I was saying just last week that Europe was caught in 2011 deja vu and that it must be time for another summit. Looks like I was on money and this time it appears we are going to rehash euro bonds:
French President François Hollande will put German Chancellor Angela Merkel under pressure at Wednesday’s EU summit to agree to euro bonds, which she has so far strictly opposed. Italy and Britain are expected to back Hollande in a further sign that Merkel is increasingly isolated in Europe with her austerity plan for saving the euro.
The new president of France, François Hollande, wants to press German Chancellor Angela Merkel to drop her opposition to introducing jointly issued euro bonds as a way of tackling the debt crisis.
Hollande said after a G-8 summit in the United States on Saturday that he would propose euro bonds at an informal summit of European Union leaders on Wednesday in Brussels.
“I will outline all growth proposals at this informal meeting on May 23,” Hollande told reporters at Camp David, Maryland. “Within this packet of proposals there will be euro bonds and I will not be alone in proposing them. I had confirmation on this at the G-8.”
Obviously, given I have made quite a few comments that I am yet to hear exactly what is meant by the “growth compact”, I will be very interested in exactly what Mr Hollande has to say on the matter. The Germans, however, appear to have already made up their minds, once again, about the major component of President Hollande’s plan:
Pierre Moscovici will meet German Finance Minister Wolfgang Schaeuble in Berlin and is expected to press for measures that would boost growth. Eurobonds are a proposal to issue debt on behalf of all 17 euro countries.
But a German minister said they would be “a prescription at the wrong time”.
“We have always said that as a first step we need solidity in European finances, and that is the fiscal compact,” said Steffen Kampeter, a deputy finance minister, referring to the budget pact that 25 out of 27 European Union countries agreed to abide.
You may remember Mr Moscovici, the new French finance minister, from a few days ago when he said:
“What has been said quite clearly is that the treaty will not be ratified as is and that it must be completed with a chapter on growth, with a growth strategy”
So, yet another co-ordinated political response to the crisis, then! But it may just be that the French camp have come out all guns blazing in order to allow both themselves and the Germans large amounts of room to negotiate down while still delivering something of substance, project bonds for example. We’ll have to see what actually comes out of this meeting and then the follow up summit in June.
Obviously we already know from previous statements that Mario Monti is on the side of Hollande in his calls for a more balanced approach to dealing with the issues at hand, but it is unknown exactly where other EU leaders sit on the topic given renewed turmoil and larger contagion in the Eurozone. One of the outstanding questions for me is what Spain’s Mariano Rajoy thinks of these matters. He has previously come out in defence of Angela Merkel and the fiscal compact, but I assume he would support any action that could help his country. Until quite recently, however, he hasn’t been vocal about his country’s economic problems, preferring to leave the bad news to be delivered by his deputies.
My overall feeling is that he doesn’t want to rock the boat and get Germany off side, which given his country’s circumstances makes sense. However, it is likely Spain will require some form of relief over the next few months as it becomes obvious that the country is genuinely struggling as unemployment and bad debts continue to rise and the banking system looks to be collapsing.
In regards to that struggle I noticed this article yesterday which is claims to be quoting a Spanish government source:
“We can’t do more. We have followed the plan that they created for us in every detail. We have even done more than that… Now it is their turn, either they help us to get out of the crisis or we will give up.”
The words came from a person at the Moncloa, the government headquarters, and revealed the despair.
….
“We can’t do more,” the source insisted. “It is like groundhog day. Every Monday, the same negative messages despite the fact that every Friday [when cabinet meetings are held] we approve new, even harsher measures.”
Last Monday, the feeling came back among the members of the government’s financial team: they crossed their fingers. The previous Friday, the Cabinet had presented the second financial reform under Finance Minister Luis de Guindos.
“Of course, it had the blessing from Brussels,” the source said. A ‘blessing’ achieved a few days before the plan was presented at the Moncloa after a ‘discreet’ trip by finance minister himself to Milan and Berlin to receive the ‘nihil obstat’ from Olli Rehn, the European economy commissioner, and Mario Draghi, the head of the European Central Bank.
Despite Rajoy being a disciplined student – in his words: “I am pushing forward reforms and budget adjustments that I don’t like the least, but that’s what is needed,” – the team around him, with their fingers crossed, observed, powerless, how the story repeated itself yet another week.
Obviously this is from inside the government but it does put some of what we have seen from Spain in a little more context. It also raises the question as to why Spain’s fiscal credibility is suffering. Is it really because the government, particularly regional entities, aren’t trying hard enough? Or is it due to the in-feasibility of meeting the delusional expectations of the Troika who continue to demand ever larger cuts from an economy which, by all accounts, is already in a depression?
Either way, as Spanish yields move ever higher, the country is going to need additional help sooner rather than later. It is possible that Mr Rajoy hasn’t really pushed the issues of supra-European debt issuance because his country requires far more immediate action. Mr Rajoy’s target is currently the ECB, not Germany:
The message was not exactly new but Prime Minister Mariano Rajoy delivered it in the clearest way so far in public without naming names: Spain feels it has done its homework and believes the European Central Bank should do more to relieve the market’s stranglehold on Spanish government debt.
“The most urgent thing at the moment is to guarantee financial stability, that when a country has debt maturing it can refinance it,” Rajoy told a news conference in Chicago where he had been attending a NATO summit.
“This can be done rapidly in 24 hours, without great debates, nor laws that take two years,” Rajoy continued. “We can have debates but the most important thing is to take a decision. What is urgent is financial stability.”
So far the ECB appears unmoved with the Security Market Program (SMP) a no-show for another week.