New Open Europe briefing: EU banks could need up to €370bn in event of painful, but necessary eurozone debt restructuring;
ECB exposure to PIIGS increased from €444bn to €590bn in only four months
As EU leaders gear up for a series of key meetings this week, Open Europe has published a new briefing looking at the short-term options available to the eurozone for tackling the most immediate crisis. Open Europe argues that Greece should default on 60% of its debt through a managed restructuring, and that the planned second Greek bailout should be scrapped altogether, replaced by a limited transition fund designed to control the default. Alarmingly, however, Open Europe estimates that 65 banks across the EU would fail serious stress tests, falling below an 8% tier one capital ratio, meaning they would need to be recapitalised by between €260bn and €372bn.
The briefing also argues against other short-term solutions such as leveraging the EFSF, particularly the current plan to use it to insure peripheral eurozone sovereign debt. Furthermore, the briefing concludes that EU leaders should not force the ECB to act as the eurozone’s lender of last resort by buying hundreds of billions of government bonds. The ECB is already taking on risky assets at a worrying rate, and now has an exposure of around €590bn to PIIGS, up from €444bn only this summer, in turn undermining its independence and credibility.
Open Europe press release Open Europe briefing
FT Deutschland:Schäuble is considering leveraging eurozone bailout fund to €1 trillion;
Guardian: France and Germany ready to top up EFSF to €2 trillion
Conflicting media reports are emerging on what could be agreed at Sunday’s meeting of EU leaders. FT Deutschland reports that German Finance Minister Wolfgang Schäuble has informed MPs from Germany’s ruling coalition that a solution to leverage the eurozone’s bailout fund, the EFSF, to up to €1tr through guaranteeing the first 20% or 30% of bondholders’ losses on newly issued eurozone debt is being considered. However, the Guardian reports that, according to EU diplomats, France and Germany have agreed to boost the EFSF to €2tr as part of a comprehensive plan to sort out the eurozone crisis. The Guardian‘s allegations have been widely denied.
Meanwhile, yesterday French President Nicolas Sarkozy warned, “An unprecedented financial crisis will lead us to take important, very important decisions in the coming days…Allowing the destruction of the euro is to take the risk of the destruction of Europe. Those who destroy Europe and the euro will bear responsibility for resurgence of conflict and division on our continent.” Sarkozy’s comments stand in contrast to Germany’s attempts to play down Sunday’s summit.
Les Echos reports that yesterday the spread between French and German bonds reached its highest levels since 1992. Moody’s has downgraded Spanish debt by two notches, reports El País. La Stampa reports that S&P has cut the rating of 24 Italian banks.
FTD Guardian Pravda Tagesschau Spiegel El País La Stampa Les Echos Le Monde Reuters France Bloomberg Handelsblatt Welt Welt Welt 2 WSJ FT Times FAZ FT Wirtschaftsblatt Telegraph Telegraph NY Times Reuters Italia Irish Independent Le Figaro EurActiv EUobserver FT: Wolf Times: Kaletsky Times: King WSJ: Skeel WSJ: Lecaussin WSJ: Heard on the Street Guardian: Jenkins Independent: Chu HS
£250,000 prize announced for plan to orderly wind down the euro
Lord Wolfson, Chief Executive of Next, has launched an economics prize offering £250,000 to the person who comes up with the best plan for winding up the euro in an orderly way. In the Times, Lord Wolfson argues, “Currently there is only one plan: deeper fiscal integration that gives EU central authorities greater control over tax and spending in member states. But this does little to cure structural deficiencies in the eurozone…if the economic merits of deeper integration are questionable, political failure is a greater risk…So we need the world’s brightest economists to devise Plan B, by which the euro can be safely dismantled.”
