that the European Central Bank would only be tasked with supervising all of the 6,000 eurozone banks “from the beginning of 2014.”
More from Julien Toyer and Andreas Rinke of Reuters:
The French source said the agreement meant the European Stability Mechanism (ESM) could start injecting capital into troubled banks as early as the first quarter of 2013, but a German source said it was “very unlikely” to happen so soon.
The German government source said the ECB would be responsible for supervising systemically important banks and could oversee others if necessary, emphasizing that direct recapitalization of banks by the ESM could only happen once cross-border banking supervision was firmly in place.
The point when the ECB will effectively become the bloc’s banking supervisor is important because it would open the way for the euro zone’s bailout fund to inject capital directly into troubled banks, without adding to their host governments’ debts.
EU Economic and Monetary Affairs Commissioner Olli Rehn said this was vital “to break the vicious circle between sovereigns and banks”.
Olli Rehn’s comments are a classic, given that the action doesn’t break the “vicious circle between sovereigns and banks” but rather kicks it upstairs to a new sovereign even more remote from the communities banks are, in theory, supposed to serve.
In other words, it’s one step closer to a global banking regime, and given the ability to banks to influence governments, one could argue that the action merely ensures that future crises will begin on a much broader scale, rather than beginning in one locale and spreading to others.
Merkel demands more eurosovereign powers
First, a video report from euronews:
In addition to stripping nations of banking powers, the Iron Chancellor is also demanding the surrender of national control over budgets.
The More Europe agenda so beloved of the leader of the nation that’s benefitted most from the creation of the European Union and the euro effectively renders smaller nations subservient to Germany, a remarkable accomplishment given the continent’s history over the last two centuries.
From the Irish Times:
German chancellor Angela Merkel has demanded stronger central powers for the European Commission to veto national budgets that breach EU rules, risking a clash with France at a summit of the EU leaders today.
Addressing parliament in Berlin hours before the 22nd summit since the start of the euro zone’s debt crisis, Dr Merkel also sought to slow the race to create a single European banking supervisor, saying quality was more important than speed.
French president François Hollande took a very different tack in an interview with six European newspapers, warning that budget discipline alone would not solve the euro zone’s problems without doing more to revive growth. He called for greater haste in implementing a banking union.
Dr Merkel skirted the issue of a possible credit line for Spain, which euro zone officials expect Madrid to request within weeks, but reiterated her desire to keep Greece in the currency area despite its chronic debt problems.
More from Deutsche Welle:
The chancellor then went on to make the case for creating structures that would lead to greater integration of the eurozone’s economies.
European Union leaders meeting at a two-day summit will have plenty to debate when meetings start Thursday. Ways to prevent a further crisis and deal with the effects of the current one will be particularly important. (17.10.2012)
In this, she threw her support behind an idea voiced by Finance Minister Wolfgang Schäuble earlier in the week that would see a European commissioner given the power to intervene in the budgetary affairs of member states. At the same time the chancellor acknowledged that the idea wasn’t popular in some EU member states.
“This doesn’t change our support for it,” Merkel said.
And then there’s this, from the BBC:
Germany has called on countries using the euro to take decisive steps to bring about closer fiscal integration.
Berlin wants the EU’s 27 countries to consider pooling more economic sovereignty at a summit in Brussels which begins on Thursday.
French President Francois Hollande says an end to the eurozone crisis is “very close” and wants a deal agreed on the first stage of a banking union.
But Germany argues that the proposed deadline is unrealistic.
The proposal for a single banking regulator was agreed at the EU’s June summit.
But Berlin says there will be no final decision in Brussels because of concerns about plans for the regulator to supervise an estimated 6,000 banks across the eurozone.
The Iron Chancellor’s banking czar demand illegal?
But is Merkel’s agenda legal?
A leaked document suggests it’s not, at least under the Europ;ean Union’s foundational document.
From the Financial Times via The Greek Crisis:
A plan to create a single eurozone banking supervisor is illegal, according to a secret legal opinion for EU finance ministers that deals a further blow to a reform deemed vital to solving the bloc’s debt crisis.
A paper from the EU Council’s top legal adviser, obtained by the Financial Times, argues the plan goes “beyond the powers” permitted under law to change governance rules at the European Central Bank.
The legal service concludes that without altering EU treaties it would be impossible to give a bank supervision board within the ECB any formal decision-making powers as suggested in the blueprint drawn up by the European Commission.
Those non-eurozone countries that want to opt into the bank supervision regime would also be legally unable to vote on any ECB decisions – a key demand of countries such as Sweden and Poland.
