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Re-elected Barroso faces market challenge

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bozoJose Manuel Barroso promised the European Parliament that as re-elected president of the European Commission he will have more authority to fight for Europe and defend its single market against economic nationalism.

But after five years of toadying to the big member states, he will need to show more spine to enforce state aid and competition rules on Germany, Britain and France in the teeth of strong national financial or commercial interests.

The conservative former Portuguese prime minister, backed by all 27 EU governments, won an impressive absolute majority of EU lawmakers — more than the simple majority he required. That
gives him a stronger hand when facing inevitable pressure from the big boys over the carve-up of key Commission portfolios.

Recent Commission moves to query state aid to banks (such as Dutch guarantees for ING) and scrutinise public funding of auto industry rescues (Germany’s bung for Opel) are encouraging. But it remains to be seen whether Barroso, now he is no longer reliant on them for re-appointment, has the character to stand up to Angela Merkel, Nicolas Sarkozy or Gordon Brown on politically sensitive cases. In his first term, he often appeared to be a trimmer, a multilingual chameleon.

Gifts for all on Barroso’s Christmas tree

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danybozo-epJose Manuel Barroso’s pitch to the European Parliament for a confirmation vote on Wednesday was like a Christmas tree, with gifts for everyone.

Bidding for a second term with a wider majority than his own centre-right political family, Barroso produced last-minute peace offerings for the centrist liberals, the centre-left socialists, the environmentalist greens, women, trade unionists, the French and the scientific community.

German Opel aid tests EU rules

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opel-logosThe credibility of the European Union’s single market and state aid rules is at stake over Germany’s selective offer of taxpayers’ money to preserve Opel factories and jobs on its soil.

On the face of things, it looks like an open-and-shut breach of state aid rules. General Motors agreed last week to sell 55 percent of its European arm to a consortium of Magna and Russia’s Sberbank under massive pressure from Berlin.

Dash for trash in tier 1

Bondholders seem to be relatively undaunted by the European Commission and its various machinations to ensure bank investors share some of the pain for state bailouts.

Tier 1 debt, the lowest-ranking form of bank capital security, is enjoying a rally this week as investors scramble for higher-yielding securities. Among the chief gainers are bonds sold by Royal Bank of Scotland and Lloyds, both of which have taken state-aid, meaning their bonds are likely candidates for the “burden-sharing’’ the EC is keen to see, such as having to defer coupons or worse.

Good hybrid crack

It’s interesting to see the Irish government seems to have been keeping a close eye on the hybrid debt fiasco, as it is now embracing the securities as a way to ensure the country’s banks don’t get an easy ride offloading dud property loans to NAMA, its bad bank scheme. I guess you could call it a form of payback.

Hybrid debt has played its own special role in creating the current mess.
Banks used hybrid debt to bolster their capital ratios even though the securities weren’t always very good at absorbing losses.

French PM eyes Barroso’s job?

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fillonIs France trying to stymie Jose Manuel Barroso’s re-election for a second term as European Commission president?

An intriguing story in Le Monde reports that French Prime Minister Francois Fillon (pictured left with Barroso and President Nicolas Sarkozy) is considering offering his services as head of the European Union executive if Barroso fails to win majority support from the European Parliament this month. Le Monde quotes an unidentified French minister and an anonymous senior diplomat, with a comment from Fillon’s office declining to speculate on a Barroso failure and saying that of course, the prime minister is interested in Europe but he hasn’t put himself forward as a candidate.

Barroso’s EU vision lacks levers for change

Could the European Union be among the big losers of the global financial crisis?

Despite signs that recession in Europe may be bottoming out, the 27-nation bloc risks emerging from the turmoil with its economic growth potential stunted, its public finances shackled by mountains of debt, and its international influence weakened.

That is the backdrop to Jose Manuel Barroso’s campaign for a second term as president of the executive European Commission.  In a manifesto sent to EU lawmakers last week, he warns that unless Europeans shape up to the challenge together, ”Europe will become irrelevant”.

The European Commission strikes back

Reeling from the humiliation of failing to stop Belgian bank KBC paying interest on some of its subordinated bonds, the European Commission has won a new victory in its bid to see bondholders share the pain of bank bailouts.

Acting as a sort-of policeman for Brussels, the UK’s Financial Services Authority has prevented the Royal Bank of Scotland from repaying four subordinated bonds at their first opportunity, causing prices to plunge by up to 15 percent. The Upper Tier 2 euro-denominated bonds fell to between 70 and 75 cents, depending on who you ask.

A dark horse for financial innovation

Financial crises tend to spark innovation, and this one will be no different.  Today’s Times of London carries a story on a new security Lloyds Banking Group is devising to raise capital and reduce its participation in the British government’s asset protection scheme (GAPS).

The advantages for Lloyds of raising new capital are obvious: it would reduce the government’s stake in the bank taken as payment for GAPS, give it greater free rein and a more powerful negotiating stance with the European Commission over its restructuring plans.

No-one escapes the European Commission

Fitch just delivered some pretty hefty downgrades on subordinated debt sold by Lloyds Banking Group’s insurance arms Clerical Medical and Scottish Widows. 

The rating cuts follow similar downgrades on debt issued by the group’s banking units last week. Once again, the cause for the downgrades is the European Commission’s renewed zeal for banks that have received state aid to share the pain with their investors, notably by deferring coupons on subordinated debt.
 
The seven and eight notch cuts take the bonds from high investment-grade to low-junk (B+). Not pleasant.

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