Brussels, 23/08/2011 (Agence Europe) - There has been no respite in the eurozone sovereign debt crisis. The decisions taken at the end of July by the special eurozone summit have not had the expected impact on the cost of rolling over public debt. On Monday this week, Cyprus rolled over some of its debt on the markets at a rate of 7% over ten years. The European Central Bank has reactivated the purchase of bonds (buying up more than 35 billion euros-worth over the past fortnight) and Italy has announced new budget correction measures. In order to reduce speculation, several countries have temporarily halted naked short-selling of various securities, particularly bank shares. Germany and France have made suggestions about how to boost economic governance and urge all countries to complete by October 2011 national authorisation of the new measures needed to allow more flexible use of the EFSF bailout fund. The economic recession in Greece in 2011 will be worse than forecast, with GDP expected to shrink by at least 4.5%, which does not augur well for the country or the second Greek aid programme. The fact that Finland has been given guarantees by Greece about paying back its contribution to the second aid programme has not gone down well with its eurozone partners.
Faced with public reluctance to provide further help to Greece, the new Finnish government had been calling for guarantees from Greece since June 2011 in return for Finland's agreement to support the aid package. Last week, Athens pledged to keep several hundreds of millions of euros in a special bank account to this end (somewhere between half a billion and a billion euros) as surety against the risk of Greece defaulting on paying back the aid provided by Finland.
This agreement between the two countries has sparked anger in other eurozone countries. On Monday, Dutch Finance Minister Jan Kees de Jager described it as incompatible with equal treatment of all eurozone countries because the cash for the special guarantee bank account will be taken from the loans provided by the EFSF. The German finance minister said that such an agreement must not be to the detriment of the other countries lending money to Greece. On Tuesday 23 August, a spokesperson for EU Economic and Monetary Affairs Commissioner Olli Rehn said that Greece and Finland had explained to their partners what was at stake and the agreement would have to have the backing of the eurozone summit because a decision of this type would clearly have an impact on the funding of the second Greek bailout programme. If the insurance deal goes ahead, then Slovakia, Slovenia, Austria and the Netherlands might be tempted to follow suit and demand that their aid also be guaranteed, but Rehn's spokesperson said he was unaware of any such requests. US rating agency Moody's comments that talk of this nature bears witness to the problems some countries are having with demonstrating solidarity and if it leads to a raft of bilateral deals, then this would slow down the payment of the aid to Greece.
France and Germany's new ideas. Meeting in Paris last week, German Chancellor Angela Merkel and French President Nicolas Sarkozy made new suggestions about how to increase economic governance and the surveillance and integration of economic and budget policies in the eurozone. They suggest that a summit be held twice a year to ensure proper implementation of the Stability and Growth Pact and decide on economic policy for the eurozone. They also want the Eurogroup to have a stronger role. Berlin and Paris suggest that an election be held to choose a president of the eurozone, with the first two and a half year mandate being offered to the president of the European Council, Herman Van Rompuy. At the end of last month, Van Rompuy was asked to come up with suggestions (by October) about how to manage the eurozone crisis.
On the surveillance and integration of economic and budget policies, the Franco-German ideas are similar to those set out in the Euro Plus Pact. By the summer of next year, all eurozone countries should introduce a balanced budget rule into their legal system (and/or constitution, as appropriate), which would take precedence over other budget legislation. Such a balanced budget rule would be the fastest way to get countries to balance their budgets and reduce debt to a sustainable level, as set out in the annual debt reduction plans.
Spanish Prime Minister José Luis Rodríguez Zapatero said on Tuesday that his country is introducing such a rule, while Italian Prime Minister Silvio Berlusconi announced last week that Italy was introducing one. Anxious to ensure progress in the coordination of fiscal policy, France and Germany want talks on the harmonisation of corporate tax to be concluded by the end of next year and have announced that they will be working on the idea of an EU company tax, with a harmonised tax basis. The two countries will decide by the end of September on a common proposal for a tax on financial transactions, but the European Commission is already working on this.
However, the two main euro area economies refuse to countenance eurobonds. “I don't think that introducing a common government bond will be helpful in dealing with the present eurozone crisis”, said Merkel. Her Finance Minister Wolfgang Schäuble stated that partial pooling of the debt of the countries of the euro area could only be envisaged once the eurozone had a common budgetary and taxation policy. Speaking on the Belgian RTBF channel on Saturday, Van Rompuy said nothing to contradict this position: “We could have eurobonds only when there is, indeed, real budgetary convergence, when everyone is running a balanced, or practically balanced, budget”. The Commission is committed to carrying out a specific feasibility study once negotiations have been concluded on the legislative package reforming the Stability and Growth Pact. The Polish Presidency of the Council of the EU is quite happy with the Franco-German proposals. “We are not afraid of meetings of the euro area countries leading to a strengthening of eurozone management, because this is something the euro area really needs”, Prime Minister Donald Tusk told the Polish parliament last week. (M.B./transl.fl/rt)