Boss europol bemoans lack of jobs, growth
We find his remarks rather astonishing, given that he’s been a prime mover in forcing austerity down the throats of the economically stricken countries, measures that send unemployment soaring and growth plummeting.
And then there’s the whole question of how growth is defined.
From Deutsche Presse-Agentur:
European Commission President Jose Manuel Barroso said Thursday he was disappointed at a lack of progress by EU member states on taking steps to stimulate employment and growth.
“We have been making more efforts in terms of fiscal consolidation than on the measures for growth that were already agreed (by member states),” Barroso said in Brussels ahead of the European Union summit.
“We need to balance the important efforts made in terms of sound public finances with the right measures to have growth-enhancing policies,” he added.
Eurobankster weighs in on behalf of budget czar
And his argument is rather odd, declaring that the new powers should be able to curtail budgets without any responsibility for solving national economic crises.
From Agence France-Presse:
The European Commission should have the power to reject a country’s budget if debt and deficit problems are not sufficiently addressed, a top European Central Bank official said on Wednesday.
ECB executive board member Joerg Asmussen, in an interview to be broadcast on hr-info public radio later on Wednesday, said he backed a call by German Finance Minister Wolfgang Schaeuble for a stronger role to be handed to the EU’s Economic and Monetary Affairs Commissioner.
“It would be a good idea for the monetary affairs commissioner to reject a budget,” Asmussen said.
But it would still be up to the countries — and not the commissioner — to solve the problems, the ECB official continued.
Northerners demand eurocrat pension cuts
The usual suspects want to apply a touch of austerity to their own minions in Brussels.
From Andrew Rettman of EUobserver:
The eight countries which make a net contribution to the EU budget want to cut EU officials’ pensions.
The group – Austria, Denmark, Finland, France, Germany, the Netherlands, Sweden and the UK – put forward its ideas in an internal letter sent to the European Commission on 17 September.
For any EU staff reading the text, the scariest bits come on page three.
The paper – seen by EUobserver – says EU own contributions to the pension fund should go up from 33 percent to as much as 50 percent.
It also advocates an “average wage-based system for the calculation of pensions.”
Under current rules, the pension is based on what you are being paid when you retire. But the new system would see people who start on a low grade and work their way up get a pension based on their average income over the years.
Hollande sets the stage for a Merkelian tangle
They basically want the same thing, but the French president wants a little more velvet on the glove covering that mailed fist.
From Deutsche Presse-Agentur:
French President Francois Hollande in an interview published Wednesday threw down the gauntlet to German Chancellor Angela Merkel, saying more solidarity between strong and weak eurozone economies should be a precursor to the political union pushed by Berlin.
“We are near, very near, to an end to the eurozone crisis,” Hollande said in the interview with six European newspapers on the eve of a European Union summit, including France’s Le Monde and Britain’s Guardian.
But the decisions taken at the last EU summit in June had to be implemented “as fast as possible.”
That meant “definitively” resolving the situation in Greece, which “has made so much effort and it must now be assured of staying in the eurozone”.
Countries that had made strenuous efforts to improve their finances shouldn’t face “”perpetual punishment,” he argued.
It also meant acting to bring down the borrowing costs of Spain and Italy to “reasonable” rates and finalizing an agreement on a so-called banking union by the end of the year.
More from Xinhua:
“Concerning the exit from the crisis in the euro area, we are close, very close because we made the right decisions at the June summit … and we have a duty to implement them,” French president said in an interview with the daily Le Monde and five other newspapers.
“The worst thing, which is the fear of the eurozone’s collapse, is over. But the best is not there yet. It’s up to us to build it, “ he added.
The Socialist called for a budgetary union that “must be completed with a partial mutualization of debt, through euro bonds,” a proposal that Germany still opposes.
“The goal, too, is to harmonize interest rates in the eurozone. It was unsustainable to have some states borrowing at 1 percent interest and others at 7 percent,” he said.
More from the summary of a separate Hollande interview with Angelique Chrisafis in and Ian Traynor of The Guardian:
Hollande said there was light at the end of the eurozone tunnel, but he also:
- suggested Merkel was too preoccupied with domestic politics in her response to the crisis
- demanded Berlin reverse its opposition to decisions taken by eurozone leaders in June
- called on the eurozone to act promptly to bring down the costs of borrowing for Spain and Italy
- insisted Greece be assured of staying in the eurozone
- gave short shrift to a German push for the creation of a federalised eurozone or political union
- and dismissed as unfounded the strong German criticisms of the recent moves on the crisis by the European Central Bank.
