Merkel and Sarkozy to meet - for what?

The German finance minister Wolfgang Schäuble is confident that the eurozone is not going to break up. However, he rejects additional support to euro area countries in distress and common borrowing (eurobonds), as long as countries still (mis)manage their own finances. The current decisions have to carried out. Deutsche Welle quotes an interview in Der Spiegel (which I did not find online), in: Finanzminister Schäuble lehnt Euro-Bonds ab (14 August 2011).

However, Financial Times Deutschland picks up the possibility of eurobonds combined with centrally determined fiscal and economic policies, as a last resort: Schäuble knüpft Eurobonds an radikale Reform der EU (14 August 2011).

Still, the economy section (Wirtschaft) of Spiegel Online and the business section of its International edition in English offer a lot of quality material on the global financial crisis and the euro crisis.

When leading politicians from both coalition parties mount a frontal assault as vehement as this on the European Central Bank (partly as a proxy for their government), we are left wondering about how the federal government of Germany can contribute to constructive solutions in the eurozone. See: Union und FDP attackieren die Euro-Zentralbank (14 August 2011).

Thus, what can we expect in the way of proposals from the meeting between chancellor Angela Merkel and president Nicolas Sarkozy Tuesday, 16 August? See: Bundeskanzlerin Merkel trifft Staatspräsident Sarkozy in Paris (11 August 2011).

Spiegel Online International tells us that 'Merkel and Sarkozy Are Damned to Get Along' (12 August 2011), with background provided by German editorialists. Approval of the decisions by the eurozone summit 21 July is far from sure in Germany. Saving the euro and the German coalition government seem to be in conflict.

Despite the internal difficulties, can and will Merkel contribute to a grand bargain introducing eurobonds? NZZ Online reports the repeated call by Giulio Tremonti, the finance minister of Italy, but also that the French president Sarkozy is promoting eurobonds: Seilziehen um die umstrittenen Eurobonds (14 August 2011).



Ralf Grahn

The state of the European Union: EU-27 Watch No 9 published

Actually, EU-27 Watch offers more than it promises. Despite its name, the Internet platform compiles materials on European policy debates in 31 countries, as reported by researchers from national research institutes (think tanks): 27 EU member states as well as the four candidate countries for accession, Croatia, Turkey, Macedonia and Iceland.



The EU-27 Watch No 9 now published is an important overview of the European Union as seen from national capitals through expert eyes.



Under the Current Issue, the Introduction by Katrin Böttger and Julian Plottka provides an excellent summary of European Union events and opinions during the latest six months: The EU in 2010 – between excitement over the Lisbon Treaty and anxieties about the financial and economic crisis.



Alternatively, you can access the pdf version of the EU-27 Watch No 9 Introduction (and the Questionnaire) as a pdf file. The main policy areas covered are:


• Implementation of the Lisbon Treaty;
• Enlargement and Neighbourhood Policy;
• European economic policy and the financial and economic crisis;
• Climate and energy policy; and
• Other current issues and discourses in the reporting countries.



Economic policy

Note that EU economic policies and the financial and economic crises are discussed extensively, not only in the dedicated chapter, but in the own-initiative chapter on domestic debates as well (Other current issues). The economy is the central issue right now, even if the remedies to apply are far from clear at this stage.



Countries and policy areas



There are now two ways to approach the new EU-27 report. You can read the country sections on the various policy debates, or you can peruse the policies you are interested in sorted into country contributions.

One thing I missed from the old EU-27 reports was the convenient possibility to access or download the whole publication as one file, at one go.




Ralf Grahn



P.S. It is easier to understand a language than to use it correctly, and as Eurobloggers we should promote interaction among Europeans. Grahnlaw has adopted a multilingual comment policy:

I do my best to read comments in Danish, Dutch, English, Finnish, French, German, Italian, Norwegian, Portuguese, Spanish or Swedish, even if the Grahnlaw blog and my possible replies are in English.

European Globalisation Adjustment Fund (EGF) revision

In Revision of the European Globalisation Adjustment Fund (EGF) (6 May 2009; MEMO/09/221) the Commission has published an overview of the provisions of the EGF’s Founding Regulation 1927/2006 to be amended.



In short, the rules of the EGF have are being adapted to take account of the financial and economic crisis, besides its original aim to aid measures against redundancies caused by structural change.

More information is available on the EGF web pages of the Commission’s Directorate-General for Employment, Social Affairs and Equal Opportunities.



