EU Commission proposes better financial terms for EU loans to Ireland and Portugal

Good news, it seems, from the Commission, allowing us to extend the maturities of our loans, and service them at much lower interest rates, essentially the cost of funds from the EFSM. It also looks like there will be a retrospective reduction (but that’s my reading of the text, I’m open to correction).

From the press release:

The Commission proposes to align the EFSM loan terms and conditions to those of the long standing the Balance of Payment Facility. Both countries should pay lending rates equal to the funding costs of the EFSM, i.e. reducing the current margins of 292.5 bps for Ireland and of 215 bps for Portugal to zero. The reduction in margin will apply to all instalments[sic], i.e. both to future and to already disbursed tranches.

Furthermore, the maturity of individual future tranches to these countries will be extended from the current maximum of 15 years to up to 30 years. As a result the average maturity of the loans to these countries from EFSM would go up from the current 7.5 years to up to 12.5 years.

Two comments. First, this is very welcome news, and well deserved given the levels of austerity we’ve endured and the cooperation the Irish State has given, relative to other EU countries. Second, were this proposal to come from the Irish side, rather than the Commission, in the current climate it would be seen as a call for a controlled default. The fact that we (and our Portugese cousins) are being allowed to do this shows that the EU Commission is aware that the sustainability of Ireland’s and Portugal’s public finances are in question, and they have decided to act decisively to change the probability of our finances becoming unsustainable in the medium term. So: a good news story for once. Commenters may have differing views, of course.

(Ht to Liam Delaney for showing me this)

79 replies on “EU Commission proposes better financial terms for EU loans to Ireland and Portugal”

This is good news. Could this be in preparation for a greek default in an attempt to mitigate markets turning on us and portugal in the event?

What can you say other than great news.

Discounts on 45bn of the 67.5bn we are borrowing all but secured it seems.

I am still looking forward to seeing the reduction being outlined in the forecasts in the upcoming 4-yr plan.

The can has been given an almighty kick this time! Let’s just hope that it doesn’t bounce back off the wall of future events.

Soon we’ll be offered the terms that Iceland rejected on the Icesave loans from Netherlands & UK and it will be hailed as another victory.

Hang on Guys ….Commission proposes…..
They are also proposing Eurobonds which the real boss objects to.

@Stephen Kinsella
Afraid you misread…..

“The proposals adopted by the Commission this morning are expected to be approved in the coming weeks.”


On a full year with all elements of the €67.5bn drawn down (bilaterals etc) the annual cost of funds is 3.55% taking these reductions into consideration.

@Stephen Kinsella
It looks like a big power play is taking place over in Strasbourg..

“Addressing the European parliament in Strasbourg, Barroso sounded desperate and thoroughly exasperated by European leaders’ failure to deliver fast enough on their rescue pledges.”

Not to spoil the party, but this proposal has all the looks of a rushed agenda which may be very difficult to get approved by the hardliners such as the Finns, Austrians and Dutch.

It also seems peculiar that no such initiative was flagged.

@Seamus Coffey
“Ten-year Italian yields fell five basis points to 5.66 percent as of 10:39 a.m. in London. Earlier they climbed as much as six basis points to 5.77 percent. The 4.75 percent security due in September 2021 rose 0.375, or 3.75 euros per 1,000 euro face amount, to 93.720. Two-year yields fell five basis points to 4.60 percent.”

I do not think Silvio will be impressed with the proposal to lend to us at 3.55%

Good news for Ireland. I wonder how Italy and Spain feel about a “bailed-out” country getting funds at 3.55% as per Yields or Bust above. Incentives and all that.

You’d best concern yourself with how the lenders and the banks feel about it. There doesn’t seem to be a lot of incentivisation to rein in imprudent lending. The banks will be off on the tear again the minute this all dies down.

It is costing the ECB 13b+ per week to prop up the sovereign bonds of Italy and Spain. How long can this continue?

“Figures produced by the Frankfurt-based central bank this afternoon showed that it had spent €13.96 billion on the purchase of Spanish and Italian bonds last week – up from €13.3 billion the week before.”

The Eurozone could do well to observe the efforts being made by the EU-27 to try and fix the problem.

It’s reached a stage where we have to identify countries that can recover from this and those that can’t. A Greek default is inevitable, partly because of the size of their problems, but mostly because of the inability of the Greek authorities to deliver reform.

It is good news.