IMF calls for Italian, Spanish bailout plans
But they’ ve got to be accompanied by memoranda, doncha know?
From Agence France-Presse:
IMF chief economist Olivier Blanchard said in an interview published Wednesday it was “fundamental” that Italy and Spain be given a plan that would guarantee financing on condition they implement key reforms.
“In the short term, it is a fundamental that there is a plan for these two (eurozone) periphery countries,” Blanchard was quoted as saying.
“This should include not only a continuous process of internal adjustment but also a guarantee of financing on condition that these countries really implement their plans,” he said.
“We are close but we have not yet reached this point,” he said in reference to a plan for vulnerable eurozone economies announced by the European Central Bank last month which no country has yet resorted to.
Blanchard also said a European banking union was “clearly essential” although he admitted it would take time to implement.
But it’s difficult for Spain to ask for a bailout in the immediate future, as Valentina Popp of EUobserver reports:
With upcoming elections in the northern Spanish regions of Galicia, the Basque Country and Catalonia, where calls for independence are getting louder, it is difficult for Prime Minister Mariano Rajoy to break the news of full bailout.
For now, Rajoy is able to blame the stalemate on the divergence of opinions within the eurozone itself. Spanish officials on Monday briefed foreign journalists in Madrid on the imminence of the request, but only once Rajoy is convinced he has the backing of all other euro-countries.
This is code for Germany and Finland. The Finnish government has, according to sources, asked its Spanish counterpart to delay the request until local elections take place on 28 October.
Germany would also like to see the Spanish bailout request in November at the earliest, so it can be tabled to the reluctant Bundestag as one “package” with the likely Slovenian bailout and a possible two-year extension for Greece’s repayments.
But last week Standard&Poor’s ratings agency put Spain just one notch above ‘junk’ where the risk of default is too high for safe investors, such as pension funds.
Bank of Spain loan default rate rises
Yet one more sign that all that austerity isn’t doing what was promised.
From El País:
According to figures released Thursday by the Bank of Spain, the default ratio in August hit 10.5 percent of total lending. The ratio has now risen for 17 months in a row largely as a result of the bank’s exposure to the real estate sector, which went belly up at the start of 2008 after a decade-long boom.
In absolute terms, the volume of non-performing loans rose from 127.785 billion euros a year earlier to 178.597 billion in August, out of a total loan portfolio of 1.69 trillion.
The previous record non-performing ratio was registered in February 1994, during a previous crisis when it hit 9.15 percent. That figure was surpassed in June of this year.
Questions arise over Spanish bank bailouts
With the Brussels meeting well on the way to hammering out the details of the new bailout machine, it’s becoming clear that thegovernment’s going to be on the hook for any euros injected into those ailing Spanish banks.
From Agence France-Presse:
Spain no longer expects a recapitalisation of its ailing banks without adding to its public debt burden, a government official said Friday.
“Spain had already assumed that there wasn’t going to be a direct recapitalisation to its banks,” the Spanish official said on the sidelines of a European Union summit discussing banking union.
EU leaders agreed in June that banks could receive fresh injections of cash from the bloc’s 500-billion-euro ($653-billion) European Stability Mechanism bailout pot, but only after a supervisory body was set up to oversee them.
But the position changed when the German, Dutch and Finnish governments rowed back on aspects of June’s provisional agreement late last month.
The diplomat said that recent stress tests had shown that recapitalising the banks “would mean four percent of Spanish GDP, which is not much, and we can handle (that) very well”, referring to gross domestic product.
Don’t rely on us, Germany tells Spain
It’s yet another anonymous “senior official” telling Spain that going for the Spailout’s all on them.
Spain must decide whether it will tap funds from the euro zone’s new bailout facility and should not look to Germany for guidance, a senior German official said on Wednesday ahead of an EU summit where Spain’s woes will be on the agenda.
The official, speaking on condition of anonymity, said Spain was on the right course with its reforms and reiterated Berlin’s support for Prime Minister Mariano Rajoy’s center-right government.
“It is up to Spain to decide whether it wants to seek support,” the official said. “It is not Germany’s role to give Spain a red or green light.”
The official said that, under planned institutional reforms to help tackle the euro zone crisis, Germany could envision central intervention in national budgets when they are in violation of EU rules.
Work to begin on Adelson’s Spanish casino
The Las Vegas Republican who’s helping to bankroll Mitt Romney’s presidential run has conned the Spanish government into bankrolling his massive multi-billion-euro EuroVegas casino resort/theme park complex outside Madrid, and now the work is about to begin.