***

European Parliament vote

The reason to publish the Memo seems to have been the approval by the European Parliament 6 May 2009 of the Commission’s proposal, the near unanimous vote being 538 for, 35 against and 37 abstentions.


At this stage the provisional EP resolution can be found among the adopted texts of 6May 2009 (Part 2; page 19).



Here are the exact references to the adopted text:


P6_TA-PROV(2009)0365
European Globalisation Adjustment Fund ***I
European Parliament legislative resolution of 6 May 2009 on the proposal for a regulation of the European Parliament and of the Council amending Regulation (EC) No 1927/2006 on establishing the European Globalisation Adjustment Fund (COM(2008)0867 – C6-0518/2008 – 2008/0267(COD))

***

It is natural that with growing unemployment and the European elections looming, the institutions of the European Union wish to be seen as doing something to counter the ill effects of the financial and economic crisis.


Ralf Grahn

Economic crisis: EU State Aid Scoreboard

Theoretically the member states of the European Union have pledged the mind-boggling amount of 3,000 billion euros to counter the financial crisis and the economic recession, although the measures are highly unevenly spread across the member states.

In an unprecedented situation, the Commission has tried to uphold some respect for fair competition in the internal market against protectionistic urges, while allowing justified rescue measures.

In due time economic historians may come up with pondered views on how it should have been done, but for now the approved measures are on record for member states, financial institutions, firms and the public to digest.

The Report from the Commission: State Aid Scoreboard – Spring 2009 Update – Special edition on state aid interventions in the current financial and economic crisis, Brussels, 08.04.2009 COM(2009) 164 (30 pages), offers an overview of state aid measures1 undertaken by EU Member States in the context of the current financial and economic crisis and reviewed by the Commission until 31 March 2009 as well as an overview of the Commission's coordinating action in setting out general principles governing these aid measures.





The Table of contents offers a glimpse of the State Aid Scoreboard:

Introduction ............................................................................................................................... 3

1. Early cases: Application of the standard rules on rescue and restructuring aid........... 5

2. Worsening of the crisis: Difficulties in the application of the standard rules on rescue and restructuring aid..................................................................................................... 8

3. The need to coordinate support to financial institutions: The Commission's Communications .......................................................................................................... 9

4. Measures adopted by Member States in support of financial institutions: schemes and ad hoc cases................................................................................................................ 14

4.1. Guarantee schemes covering the liabilities of financial institutions.......................... 16

4.2. Recapitalisation schemes ...........................................................................................18

4.3. Recent ad hoc cases (outside schemes)...................................................................... 20

5. Real economy and financial crisis: The 'Temporary Framework'.............................. 21

6. Procedures.................................................................................................................. 27

7. Conclusions................................................................................................................ 28

Annex 1: Where to find information on State aids................................................................... 30


***



However the actions are judged by posterity, we can ask: Where would Europe stand without its internal market, competition and state aid rules, arbitrated by the Commission?


Ralf Grahn

Exceptional times call for …

Exceptional times call for unexceptional measures, by the looks of it.

Business as usual? Today EurActiv reported ‘Barroso rejects bold ideas for EU financial reform’:

http://www.euractiv.com/en/financial-services/barroso-rejects-bold-ideas-eu-financial-reform/article-179971

Only realistic plans, adapted to the Council’s low expectations are to be presented.

After this I understand even less what Commissioner Almunia suggested he had hidden up his sleeve, should matters get worse (which seems to be the best case scenario, nowadays).

Yesterday Julien Frisch wondered in ‘The slowness of the EU Council during the financial crisis’, why nothing seems to have happened with regard to Cross-Border Stability Groups:

http://julienfrisch.blogspot.com/2009/03/slowness-of-eu-council-during-financial.html

***

Harmony between the (European) Council and the Commission is wonderful.

But isn’t Rome burning?


Ralf Grahn

P.S. The efforts of Central European member states to catch up with the older EU members have been called many things, but shouldn’t at least the ERM 2 countries get quick and effective help to enter the Eurozone?

P.S. 2 If there is a no-bailout clause to the effect that EU countries have no legal obligation to save their profligate neighbours, does it mean a prohibition against help in the common and each member’s own interest?

P.S. 3 Do we need new leaders, new rules or both?