Punishment and vindictiveness being replaced by support and solidarity.
I saw part of an interview with Jacques Delors on TV last night where he castigated the current European leadership and proposed a return to the principle of European solidarity.

Maybe Delors is having some success.

@ stephen kinsella

We are being thrown another lifebelt but our spreads are going up. Hmmm. Should be going down. Could it be that the new lipstick is wearing off the this little PIIG ?

Maybe the EC decision is a response is just one more attempt to stop our yields from resuming their remoresless upward trajectory.

Good news indeed, but this was always the working assumption post-July 21st summit, so it’s unrelated to the latest Greek meltdown and not a real ‘surprise’. The retrospective element was one element that was less clear, so good that that has been agreed to too.

The only reason we are being thrown this life jacket is because the contagion has spread to Spain, Italy, France and even Germany itself.

The best thing for Ireland was the Germans and French getting impaled on their own fantasy about austerity being a cure for all ills while blatantly screwing us through their support for bondholder are sacred cows strategy.

“The proposals, which are expected to be approved by the council in the coming weeks, also apply to Portugal.”

Does this mean all 27 or 17 or is a majority sufficient?

Michael Noonan Yes, Ireland had agreed to “engage constructively” in discussions on a CCCT common base, this was not a new concession and Ireland was not opposed to greater cooperation with its EU partners.

There could be a lot more to this than a response to contagion spreading.

@ All

Before we get collectively carried away, it should be recalled, if I understand the situation correctly, that what is at issue is the European Financial Stability Mechanism, the element of the bailout that is carried on the budget of the EU not an erstaz inter-state construction based in Luxembourg, and Luxembourg law, which is the EFSF.

The UK was initially opposed to its extension to Portugal because of the fact that the UK has to contribute to the EU budget but relented. The fact remains, however, that it has been agreed that it will not be used further, the reason being that the EU budget has other demands upon it and its capacity to raise money cannot be over-estimated.

The new members states, in particular, are anxious about the use of the EU budget because of the legitimate calls they have on it. However, it must be assumed that there will be the necessary majority in the Council to agree the Commission’s proposal.

What we will get instead of the EFSM/EFSF is the ESM which will have the status of an international treaty, under international law, where matters will be decided by unanimity (i.e. everyone will have a veto, it being difficult to give such a power to only some members, the EU not yet being the Security Council of the UN although some of the larger countries would clearly like to see it run that way).

The ESM can only be adopted once the change to Article 136, insisted upon by Germany to give it protection, apparently, from her own constitutional court, is put in place. This change will require ratification in all 27 member states. The ESM will, of course, bind only the countries that are party to it.

The interview with Delors is well worth watching. However, instead of describing the blackmail actions of the Finns and the Slovaks as a scandal, as Delors does, we should be calling collectively for a vote of thanks as their action illustrates in a manner that cannot be eluded the stupidity of going the route of unanimity and the inter-governmental approach and jettisoning half a century of the successful use of the Community method (the democratic procedure at the heart of the EU where the Commission proposes, and the Council, usually acting together with the European Parliament, disposes).

Delors crosses all the T’s and dots all the I’s and shows up what a collection of political mediocraties are now in charge of Europe’s destiny.

Contrary to what some have said about our bond yields, we have weathered the recent storm in Italy very, very well.

Just look at the 5yr Italian-Irish spread. Down from a July peak of 1182 bps to 272bps today. And the downward trajectory continues….

Sans tarrif this is the same thing as Eurobonds…as such, given the term, it appears to be committing the Euro area to a radical change in direction

As an aside, I wonder re the bilateral loans…will they be reduced to cost ?

Sans tarrif this is the same thing as Eurobonds…as such, given the term, it appears to be committing the Euro area to a radical change in direction

As an aside, I wonder re the bilateral loans…will they be reduced to cost ?


The rules according to Geithner in a crisis are that you do what it takes to get to the other side – saw an interview with him on CNBC and it’s interesting to listen what his view on matters European.

He doesn’t believe a Greek default is going to be allowed to happen nor does he believe a larger Euroepan bank will be allowed to fail – Lehman like. (I suppose the latter would likely only happen if the former did) but he is of the view that there is more than enough resources in Europe to deal with the crisis. Resources and will are sadly not compatible.

