Europe promises the world

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Another weekend in Europe, yet another round of meetings with a “promise” to do something:

The leaders of Germany and France promised Sunday to unveil a new comprehensive package for solving the euro zone’s debt crisis by the end of the month, but offered no details and papered over differences on how to shore up European banks.

German Chancellor Angela Merkel and French President Nicolas Sarkozy said after talks in Berlin their goal was to come up with a sustainable answer for Greece’s woes, agree how to recapitalize banks and present a plan for accelerating economic coordination in the euro zone by a G20 summit in Cannes on November 3-4.

“We are very conscious that France and Germany have a particular responsibility for stabilizing the euro,” Sarkozy told a joint news conference.

“We need to deliver a response that is sustainable and comprehensive. We have decided to provide this response by the end of the month because Europe must solve its problems by the G20 summit in Cannes.”

Re-capitalise the banks, save Greece, help Italy, Spain and Portugal, stabilise the euro all while keeping France’s AAA rating without extending the use of the ECB. I can’t wait to hear this “credible” plan!

There is another leader in Europe who is promising to do something as well, but unlike Merkozy he has already given everyone the details:

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Slovakia’s Freedom and Solidarity, or SaS, party, the key opponent of the bailout approval in the four-member coalition cabinet, is likely to vote against the temporary European Financial Stability Fund unless it gets a veto on the permanent bailout program, the SaS leader said Sunday.

“As it seems to me now, we may vote against the EFSF,” Richard Sulik said in a live midday news show on Slovakia’s TA3 news channel.

….

If SaS votes against the EFSF Tuesday, the remaining three parties in the coalition for it will have to seek support from the opposition, which supports the EFSF, but requires domestic political concessions from the government to vote for the bailout program.

As I have been warning for quite some time Slovakia is the most likely candidate to scuttle the EFSF due to its economic history and its political instability. If, as Richard Sulik is stating, the SaS do not vote for the EFSF expansion then the Slovak government will have to fall back on the opposition who have already stated that they will vote “yes” but only if the government immediately calls an election or significantly re-shuffles the cabinet. Either way you can certainly expect a delay.

Richard Sulik also gave an interview to Germany’s spiegel over the weekend which is well worth a read. Some extracts below:

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Sulik: I don’t see the euro as the problem. It’s a good project. Everyone involved can benefit from it — but only if they stick to the ground rules. And that’s exactly what we’re demanding.

SPIEGEL ONLINE: Which ground rules should we be following?

Sulik: We have to observe three points: First, we have to strictly adhere to the existing rules, such as not being liable for others’ debts, just as it’s spelled out in Article 125 of the Lisbon Treaty. Second, we have to let Greece go bankrupt and have the banks involved in the debt-restructuring. The creditors will have to relinquish 50 to perhaps 70 percent of their claims. So far, the agreements on that have been a joke. Third, we have to be adamant about cost-cutting and manage budgets in a responsible way.

SPIEGEL ONLINE: Nevertheless, banks could run into significant problems should they be forced to write down billions in sovereign bond holdings.

Sulik: So what? They took on too much risk. That one might go broke as a consequence of bad decisions is just part of the market economy. Of course, states have to protect the savings of their populations. But that’s much cheaper than bailing banks out. And that, in turn, is much cheaper than bailing entire states out.

Incidentally, Slovakia isn’t sending anyone to Eurovision this year sighting “financial reasons”.

In other news over the weekend, the rating agencies downgraded most of non-core Europe, the German parliament appears to be getting war weary , the politicking in the run-up to the Spanish elections has begun. Finally, below is the month ahead in European economic events:

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  • Monday, Oct. 10: Malta parliament votes on EFSF changes
  • Tuesday, Oct. 11: Greek and Italian T-bill auctions, Slovakia parliament votes on EFSF changes.
  • Thursday, Oct. 13: Italian bond auction.
  • Friday, Oct. 14-Saturday, Oct. 15: G-20 finance ministers meeting. EUR2 billion of Greek T-bills mature
  • Monday, Oct. 17-Tuesday, Oct. 18: EU Council meeting
  • Tuesday, Oct. 18: Spanish and Greek T-bill auctions.
  • Thursday, Oct. 20: Spanish and French bond auctions.
  • Friday, Oct. 21: EUR1.625 billion of Greek T-bills mature
  • Saturday, Oct. 22: EUR1.059 billion of Greek bond interest payments due
  • Tuesday, Oct. 25: Spanish T-bill auction.
  • Friday, Oct. 28: Italian bond auction.
  • Monday, Oct. 31: Belgian bond auction.
  • Tuesday, Nov. 1: Mario Draghi replaces Jean-Claude Trichet as president of the ECB
  • Thursday, Nov. 3: ECB policy meeting
  • Thursday, Nov. 3-Friday, Nov. 4: Meeting of G20 leaders in Cannes
  • Monday, Nov. 7: Meeting of Eurogroup finance ministers