What no crisis?

May 13, 2013


It seems eons since the euro zone finance ministers’ meetings which made such a hash of the Cyprus bailout but they were only two months ago. Monday’s Eurogroup will be altogether less eventful with some of the gathering probably a little jaded having spent part of their weekend at the G7 outside London where the usual differences about growth versus austerity and banking reform were aired.

No one will be sorry for a more routine meeting and there are no icebergs on the horizon but the agenda is still a full one. Featuring will be the economic situation on the basis of the Commission’s latest forecasts, the state of play in Cyprus, the decision already taken to release more bailout money to Greece, the new steps taken by Portugal to fill the gaps in its budget after the country’s top court struck some measures out, a review of European Commission reports on what is ailing Spain and Slovenia and a broad discussion about the merits of the ESM bailout being allowed to recapitalise bank retroactively from next year.

Italy offers a range of bonds at auction worth up to 8 billion euros which should be snapped up given the European Central Bank’s underwriting of the euro zone and Japanese money coursing through the financial system.

Germany’s Economy Ministry publishes its monthly report and Finance Minister Wolfgang Schaeuble makes a speech, this ahead of Q1 GDP figures on Wednesday which are likely to show that of the bigger members of the euro zone club, only Europe’s largest economy returned to growth in the first three months of the year. The Bank of France has just forecast that the French economy will eke out growth of 0.1 percent in the second quarter.

Schaeuble, writing in the FT, has confirmed what we reported last week – namely that he wants a limited banking union based around cross-border supervision and only much, much later (never?) a bloc-wide system to deal with failing banks which he continues to insist will require treaty change. Build the timber frame first and the steel frame later, he says. Until then, euro zone countries would continue to deal with problem banks. This has the fortunate effect of preventing Germany from taking on liability for others but it’s nothing like the structure that was proposed last year and will continue to cause considerable angst elsewhere, not least France, Spain and the European Central Bank.

The British government continues to tie itself in knots over Europe, clearly spooked by UKIP – a party that may not win a single seat at the next general election. The argument that David Cameron has struck a chord by dangling the prospect of a referendum on EU membership is seriously challenged. Just as likely is that the Conservative party is starting to eat itself again over the issue that has obsessed it for over 20 years. Offer eurosceptics in his party an inch and they will demand a mile.

Over the weekend, two cabinet ministers said that if there was a vote today they would vote out. One of them was Michael Gove, quite likely to be the party’s next leader. Even more extraordinarily, Cabinet ministers appear to have been told to abstain on an amendment put down demanding legislation now to ensure a referendum after the next election. This is seriously odd since it basically means the government not opposing a challenge to its own legislative slate laid out in the Queen’s Speech last week. Cameron says he wants Britain in Europe but seems incapable of explaining why.

The G7 didn’t produce much over the weekend and there was certainly little pressure on Japan over its money-printing which has put the yen into freefall. It was Fed chief Ben Bernanke, who skipped the G7, who had much the most interesting to say late last week: that he was watching markets closely for signs investors were “reaching for yield” in a way that could threaten financial stability. Irrational exuberance anyone?

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