Todays announcement suggests the penny is possibly beginning to drop. A Greek/Irish/Portuguese default, if allowed to happen would be a disaster that would have Black Swans up in arms due to its fallout. I’m still of the view that a default of some sort is likely but any fallout I believe could be significantly nastier than the ‘in the price’ brigade currently believe.

By the way my view is that this concession has nothing to with the negotiation stance by the Govt – Noonan may believe that he engineered this concession but we’re a very small fish in the wider scheme of the Euro problem pond.


So this is the EFSM portion of our loans only. What does it require for approval by the Council. Ant idea what these (EFSM) bonds trade at?

Sean O’Rourke interviewed Wolfgang Novak now with Deutsche Bank and formerly adviser to Schroeder on the lunchtime news and he was adamant that there will not be Eurobonds. The reason he gave is that Merkel would lose her fragile majority and interestingly, she is conscious that Nicky has to get elected next year. So Nicky will be pushing this evening for more money for Greece to avoid a French bank meltdown.
I take it that Novak has plenty of relevant information.

@ ceterisparibus

On your last question, I have no idea. I presume that they are listed like other bonds but in terms of what they were raised for. The EU (and the EIB) enjoy the highest credit rating (and will continue to do so as long as the markets do not view EU credit as an open spigot; the worry keeping Germans awake).

@ CP


Maybe Merkel can do an Indira Gandhi and suspend the constitution for the
needful duration.

I’m with Eoin Bond. Is this “news”. When ministers talked about €800m per annum savings after the Jul 2011 summit, they included the EFSF, the EFSM and the bilaterals from the UK, Denmark and Sweden in the assumption that rates charged would fall to 3.5% (or the Balance of Payment Facility).

I suppose it is good news to have that confirmed and it would have been dreadful if the EU controlling the EFSM had told us to feck off, and it wouldn’t agree the reduction that had taken place with the EFSF (which was the subject of the summit communique in July).

So another small tick for Ireland.

‘The markets’ including Wall streets global banks and their ambassador Mr. Geither are the people to thank for this reduction.
Wall street banks such as JP Morgan, AIG, BOA/Merryl Lynch, Goldman sachs have large CDS exposure to European banks and soveriegn debts. Basially they sold bucketloads of insurance to bondholders, BIS has rough figures on that.
They have been working really hard since the crisis to avoid paying out on those CDS, which they say would cause another global financial crisis. With Lehmans it was CDS payments that brought down AIG.
First the wall street banks were Ireland’s ememy by forcing the state to pay for the all of bondholders losses instead of them. We all remember Mr. Geithers veto to the IMF. Even though the IMF was telling them Ireland couldn’t afford to repay the bondholders in full they still pushed it onto us.
Now we are on step 2 of the plan. That is get the stronger EU countries to bail out Ireland, EU banks and peripheries. So now the wall street banks and their ambassador Mr. Geither are our ‘friends’, in that they have the same aim as us. Shift the debt to the EU taxpayers cause they don’t want to be paying out CDS on Irish bonds, banking or soverign.

I find it quite amusing to hear the plans suggested by Jamie Diamond Citigroup, Mohamed EL-Erian PIMCO, George Soros, Ackerman from Danske and many many other investors and financial industry leaders on platforms such as bloomberg, CNBC and the Financial times.
Basically all I hear when I read their plans are ‘We are protecting our clients money and investments, that is what is most important to us and is what we are being paid to do. We don’t want too much inflation which would decrease the value of our clients investments so the ECB engaging in monetary easing is not a solution. We simply want taxpayers and the general public to foot the bill for our mistaken investments. The best way to do that is to have Europe put all their debt under one umbrella.” I suppose they are just doing their job.
The worlds leading financial institutions and funds have enormous power made even larger by a common purpose and they are getting what they want.


Given the EU leaders agreed to chnages to the EFSF in July, what makes you think they would reject these Commission “proposals” (more like formalities” now?

@Bond and Jagdip

It most certainly is news, expected or otherwise. It is nice to have an assumption we have been relying on for two months approved.

Very good (old?) news in isolation. Debt would probably be sustainableish at these rates given “normal” external conditions.

However this is a bit like ESB getting excited at wind energy potential when a hurricane is coming without stopping to think the hurricane will destroy the other 90% of energy production.

@Rob S

It really is a no news story although RTE reporting it as additional savings. More bullsh1t.
The reason I asked about the approval mechanism for EFSM is, simply, I think Barroso is trying to regain some control and could face the wrath of Angela. He is proposing Eurobonds again when Angela has firmly said nein.
The interview I referred to above with Wolfgang Novak was interesting and he said something to the effect that the best thing Barroso could do for Europe was to keep his mouth shut.
nuff said!