Times: Wolfson Times Times: Leader FT Guardian
MPs to debate referendum on EU;
Cameron expected to order MPs to vote against
The House of Commons Backbench Business Committee agreed yesterday that MPs will debate a motion calling for a referendum on EU membership next Thursday. The motion will call for a referendum offering the public three options – for Britain to stay in the EU, to leave it, or to renegotiate the terms of its membership. Between 30 and 40 Conservative backbenchers are expected to vote in favour of the non-binding motion despite reports that the Government will whip MPs to vote against. The Times quotes Conservative MP Priti Patel warning that David Cameron risked creating “animosity” within his party if he blocked MPs from acting freely. In the Telegraph, Ben Brogan writes, “Three Cabinet ministers have told me privately that they favour withdrawal if it could be done, but prefer to remain silent for the moment.”
Meanwhile, the FT notes that London Mayor Boris Johnson has described as “absolutely crazy” the view that the long-term survival of the euro depended on greater fiscal integration – a solution suggested by George Osborne.
FT Times Independent Express Express: Willoughby de Broke FT 2 Conservative Home Conservative Home 2 Mail Telegraph Telegraph: Brogan
Bild reports that, since the beginning of the crisis, over €200bn has been taken out of Greek banks and transferred to Swiss banks, with €10bn in the last couple of months.
Jacques Delors: Reform of EU treaties should provide for possibility of ejecting eurozone countries opposing closer integration
In an interview with Le Monde, former European Commission President Jacques Delors argued, “I find [German Chancellor Angela] Merkel’s position in favour of a new [EU] treaty encouraging…In this new treaty, we should envisage the possibility to expel a country from the eurozone by a more-than-qualified [surqualifiée] majority of 75%. Had such a clause already been in place, the Finns and the Slovaks would have thought twice before delaying their decisions. In fact, sharing a common currency comes with more demanding duties.”
Le Monde: Delors
EU ban on ‘naked’ Credit Default Swaps (CDS) agreed
The European Parliament, Commission and member states have agreed to tighten rules on traders short selling bonds and shares and buying credit insurance. The new rules will include a ban on traders buying sovereign CDS as a straight bet rather than as a means of covering exposure to losses on positions such as sovereign debt. Critics have argued that this move will further increase sovereign borrowing costs. The deal now has to be formally adopted by the Parliament and Council before it comes into effect.
On Conservative Home, Anthony Browne argues that “just as a country we can’t afford to ignore what is happening in the eurozone, we can’t afford to ignore what is happening in financial services. We need to set the EU agenda, or the EU will set the agenda for us.”
FT WSJ Times Reuters France Les Echos Conservative Home: Browne
EU court rules that stem cells from human embryos cannot be patented
The European Court of Justice has ruled that stem cells from human embryos cannot be patented, dealing a blow to the commercial development of treatments using stem cell technology within the EU. The Telegraph quotes Prof Oliver Brüstle, of Bonn University, saying, “With this unfortunate decision, the fruits of years of translational research by European scientists will be wiped away and left to the non-European countries.”
Mail Telegraph Telegraph 2 Welt Welt 2 Independent Independent: Leader Welt: Heinemann Suddeutsche: Berndt FT Times
Süddeutsche reports that as part of its review of the MiFID Directive, the European Commission is looking to prohibit the payment of hidden commissions to banks and asset managers for recommending specific shares and products to their customers.
Süddeutsche Independent: Foley
Speaking at a roundtable in Bologna yesterday, former European Commission President Romano Prodi said, “Long live [EU Foreign Minister Baroness] Ashton, but EU foreign policy still doesn’t exist and I can’t see it coming to life in the foreseeable future.”
The WSJ reports that a document obtained from the European Commission questions whether the EU should continue to push for curbs on CO2 emissions in the absence of global action.
Europaportalen reports that EU Industry Commissioner Antonio Tajani and a group of journalists will be flown in a specially chartered plane to French Guiana, where they will witness the launch of the first satellites under the EU’s Galileo project.
The EU has cancelled tomorrow’s scheduled visit by Ukrainian President Viktor Yanukovych for talks on a free-trade agreement in protest at the imprisonment of Ukraine’s opposition leader Yulia Tymoshenko.
Independent WSJ FT IHT Suddeutsche
Pravda reports that the Swiss People’s Party (SVP) has collected enough signatures to hold a referendum on limiting the number of foreigners coming into the country. This could result in the renegotiation of treaties with the EU, and Switzerland ultimately leaving the Schengen area.