France and Germany veto increase in EU rescue fund
ance and Germany veto increase in EU rescue fund
Germany and France have rejected calls by Brussels for a rapid increase in the size and powers of the EU’s rescue machinery, once again exposing serious differences at the heart of monetary union.
Jose Barroso, head of the European Commission, called on EU leaders to boost the firepower of the EU’s €440bn (£366bn) bail-out fund and beef up its role, allowing it to intervene with pre-emptive bond purchases to help states under threat.
“It is important for the markets to know that Eurozone leaders are committed to do whatever is necessary,” he said, hoping for action as soon as early February.
He also proposed a “new phase of European integration” with far-reaching oversight of the budgets, pensions, labour markets, and trade flows of EU states to prevent a recurrence of the imbalances that led to the EMU debt crisis.
Mr Barroso said the fund boost was a “precautionary” move, not directed at any one country. The gambit is risky since it may be taken by investors as a sign that Brussels fears imminent contagion to Spain, deemed too big for the current fund.
The response in Paris and Berlin was chilly. “We think the fund is big enough,” said Francois Baroin, France’s budget minister. German Chancellor Angela Merkel said the bail-out mechanism was “nowhere near exhaustion”, adding curtly that she did not wish to debate the matter “any further”.
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Mrs Merkel is wary of attempts by Brussels to bounce her country into an EU debt union, or ‘Transferunion’ as it is described luridly by Germany’s press. Such moves may breach the German constitution.
The dispute overshadowed a well-covered auction of €1.25bn of Portuguese debt, including 10-year bonds at 6.72pc, back below the 7pc danger line. The sale set off a surge in bank stocks in Lisbon, and was greeted with relief across the EMU perihpery. Spain’s Ibex index jumped 5.3pc.
“The auction was a success from all angles,” said Portugal’s premier, Jose Socrates. “We do not need help: we can solve our own problems.”
Gaven Nolan from Markit said purchases of Portuguese debt by the European Central Bank over the last two days had created good mood music but he doubted whether the bond sale would quell talk of a bailout.
“It didn’t in the case of Ireland – which was fully funded for months ahead at the time of its bailout – and is unlikely to do so in the case of Portugal. The auction might have bought Portugal some time: it won’t divert attention away from low growth prospects,” he said.
The interest costs remain crippling for an economy facing contraction of 1.3pc next year, and scant recovery in 2012. The debt trajectory is precarious. The budget deficit will beat the target of 7.3pc of GDP in 2011, but only by use of pension transfers from Portugal Telecom.
Mark Ostwald from Monument Securities said confusion over the EU bail-out fund is a reminder of EMU’s political limits. “We have gone nowhere since the show of unity in December. ‘Mr Market’ is still saying to EU leaders that they must come up with a mechanism to transfer money from the rich core to the periphery. We are no closer to that,” he said.
Charles Dumas at Lombard Street Research said Germany faces an impossible demand. “If the German people go along with plans to prop up the economies of Club Med to save the euro, it means that they will have to pay subsidies for the next decade or two that significantly exceed what they have had to pay for German reunification,” he said.
Separately, EU officials have floated proposals for a bank tax to fund the EU’s permanent bail-out fund from 2013 onwards. An EU source said member states are “very cautious” about such an intrusion into fiscal sovereignty.
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1. The Spanish and Italian gilt auctions were very successful (many times oversubscribed)
2. Moody’s and S&P announced that they would downgrade the US AAA rating if they did not get their debt under control. Due to the unwillingness of the Republicans to increase taxes and the Democrats to significantly decrease public expenditure (and both parties are unwilling to control rampant military expenditure!) this downgrading would appear to be inevitable.
http://www.finanznachrichten.d…
“U.K., U.S. Top Aaa Ratings Tested by Debt Burdens, Moody’s Says”
http://www.bloomberg.com/apps/…
also noticed an article saying US foreclosures will peak this year after jumping 20%:-
http://www.bloomberg.com/news/…
also also noticed “Roubini’s Das on Euro Breakup”:-
http://www.bloomberg.com/video…/
1 person
Ken Rogoff at the FT still reckons the Euro will “win the race to the bottom”, since there is a high chance of a medium-size meltdown, compared to the US where there is a small chance of a large catastrophe.