With IMF debt projection of 216 billion and banks with 156 billion from ECB and funny money from the ICB, sure we are laughing. And we now get 30 years to pay it back at the bargain rate of 3.55%.

Anyone care to project the national debt out to 2041?


I think someone has done a back of the envelope calculation and said that the €67.5bn (which is the EFSF, EFSM and the three bilaterals from UK, Sweden and Denmark AND the IMF element) had rates of an average of 5.7% and is now an average of 3.5%, that is in a full year there would be a saving of 2.2% on €67.5bn which would equal €1,485m.

Of course the IMF is not part of this though the IMF rates may reduce from Oct 2012 for other reasons. We haven’t drawn down 100% of the European funds. And the Euro rate are the “Balance of Payment Facility” rate about which there’s sfa on the ECB or EFSF websites. So it might be 3.5% but I thought the consensus was that it would be 4%.

I think you are right. During the bulletin they reduced it to 1.1 to 1.2b saving.

sure whats a few hundred million..

It’s interesting that both Weber and Stark have left the ECB . I wonder who pushed them. Maybe it isn’t all going to end FUBR .

This is good news but I am sure everyone of us is wondering how hard the “can has been kicked” this time.

Personally I suspect Ireland will be way down the “hit list” if Greece leaves the Euro.

IMHO Germany and France need to think very carefully before they let Greece depart and if they do it is imperative that both countries do everything possible to keep Greece within the European Union.

I doubt David Cameron has “popped over” to Moscow just to recall old stories about KGB experiences (apparently Gorbachevś KGB tried to make friends with young David in the 1980´s) with the Russian President who is around the same age as Mr Cameron.

At the same time, I suspect wily old Sylvio Berlusconi (who is old enough to remember the WWII and the reasons why the EEC/EU was formed) has not started to chat and cosy up with Chinese leaders just because he would like to keep up OAP membership of his “Bunga Bunga” circle now that the Libyan Colonel has vanished.

@ ceterisparibus et al

It is a mistake to try and deal with what is going on in terms of personalities and no one should rely on the information from RTE in relation to EU institutional issues if the coverage this evening is any guide. It succeeded in casting the Commission as the Wicked Witch when the very opposite is the case.

Barroso is the head of a college of commissioners and nothing can be decided other than by the College. Given its nature, it decides by simple majority. Before tabling a proposal, the career public servants of the EU have to ask themselves two questions (i) will the proposal be approved by the College of Commissioners and (ii) will it be approved by the Council (and the Parliament if the legal base on which the proposal is being put forward requires this).

Barroso has evidently up to this point taken the view that the necessary majorities did not exist on the most sensitive issues affecting the euro. However, he seems to have finally awoken from his torpor because the winds of political change are blowing. The “Merkozy method” is clearly leading not just no where but possibly to disaster. The decision taken by the Commission today on the EFSM is an indicator of this.

The key political issue in the present debate is not the amount of “savings” (which is a ridiculous description), which is an arithmetical issue, but whether they will be applied retrospectively. The Commission, in its role as Fairy Godmother i.e. defender of the general interest, has indicated that it should apply to the element of the bailout not which it controls but in respect of which the treaties give it an extremely influential role. This sets the scene for the EFSF element. The IMF, knowing what it is doing, and having the background and procedures to agree a course and not to change it, must, and evidently is, looking on aghast as the EU demonstrates its failures under its present political leadership.

@ Chris,
Welcome to the cynics club, no doubt you were always a member, I didn’t notice before…

The wall street crew have got to be horrified that the Germans are prepared to let a country go….and this news on Ireland and Portugal has all the hallmarks of safeguarding the injured before you leave the mortally wounded to their fate….Greece is very close to on it’s own now…

I realize that it would be foolhardy to rely on local news for accurate information. In fact, over the past week they have been 24-36 hours behind the posts here.
My point is that Merkozy are on a collision course with Barroso and that raising Eurobonds again at this stage is useless.
Nicky is reported tonight saying they will defend Greece ( to the death )
Of course he will say this with his banks in a dire position.
But Angela will decide finally. So it may go on for a few more months.
However, the EFSF would last 31 weeks buying Italian and Spanish bonds with the limited firepower they have and given the ECB spending todate

@ Bkyln,
Like most people here I have been following the crisis with a couple of major sources.
1. Impartial, experienced, regonised, educated people mostly with Masters or Doctor degrees in the area of economics and finance, from forums like this one, project syndacite, and othert media outlets when they get into them.
2. Professionals who work in international finance on a daily basis and run investment banks or funds. Seen on Bloomberg, CNN, FT, Project Syndacite.
3. Politicans and central bankers, IMF, EU comission etc.