Meanwhile, the Spanish people suffer from those new tax hikes that bit into their dwindling reserves so that the Las Vegas billionaire can reap more billions.
From El País:
Las Vegas Sands Corp. chairman Sheldon Adelson was in Madrid on Tuesday to announce that his firm now has the financing it needs to construct the first phase of the mammoth EuroVegas gambling and entertainment complex it has promised for the capital.
The initial investment has been estimated at six billion euros, a third of the total cost, but Adelson said the exact amount was yet to be finalized. “We are still negotiating with the banks,” the business magnate said. “Contrary to what is being said, there is financing available: it is just a matter of the cost. But we are not worried about money.”
Adelson also revealed that work would commence in December 2013, but failed to clear up doubts over which of the regional government’s three sites would host the project.
Mexico promises its own help to Spain
The form of the aid isn’t clear, but raising it apparently entails the selloff of a piece of Mexico’s national oil company, a very strange way of coming to the aid of countries suffering from the looting of their own national assets.
From El País:
Mexico’s President-elect Enrique Peña Nieto on Monday offered his country’s support to help Spain break away from the ongoing economic crisis. In Madrid for a series of meetings with Spanish businessmen and officials, the Institutional Revolutionary Party (PRI) leader said that once he takes office on December 1, he will introduce a series of economic strategies to help “development in my country, but which at the same time will help Spain emerge from the crisis.”
Although he didn’t specifically state what these strategies entail, Peña Nieto mentioned that he wanted to open up the state-owned petroleum firm Pemex to private investment and reform the country’s financing laws.
“Spain is our second-most important partner in the European Union, and the nation with the largest [inward] investment at $45 billion, but that relationship must be improved to become more beneficial for both countries,” he said.
On Monday, the Mexico City daily El Universal reported that the Popular Party (PP) had confirmed a Pemex investment of 247 million euros in the construction of an industrial complex in Galicia for storage, shipment and deliveries of oil industry liquids. The project, which requires the construction of 14 boats in local shipyards, will generate more than 2,500 jobs, the newspaper said quoting a PP statement.
Spanish, Portuguese unions call for general strikes
The anti-austerity actions are scheduled for 14 November.
From Luis Doncel and Manuel V. Gómez of El País:
Spain’s main labor unions, CCOO and UGT, plan to call a general strike for November 14 to protest the government’s austerity drive, just eight months after the last country-wide stoppage.
The stoppage will be formally called at a top level meeting on Friday. This will be the first time two general strikes have been held in the same year. A meeting will also be held of the so-called Social Summit, which groups together some 200 social organizations opposed to the government’s economic policies.
The decision to go ahead with the stoppage came just hours after the European Trade Union Confederation called for strikes and demonstrations against the belt-tightening movement in Europe on November 14.
The Portuguese union CGTP has called for a national strike on November 14, while stoppages are also expected in Cyprus and Greece.
Investors like Portuguese bonds, despite turmoil
While the draconian austerity measures announced this week — including more tax hikes for the country’s hard hit working class, investors took a liking to the latest Portuguese bond offering.
From Deutsche Presse-Agentur:
Bailed-out Portugal on Wednesday raised 1.85 billion euros (2.4 billion dollars) in a debt sale despite mounting political tensions and protests over Prime Minister Pedro Passos Coelho’s austerity policies.
One-year bonds had a yield of 2.1 per cent, down from 3.5 per cent at the previous auction. The yield for three-month bonds dropped to 1.4 per cent from 3.8 per cent.
The rate for six-month bonds rose slightly to 1.8 per cent from 1.7 per cent. The overall sale fell short of the target of 2 billion euros (2.63 billion dollars).
“There was no negative impact from the current political and budget context,” said Filipe Silva, an analyst with Carregosa bank.
Italian women, elders driven deeper into poverty
But Three-card Monti has it under control, right?
After all, the technocrat was installed by the Troika to make sure everything’s copasetic.
From Agence France-Presse:
Italy’s crisis is pushing growing numbers of pensioners and housewives into poverty, a Catholic charity said in a report on Wednesday that warned the state welfare system was failing to cope.
“The crisis is reinforcing traditional poverty and leading to the emergence of new poverty,” said Francesco Soddu, director of Caritas Italy.
The report said: “The current welfare system is clearly incapable of handling the new forms of poverty, the new social emergencies that have arisen due to the economic and financial crisis.”
The report said that in the first six months of this year Caritas charity interventions were 44.4 percent higher than in the same period in 2011, with growing numbers asking for handouts and help in finding a home or a job.