Christmas statement to Latvia

The Nordic Finance Ministers have issued a Christmas statement to the beleaguered Latvian Government, promising supplementary credits. Here is the 23 December 2008 joint statement:

Joint statement from the Ministers of Finance in Denmark, Finland, Norway and Sweden regarding lending to Latvia

The IMF Executive Board has today approved a financial package for Latvia. The package is linked to an extraordinary strong economic reform programme that includes a fiscal consolidation of around 7 percent of GDP already in 2009. The Nordic countries stand ready to provide credits of up to €1.8 billion contingent on the successful implementation of the reform programme.

Like in the case of Iceland, the Nordic countries - Denmark, Finland, Norway and Sweden - have worked closely together and jointly decided to contribute to the financing of the IMF-programme. The total amount the Nordic countries are prepared to lend equals the support provided for Iceland 1.8 billion euro.

The programme is very ambitious and shows that Latvia is firmly committed to stick to the present currency peg. It will be particularly important to rebalance the current account and improve the economy’s external competitiveness through the full implementation of the fiscal plans and ensuring that wages develop in line with the requirements that come with the fixed exchange rate. The authorities also need to work hard with structural reforms aiming at developing a competitive export sector and improving the institutional framework of the economy.

With the implementation of the programme Latvia should be in a position to weather the present turbulence and move towards a path of sustainable growth and more balanced macroeconomic developments.

Anders Borg, Kristin Halvorsen, Jyrki Katainen and Lars Løkke Rasmussen

***

Despite the IMF rescue package and coordinated help from the Nordic countries, Latvia faces a rough 2009 and beyond.


Ralf Grahn

EMU: Eurozone summit declaration

Today’s post ’EU: Monetary policy If’ said that the European Union lacks a proper political government and even an economic government. Yesteday’s Eurozone summit was a first concerted euro area attempt to bridge the institutional gap, and to remedy the financial crisis and to mitigate the economic downturn.

The response has been cautiously favourable to the principles put forward by the Eurozone leaders. Here is the text of the summit declaration (12 October 2008):

1) Financial systems contribute essentially to the well functioning of our economies and are therefore a necessary prerequisite for growth and a high level of employment. Millions of depositors have trusted their wealth to our financial institutions. The consequences of the current financial market crisis jeopardize the crucial economic role of the financial system.

2) Since the beginning of the crisis, we have acted to address the challenges posed to our financial system: we have committed ourselves to take decisive action and use all availables tools to support relevant institutions and prevent their failure and effectively acted in several cases ; we have increased transparency and disclosure on banks exposure ; we have enhanced retail deposit guarantee protection.

3) Further concerted action is urgently needed given the persistent problems of bank financing and the contagion from the financial crisis to the real economy.

4) We confirm today our commitment to act together in a decisive and comprehensive way in order to restore confidence and proper functioning of the financial system, aiming at restoring appropriate and efficient financing conditions for the economy.

In parallel, Member States agree to coordinate measures to address the consequences of the financial crisis on the real economy, in line with 7th of October Ecofin conclusions.

In particular, we welcome the EIB’s decision to mobilise 30 billions € to support European SME’s and its commitment to step up its ability to intervene in infrastructure projects.

5) As members of the Euro area, we share a common responsibility and have to contribute to a common European approach. We invite our European partners to adopt the following principles so that the European Union as a whole can act in a united manner and avoid that national measures adversely affect the functioning of the single market and the other member States.

This requires European Union and Euro area governments, central banks and supervisors to agree to a coordinated approach aiming at :
- ensuring appropriate liquidity conditions for financial institutions ;
- facilitating the funding of banks, which is currently constrained ;
- providing financial institutions with additional capital ressources so as to continue to ensure the proper financing of the economy ;
- allowing for an efficient recapitalisation of distressed banks ;
- ensuring sufficient flexibility in the implementation of accounting rules given current exceptional market circumstances ;
- enhancing cooperation procedures among European countries.

In the current exceptional circumstances, we stress the need for the Commission to continue to act quickly and apply flexibility in state aid decisions, continuing to uphold the principles of the single market and of the state aid regime.

Ensuring appropriate liquidity conditions for financial institutions.

6) We welcome the recent decision by the European Central Bank and other Central Banks in the world to cut their interest rates.

7) We also welcome the decisions by the European Central Bank to improve the conditions for the refinancing of banks and to provide more longer term funding.

We look forward to Central Banks considering all ways and means to react flexibly to the current market environment.