Without doubt the group 1 have mainly come up with intelligent and fair proposals which consistentantly prove to be have been more correct in hindsight. Example Barry Eichergreen on Brady type Bonds and monetary easing. Simon Johnston on breaking up the too big to fail wall street banks. Kevin O’Rourke Karl Whelan and others here have also made reasonable proposals I encourage more.
The group 2 have come up with self-serving, unfair moral hazard proposals which have proven to be incorrect in hindshight. Example taxpayers bailing out subordinate bondholders in bankrupt banks.
Group 3 have been ‘captured’ by group 2 in their home countries and have eventually ended up doing what they want. Will this trend continue? Most likely. In fact I have been able to predict what will happen quite well by reading what group 2 wants to happen. I suppose groups 2s job is to shape the future.
The media in general are not reporting from group 1, always reporting from group 2
The fact that Washington has been practically ‘captured’ by wall street is common knowledge in the States. There are so many former Wall streeters in positions of power there.
Perhaps I am a cynic or perhaps I am just observing the information available.

3 starting solutions to this.
1. Ban corporate donations from elections and make all candidates post their manifestos etc on a free ‘social network’ type platform.
2. Reform central banks to have economists from NGO’s, workers Unions etc and people from outside countries sit on the boards with guys with financial experience.
3. Hopefully websites such as these continue to gain in popularity as an alternitive to media with information controlled by moguls/governments.

The futile smile of the unjustly condemned

Joe Citizen was charged with a €90 billion debt which was not his. It was a set up, but he was sentenced to hang and the ECB and Emperor Nikki sent over their Pierrepoint who calculated a drop of 5.8 feet to be sufficient for the poor innocent sod. No appeal was allowed … and all poor Joan Citizen had to comfort her was that his demise would be swift ….

Then The Commission’s Constitutional Court ruled that 5.8 was too swift and that a haircut on the rope to 3.5 feet would be sufficient ….

Poor Joe did not die quick … but slowly strangled over the following years while his lifeblood dropped into the bertie_bowl while Joan and her offspring worked in the slave_mines to make the pittances required to pay the hangman (who then paid the ECB and Nikki) and to pay for the rope.

And no_one thought about simply cuttin the bleed1n rope, freeing Joe, and setting FIRE to the scaffold.

@ ceterisparibus

On your first point, I would simply say that the incompetence and insularity of the media is not a phenomenon confined to Ireland. There are, however, shining exceptions that are increasing in number. An example would be the coverage by Arthur Beezley in today’s IT on the core subject of this thread. Elsewhere in the paper, and other media, one can find evidence of a continuing inability to grasp how the EU functions, notably in relation to the tension between the Community and the intergovernmental method.

With regard to the former, one could think of it in terms of a hub (spoke and wheel) arrangement between 27 capitals, with Brussels at the centre, with regard to the latter, in terms of largely unscheduled bilateral links between them all, varying in terms of importance.

Presented as a graphic presentation, the lines reflecting the traffic between the major capitals under the intergovernmental approach would be so broad as to swamp most, or not all, of the others. This is what has been happening under Merkel and Sarkozy intergovernmental approach and which Barroso has finally plucked up the courage to challenge. Under the Community method, the hub and spoke arrangement applies, traffic is suitably managed under set legal rules in the cities that happen to be the hubs (Brussels, Strasbourg and Luxembourg). But it is a difference of method, not locations. The traffic still varies in importance but it is controlled for the benefit of all.

Chris has done a rather neat categorisation of the players but I think he needs to add a fourth, that of the ordinary punter, some well-informed, most not. Furthermore, there is no necessary contradiction in their roles.

An example would be the interview with Professor Barry Eichengreen on RTE just now who spoke nothing other than good sense and pointed out the elephant in the room: the parlous state of the major European banks and the need to re-capitalise them – using the EFSF – in conjunction with a really meaningful haircut on Greek sovereign debt. Geithner is hardly going to the informal ECOFIN meeting just for the fun of it. Furthermore, the leaked Economic and Financial Committee paper reveals that the EU system is fighting back against the political myopia of Merkel and Sarkozy.