Will we limp on for the rest of 2011? Were the Mayans right about 2012? or will everything work out just fine?
2 people
–Norm Franz, Money and Wealth in the New Millenium
After literally the entire world came together to prevent the collapse of the Eurozone by purchasing Portuguese and Spanish bonds, the Portuguese bond auction yesterday, and Spanish today, were a “smashing success.” After three days of direct bond purchasing by the ECB, a direct placement of Portuguese bonds to China, and Japanese purchasing of billions of bonds as well, the market is stunned by the fact that Portugal and Spain did not have bond auction failures. From Bloomberg: “Spain sold 3 billion euros ($3.9 billion) of five-year bonds, meeting its target, at an average yield of 4.542 percent, lower than secondary-market yields of 4.630 percent. Italy, the euro region’s second-most indebted nation, aims to issue as much as 6 billion euros of debt due in 2015 and 2026 today.” Specifically, the bid to cover of 2.1 was a little higher than the 1.6 previously, while the yield surged sequentially from 3.576% to 4.542%, which was followed by the requisite lie by the Spanish finance minister that Spain “definitely” does not need a bailout. The fact that it is being bailed out by three (plus one) central banks is irrelevant. In other words: can has been kicked down for another week or two, and the cost to the global central banking cartel was just a few billion pieces of freshly printed linen.
1 person
Two is company three is Crowd and four is mutiny But I guess we took too many cooks in the EU and now we breathe foul air I thank you Firozali A.Mulla DBA
said David Cameron
Guardian
13 January
“We will be a helpful partner to make sure that happens.”
David Cameron made his remarks after holding talks with the French Prime Minister, Francois Fillon. “We want a strong Eurozone, we want it to sort out its problems, we won’t stand in its way, ” said Mr Cameron.
“The French have been buoyed by suggestions that Germany, is willing to do more to stand behind the weaker members of the Euro.”
Whilst the UK wishes to remain semi-detached from the Eurozone, it will not hinder the development of closer fiscal union in the EU.
Chelyabinsk
.
2 people
But Camoron said this he’ll change his story in a couple of days.
1 person
1 person
The workers will pretend to work and the ‘employers’ will pretend to pay them.
http://uk.news.yahoo.com/18/20…
Has Dave finally grown a pair, to use the vernacular?
1 person
It would be best if you told the whole truth about this meeting between the French and British Prime Ministers.
Clearly the EU is going for closer fiscal union, Cameron has given assurances that Britain will not stand in its way.
This is a major development for the Eurozone and one which is likely to leave Britain sidelined, as the Governor of the Bank of England has warned.
A E-P has clearly signalled that this is the likely outcome of the current problems in the peripheral Eurozone. Never waste a crisis, he said. He is a most perceptive economic commentator.
Chelyabinsk
.(Edited by author 2 hours ago)
poor old PIGS(Edited by author 2 hours ago)
Who is going to bail you out in your hour of need, if you refuse to help your oldest friend, Portugal.
By the way Euro back to 0.85£ again on the strength of the good Euronews.
Goldman Sachs in a new study issued today sees the €uro rising to 1.37 in the short term against the $
http://www.finanzen.net/nachri…
1 person
thank God for that – a weak Euro is bad for Britain (except when it’s holiday time)
4 people
He is going to trash the UK and then tell us “as much as he dislikes the idea we must join the euro” and the tory moron voters who gave him a chance in May will do so again?
6 people
Are you seriously trying to tell me that Gordon “not only did I save the world” Brown would’ve been a better choice? We’d be paying more than Greece to borrow by now if he’d had another crack at “running” our economy.
2 people
6 people
We are borrowing more than ever, the deficit is bigger, the national debt increasing and unemployment increasing.
The touted cuts in public service sector jobs have not even been implemented.
Is public service expenditure going down?
What have this government achieved to date?
But God forbid that Labour ever get a sniff at Government again(Edited by author 3 hours ago)
1 person
It was a former MEP who took Estonia into the euro2 weeks ago??
Hello
Wake up people?
4 people
As you were.
1 person
Chelyabinsk(Edited by author 2 hours ago)
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