A quick update from Brussels on the crisis in the euro-zone where Finland’s demand for collateral in return for financial aid to Greece is, as the New York Times reported, threatening the “fragile consensus”. [Offer them an island or two! – Ed] I don’t think that would cover it…
The BBC reports that European Central Bank (ECB) president, Jean-Claude Trichet, wants European governments to get back to work quickly.
“The full and timely implementation of the July 21 agreement between heads of state or government is of essence,” [Jean-Claude Trichet] said.
The latest problem for the implementation of the second bailout is that the government of Finland wants collateral for its fresh loans to Greece.
Talks were held between Finnish and German officials on Monday to find a compromise position, with both sides voicing optimism that the timetable could be met.
Jean Claude-Juncker, the Prime Minister of Luxembourg who also chairs the meetings of eurozone finance ministers, said the collateral issue would not endanger the bailout.
“The eurogroup is working on a proposal, which I hope all eurozone member states will be happy with,” he said.
That’s not the only domestic political problem for Frau Bundeskanzlerin.
Christian Wulff, Germany’s president, stunned the country last week by accusing the European Central Bank of going “far beyond its mandate” with mass purchases of Spanish and Italian debt, and warning that the Europe’s headlong rush towards fiscal union stikes at the “very core” of democracy. “Decisions have to be made in parliament in a liberal democracy. That is where legitimacy lies,” he said.A day earlier the Bundesbank had fired its own volley, condemning the ECB’s bond purchases and warning the EU is drifting towards debt union without “democratic legitimacy” or treaty backing.
The warning from EU Monetary Affairs Commissioner Olli Rehn came after a turbulent summer for markets across the globe, as investors worried about a potential new recession in the United States, the eurozone’s ability to resolve its debt crisis and the health of European banks.
“The financial markets and the real economy move now more in synchrony, which makes me seriously concerned about continued financial turbulence spilling over to and potentially harming the recovery of the real economy,” Mr Rehn told European politicians.
That statement is a sharp turnaround from comments in recent months, when he said growth in the EU was strengthening despite the market jitters.
And the earlier noted BBC report adds
[Mr Rehn] said that the targets set for Greek privatisations might have to be revised because of falls on the Athens stock exchange.
“The value of some of the assets earmarked for privatisation has been declining in recent quarters,” he said.
“In case of difficulties in meeting the targets, the rhythm of disposal of state-owned assets and the stakes offered for sale could be revised in order to ensure the quarterly privatisation targets are achieved.”
He added that the recent turmoil on the financial markets had contributed to short-term growth prospects having “somewhat worsened compared to our spring forecast”.
The European Commission had predicted the eurozone would grow by 1.8% this year. It will release a new forecast on 15 September.
Will individual governments agree to anything before that date?
In the Irish Times, Dominic Coyle doesn’t think so.
In the aftermath of the first stage of the financial crisis, triggered by the collapse of Lehman Brothers, European Central Bank president Jean Claude Trichet had hailed the strength of the euro in meeting that challenge. “Would Europe have been able to act as swiftly, decisively and coherently if we did not have the single currency uniting us?” he asked. It seems a hollow boast now.
True, the ECB has shown more leadership than others, agreeing eventually to underpin the debt of Italy and Spain when those countries threatened to unravel but only after securing tough commitments to fiscal reform, particularly in the case of Italy. Still, even those decisions seemed reluctant, made by a governing council whose divisions quickly became public.
The ECB’s action appears decisive only next to the political dithering of Europe’s political leaders. It is now five weeks since Europe’s leaders agreed the terms of a beefed-up bailout package and further help for Greece. Not a single country has yet approved it – in fact, despite the crisis, the only European parliaments recalled over the summer break were those of the UK (over the riots) and Italy (where most members simply did not bother turning up to discuss critical austerity measures). It will be the end of next month – and possibly into October – before the ratification process is complete.
And even before that, there is now a widespread acceptance that more needs to be done. Yet there is still no serious debate on what many commentators now believe is the only long-term path to viability for the euro – a stronger fiscal union.
Well, that is an option. But it’s not the only one…
And its still dependent on resolving “the political trilemma.”
[Europe is still sexy! – Ed] Of course it is.