I agree that the discussion on eurobonds is simply a distraction at present (as Eichengreen pointed out). But the fact that the Commission now evidently has a majority to approve something is, in itself, significant.



The question is why did Weber and Stark both leave the ECB. In simple terms the answer is that they were there to implement Germany’s wishes and did so as far as they were able. But Germany’s policy while it was good for Germany was disastrous for Europe as a whole and no doubt Weber and Stark were aware of this fact every day at the ECB.
Caught between doing what was best for Europe and what was seemingly good for Germany (in the short term) at the expense of Europe, they opted to back the Fatherland and left the Europeans to whatever fate would become them.

It was a simple case of: If we can’t run the ECB on behalf of Germany, then, aufwiedersehen.

I would agree with you that Arthur Beezley in the IT generally gives a good and accurate account of the state of things European. At least they get the numbers right….now 200m versus all the hype and rubbish out of RTE yesterday.
Your hub and spoke description reminds me of the story in the Telegraph of the Italian village of 900 hundred people that has 7 traffic policemen. It’s about political appointments.
On the issue of the Commission fighting back it remains to be seen if they can successfully do so. My own view is simple…he who has the gold makes the rules…and we know Angela has that precious commodity. It is also interesting to note that Tim Geithner believes that the strong core will come up trumps.
“US Treasury Secretary Timothy Geithner, who is to attend a summit of EU leaders in Poland on Friday, said he was confident that Europe could overcome its debt crisis. “The people who are concerned that this is beyond their grasp are mistaken. The size and the challenges that they face economically are completely within the capacity of the stronger European members to manage,” he said, adding however that “they are going to have to do more” and “move quickly.”
But then you have to wonder at the sudden magic solution to the Greek crisis which emerged at the weekend and the supposed acceptance of it …
” There was some relief in the office of Prime Minister George Papandreou on Wednesday after German and French leaders expressed support for Greece
French and German leaders emphasized during a teleconference call with Prime Minister George Papandreou on Wednesday that Greece remains an “integral part of the eurozone” despite feverish media speculation about the country’s imminent default, government spokesman Ilias Mossialos said late Wednesday night.

“Despite the recent rumors, all sides emphasized that Greece will remain in the eurozone,” Mossialos told state TV channel NET.

He added that German Chancellor Angela Merkel and French President Nicolas Sarkozy had expressed their conviction that new austerity measures announced by the Greek government over the weekend – chiefly a new tax on property – would ensure the country meets deficit reduction targets set by its international creditors and secures a sixth installment of emergency funding on which the country’s solvency depends.”

Until they face reality and,as you say, impose a meaningful haircut on Greek bonds this one is going to go on and on…..

@ ceterisparibus

You will note that I said that there was no diminution in the “importance” of the traffic under the Community method. In other words, it is not the weight of the countries that is at issue but the context within which we collectively agree to them using it (including prohibition of its arbitrary use).

Herewith, the agenda for Wroclaw (formerly the Prussian town of Breslau and the last to surrender at the end of WWII).

For reference also the text of the 21 July agreement.

Paragraphs 6 and 8 (third indent) would appear to be the key ones as far as Ireland is concerned. With regard to 6, if Greece is sui generis, how does this tie in with the text that has been agreed for the ESM in relation to the treatment of creditors for countries “in a programme”? Interesting question!

On recapitalisation, the European Banking Authority (cf. interview with its head in Sunday Business Post last weekend) argues for the issuing of collective guarantees. This raises the knotty question of several and joint liability. But we are talking private banks here, not sovereign debt. Can Berlin find another blocking excuse on this momentous occasion? More than an interesting question!

cf. also an added intriguing ingredient.

P.S. I would reiterate the point that the Commission, no more than other of the institutions, cannot, and should not, be viewed as a monolith. There should be no confusion between its “services” and the College of Commissioners, which is an essential element of the political process but which takes its decisions in conformity with the treaties. That the quality of the incumbents varies hardly needs underlining nor the the insouciance with which some countries – notably Germany most recently – put forward candidates for appointment.


Not sure of the intriguing ingredient. The front page of the FT came up online so I do not know which article you are referring to.

on the ECOFIN meeting I see that they are doing a “Family photograph” at 15.00. I wonder will Tim be included.