We welcome the intention of the ECB and the Eurosystem to react flexibly to the current market environment, in particular in considering to further improve its collateral framework with regard to the eligibility of commercial paper.

Facilitating the funding of banks, which is currently constrained.

8) With a view to complementing the actions taken by the European Central Bank in the interbank money market, the Governments of the Euro Area are ready to take proper action in a concerted and coordinated manner to improve market functioning over longer term maturities.

The objective of such initiatives should be to address funding problems of liquidity constrained solvent banks.

We welcome the initiatives put forward in some member states to facilitate medium term funding of banks notably through purchase of high quality assets or through swaps of government securities.

The worsening of financial conditions in the last four weeks requires additional coordinated actions. To this aim, Governments would make available for an interim period and on appropriate commercial terms, directly or indirectly, a Government guarantee, insurance, or other similar arrangements of new medium term (up to 5 years) bank senior debt issuance.

Depending on domestic market conditions in each country, actions could be targeted at some specific and relevant types of debt issuance.

In all cases, these actions will be designed in order to avoid any distortion in the level playing field and possible abuse at the expense of non beneficiaries of these arrangements.

As a consequence :
- the price of those instruments will reflect at least their true value with respect to normal market conditions ;
- all the financial institutions incorporated and operating in our countries and subsidiary of foreign institutions with substantial operations will be eligible, provided they meet the regulatory capital requirements and other non discriminatory objective criteria ;
- Governments may impose further conditions for the beneficiaries of these arrangements, including conditions to ensure an adequate support to real economy ;
- the scheme will be limited in amount, temporary and will be applied under close scrutiny of financial authorities, until December 31 2009.

While acting quickly as required by circumstances, we will coordinate in providing these guarantees as significant differences in national implementation could have a counter-productive effect, creating distortions in the global banking markets.

We will also work in cooperation with the European Central Bank so as to ensure consistency with the management of liquidity by the Eurosystem and compatibility with the operational framework of the Eurosystem.

Providing financial institutions with additional capital ressources so as to continue to ensure the proper financing of the economy.

9) So as to allow financial institutions to continue to ensure the proper financing of the Eurozone economy, each Member State will make available to financial institutions Tier 1 capital, e.g. by acquiring preferred shares or other instruments including non dilutive ones.

Price conditions shall take into account the market situation of each involved instution.

Governments commit themselves to provide capital when needed in appropriate volume while favouring by all available means the raising of private capital. Financial institutions should be obliged to accept additionnal restrictions, notably to preclude possible abuse of such arrangements at the expense of non beneficiaries.

10) Given the exceptional market circumstances, we urge national supervisors, in accordance with the spirit of Basel 2 rules, to implement prudential rules also with a view to stabilising the financial system.

Allowing for an efficient recapitalisation of distressed banks.

11) Governments remain committed to support the financial system and therefore to avoid the failure of relevant financial institutions, through appropriate means including recapitalization.

In doing so, we will be watchful regarding the interest of taxpayers and ensure that existing shareholders and management bear the due consequences of the intervention.

Emergency recapitalisation of a given institution shall be followed by an appropriate restructuring plan.Ensuring sufficient flexibility in the implementation of accounting rules given current exceptional market circumstances.

12) We welcome the recent initiatives of the Commission regarding conclusions of the 7th October Ecofin regarding the classification of financial instruments by banks between their trading and banking books, notably to ensure a level playing field with our competitors.

Under the current exceptional circumstances, financial and non-financial institutions should be allowed as necessary to value their assets consistently with risk of default assumptions rather than immediate market value which, in illiquid markets may no longer be appropriate.

We ask the competent autorities to take the next steps within the coming days.

Enhancing cooperation among European countries.

13) In such circumstances, efficient crisis management requires constant and immediate monitoring. We will therefore set up and strengthen procedures allowing the exchange of information between our Governments, the President of the European Council, the President of the European Commission, the President of the European Central Bank and the President of the Eurogroup.

We look forward the European Council on next Wednesday to setting up a mecanism to improve crisis managment between European countries.

***
14) The Ecofin Council with the support of the Commission and in cooperation with the European Central Bank will report in due time to the European Council on the implementation of these decisions.
***

Source:
http://www.ue2008.fr/PFUE/lang/en/accueil/PFUE-10_2008/PFUE-12.10.2008/sommet_pays_zone_euro_declaration_plan_action_concertee

Read and judge for yourselves.


Ralf Grahn