It also found the number of housewives coming for help was 177.8 percent higher than in 2009 and the number of pensioners was up 65.6 percent.
The group said it was still mainly providing aid for immigrants but that the number of Italian citizens requiring aid had increased sharply from 23.1 percent in 2009 to 28.9 percent in 2011 to 33.3 percent in 2012.
Italian debt costs drop
Investors eased up on Italian bonds in the latest offering, apparently buoyed by the notion that the eurozone stability mechanism will shore up the country’s sagging economy.
From Deutsche Presse-Agentur:
Risk indicators on Italy’s public debt fell to the lowest level in six months on Wednesday, as the yield spread between the country’s 10-year bonds and benchmark German paper fell to 321 basis points.
The index had not seen those levels since April 2. In later trading Wednesday, it bounced back slightly to around 325 basis points.
The head of the Italian debt management agency, Maria Cannata, in an interview Tuesday with the broadcaster SkyTG24, said Italy’s yield spread could fall to 200 basis points if international confidence in its economy continued to pick up.
Cannata said reducing risk differentials on Italian debt was important to narrow the competitiveness gap of Italian businesses, who currently have to borrow money at much higher rates than German competitors.
Italian bank, world’s oldest, on brink of collapse
The rater has spoken.
From the London Telegraph:
The world’s oldest bank has been cut to “junk” by Moody’s, as the rating agency warned that there was a “material probability” that the lender may need another cash injection from the Italian government.
Monte Paschi was the only Italian lender to fail the European Banking Authority’s stress tests and is the first of the five main Italian banks to fall below investment grade.
In a statement, Moody’s said that there remained “a material probability” that the bank will need to seek further external support over the rating horizon.
“Given the weak growth prospects for Italy’s economy and the EU operating environment, there is a strong probability that the bank would not be able to generate sufficient capital internally to maintain regulatory capital levels,” it added.
The downgrade from Baa3 to Ba2 means some investment funds that hold Monte Paschi bonds will be forced to sell them, making it even harder for the bank to raise funds.
German government cuts its own growth forecast
Again, hardly surprising that the crisis is working its way north. Indeed, it’s the whole reason for Merkel’s peculiar zeal to bring things under control by folks above the continental midline.
The German government on Wednesday lowered its growth forecast for 2013 but lifted its outlook this year, Economic Minister Philipp Roesler said here in Berlin.
Economic growth for the year of 2012 was revised by 0.7 percent to 0.8 percent, while the German economy, the largest in Europe, will grow by only 1 percent next year instead of the 1.6 percent Berlin had previously expected, Roesler said.
“Germany is traversing stormy waters of the European sovereign debt crisis and economic weakening in emerging nations in Asia and Latin America,” he said.
“The good news is that the German economy … continues to grow,” said Roesler, “the German economy is in good shape and is still structurally on a solid foundation”.
The minister expected world economy to regain its momentum in 2013, and that German economy “is likely to pick up again.”
More from Annika Breidthardt of Reuters:
Real wages should rise by 2.8 percent this year and 2.6 percent next year, outpacing inflation forecast at 2.0 and 1.9 percent respectively and Roesler said private consumption, long subdued, would continue to be a main pillar of growth.
But the crisis looms large. On Wednesday, Bertelsmann Foundation forecast a global economic crisis if Greece were to leave the euro.
Even though more Germans in a recent poll want Greece to remain in the euro zone than want it out, the willingness of German citizens to give twice bailed-out Greece more credit if it fails to deliver on saving targets is wearing thin.
Roesler, who is leader of the Free Democrats, junior partner in the center-right coalition, said real incomes and consumption could rise even more strongly – by 0.2 percentage points each – if a surcharge on renewable energy were not raised next year.
Poverty lurks beneath German prosperity
Deutsche Welle reports on its surprising extent.:
Every sixth member of Germany’s population faces impoverishment, according to findings of a household survey presented on Wednesday by the agency based in Wiesbaden. The level is the highest since such data was first collated in 2005.
A person at risk of poverty has less than 11,426 euros annually or 952 euros per month, including transfers from social welfare sources, at his or her disposal. This measure of relative poverty is set by asking who gets less than 60 percent of a nation’s mean disposable income.
The latest statistics for the year 2010 show that 12.8 million residents or 15.8 percent of the population were at risk. The impoverishment average among the EU’s population of around 500 million was 16.4 percent.
Gathering of poverty statistics via household surveys began in Germany in 2005, prompted by European Union legislation.