As regards the July 21 agreement the issue that jumped out for me was the provision for collateral. Seems nothing has been agreed on this.

As for collective guarantees, I note that bonds were issued yesterday to finance Portugal and all 27 members guaranteed them. It is intriguing that they yield 90 bp over German Bunds. The totality of the Euro members are less credit worthy than a single member.

@ ceterisparibus

Herewith a snippet from the FT article.

“Britain is to sue the European Central Bank for setting rules that allegedly handicap the City of London and would force one of the world’s largest clearing houses to decamp operations to the euro area.

The unprecedented legal action underlines the depth of ministerial concern over the ECB policy, which comes as the UK engages in a turf war with France and Germany over Europe’s financial markets infrastructure.

An ECB policy paper, released in the summer, requires clearing houses to be based in the eurozone if they handle more than 5 per cent of the market in a euro-denominated financial product”.

On the other issues, although not an expert in the matter, it seems entirely logical to me that the German Bunds should have a lower yield because of their liquidity and the safe haven that they represent.

As regards the EFSF, the question is how recapitalisation might work. The 21 July agreement says that it can be done through loans to governments including in non-programme countries. But this is hardly adequate because the EFSF is itself based on the individual not the collective solvency of the governments involved. The issue boils down to several liability versus joint or joint and several liability. An S & P representative got into hot water by stating if eurobonds were based on the first, they would be rated CCC. This is the case with the EFSF which gets the credit rating AAA because of the various “credit enhancements” associated with it, which I do not claim to understand. What the Finns are looking for would fit into that category.

The EFSF would also get considerably more bang for its buck were it able to guarantee DIRECTLY fund raising by banks themselves. I suspect that this is what the US is after as it corresponds to what their own government did post Lehmans. But probably too big a morsel for Merkel to swallow.

Herewith a link to an investor presentation by the Commission from december 2010 which I happened upon on the Web. The distinction between the EFSM and the EFSF is very clear.


On the other issues, although not an expert in the matter, it seems entirely logical to me that the German Bunds should have a lower yield because of their liquidity and the safe haven that they represent.

But lets looks at that from another point of view. The EU is in turmoil and the future of the euro is in doubt. It is a possibility (not probable yet) that Germany will leave the euro and go back to the Dmark. Or the euro will break up and Germany will go back to the Dmark.

The result of that would be a massive appreciation of the Dmark with a consequent collapse of German exports and a huge increase in German unemployment, currently runnig a deficit of over 3% and a debt/GDP of over 80%.

Germany is not the ‘safe haven’ that many people see it as. In fact as the maelstrom gathers velocity Germany, because of her high dependence on exports gets pulled towars the vortex more quickly than other nations.

I understand that Timothy Geithner is going to participate in a European finance Ministers meeting in Poland.

Hopefully he can act as a “referee” (I do not envy his task) and it is a shame that once again Europe has to look to the US to help reach some consensus and decicisiveness.

Fortunately (unlike the FYR conflict during the 90`s) this is more like a “handbag, ego and tantrum” squabble than the shameful atrocities carried out in the FYR which Europe should never have allowed happen.

While I agreed with Mr Geithner in late 2008 when he apparently said “one should not waste a good crisis” (or words to that effect)I am not sure I agree with his agenda on Europe right now which, I believe, is to persuade the EZ to stay intact and keep Greece on board.

Alternatively Mr Geithnerś agenda may be just to encourage a clear decision to integrate or dissolve. At this stage I believe the latter is probably the only realistic option.

Some mechanism is going to have to be worked out which allows the Euro to dissolve in an orderly, amicable and timely fashion possibly with some kind of pan-european exchange rate mechanism (which I believe Sweden Denmark and many East European states have with the Euro) that allows enough variation between economies.

A two year transition time frame would probably be the best and has plenty of precedence.

While Ireland may easily be able to stay within a common 15% “variation” Greece and Portugal may not, although a lot can be achieved over a two year time frame if there is political will.If they cannot then they simply have to be helped by the countries (Germany and France) who have the most to lose if Pan European disharmony erupts.

@Joseph Ryan

I suspect you have “hit the nail on the head”.
I sincerely hope that German leaders remind Dr Merkel that the European Project has priority over whatever kind of paper money we all use and abandons a lot of the recent provocative “bluff and bluster”.

Germany has done wonders for the EEC/EU and won much respect and many friends within Europe as a result.

However in recent years a lot of old resentments have been rising to the surface among itś neighbours which make the “jingoism” in British tabloids and one inappropriate Sunday Independent Editorial (which Colm drew our attention to) appear benign in comparison.

@ All

The Central Banks have shown their mettle, and seem to have put obstinate, dithering and incompetent politicians – with a special place of honour reserved for Germany – in their place, by coming to the rescue with a common approach.

This evening could be described as that of the “duelling ECB speeches”.




I still think a bond of the EU with joint and several guarantees should be priced lower than Bunds. At 90bp over bunds they must be attractive but perhaps the liquidity issue may be the problem.

Food for a lot of thought there…

[5]“When the wise man points to the moon, the fool looks at his finger.”

It will take a bit of time to digest.

@ Ceterisparibus

Now who could LBS have had in mind? There is a wide gallery in the German governing establishment, apart from Stark. A special irresponsibility prize should also, of course, go in that direction.

European Commission/ECB/EU/EZ/EU

This is all starting to resemble the USSR in 1991 after Gorby decided to go on his summer holidays. Nobody knew who was in charge then either.

@ All

In case anyone missed it, the following is the key extract from the speech by LBS.

“The second reason that may explain the assessment of excessive credit risk of the euro area countries is the own goal that European countries scored when they embraced the concept of private sector involvement in October 2010. I won’t go into detail, but in essence European countries have sought to deviate from the practice followed so far and, inspired by some academics and commentators, have tried to define an arrangement according to which a country must renegotiate with its creditors the conditions under which public debt securities were issued. This is another case in which the theory can deviate greatly from the practice and – especially in a context of general instability on the markets – intensify the crisis. The fact is that since last autumn euro area countries have been paying a specific risk premium which effectively penalises them.

Charts 1 and 2 seem to suggest that the concept of private sector involvement has introduced a sovereign risk premium specific to the euro area. On 21 July this year, the heads of state and government recognised that the case of Greece is special and that the modalitities to resolve the crisis will not be repeated. The fact the markets do not seem to believe it should induce the euro area authorities to be more convincing about such a statement”.

Also Reuters “scoop” on the “Geithner proposal” which Alphaville rubbishes but on the basis of a misunderstanding, it seems to me, of what is intended. One wonders if Merkel might not at least refrain from doing the same.

“EFSF loan rates will be reduced to “funding costs plus operating costs”. But only ratified by 4 of 17 members so far. Rehn: “good news” Story in today’s telegraph.

Anyone like to guess who the 4 members are?

“”I’ll put it to you this way, the amount of money outstanding in unguaranteed senior bonds in Anglo is just about EUR3 billion. If you did some kind of voluntary burden sharing you might gain EUR100 million, which seems to me that one wouldn’t risk guarantee for that level of money.

“One wouldn’t risk reputation for that. Anything coercive, the European authorities are dead set against it. So we’ll reflect on it. ”

This is utter nonsense. The Minister seems to be working on the assumption that you can fool all of them most of the time.
It is now beyond doubt that Trichet told him to p off. Stark already said we are not autonomous. The sad fact is that we are no longer sovereign and must obey the ECB but trying to fob us off with the rubbish above shows contempt for the citizen.

Is it about to hit the fan?

(Reuters) – Greek Prime Minister George Papandreou canceled a planned visit to the United States on Saturday to deal with a deepening crisis at home, days before international inspectors arrive to go over fiscal shortfalls.

Papandreou was in London, en-route to attend United Nations and IMF meetings, when he decided to turn back after discussing developments with Finance Minister Evangelos Venizelos, government officials said.

@ Ceterisparibus

Of course he was told where to go. What did he, or you, expect? We are no longer sovereign. Ruairi Quinn never tires of telling us, correctly, that the country is in receivership. What is important is not that the ECB is telling Ireland where to go but that it is winning the argument about the stupidity of Merkel in insisting on PSI for the second Greek bailout, the equivalent in present circumstances of telling your bank manager, i.e. the international markets, to write off half your present loan while at the same time saying that you ,will be back for a further loan, on favourable terms, next week.

Merkel has, however, discovered a sudden respect for the bank manager. She is even inviting her ministers to be careful in their language so as not to upset him. Even Bafin is beginning to sound a note of caution (although the I’m alright Jack mentality still seems to have the upper hand).


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