By David Gow
It says a lot for ten hours of “tough” negotiations at last night’s eurogroup meeting of 17 finance ministers that they even kicked the can down the road on a successor to Jean-Claude Juncker as their chairman. Sure, the veteran Luxembourger will remain in office for a few more months, perhaps until early next year, but may then step down – for whom?
That we don’t know. It could still be Wolfgang Schäuble, the German, but that’s too much austerity for his Club Med colleagues who are increasingly at loggerheads with Berlin’s agenda for Europe – even in a softer version. Maybe a Spaniard since Madrid no longer has a presence on the ECB’s executive board – that’s gone to another Luxembourger, Yves Mersch, who was confirmed at last night’s meeting. As many among the euro-commentariat have pointed out, exhausted, this morning: Luxembourg has 1000 square miles, 0.5m people, chairs the eurogroup – and has one of six seats on the ECB board (@plegrain). And, yes, it is a tax-efficient place to put your capital.
The markets don’t know what to make of all this and nor do the journalists who headed for bed at 0400CET. The FTSE is up 0.66% at the time of writing on the eurogoup decision – still to be ratified on July 20 – to release a first tranche of €30bn to recapitalise Spanish banks and give Madrid a further year, until 2014, to bring the budget deficit down to the required 3%. Yields on Spanish bonds are still hovering around 7% – and 6% for their Italian equivalents. We’re still in for the long haul.
This is all the more clear when you read of the discrepancies in statements from Juncker/Olli Rehn and from Schäuble – as Ian Traynor reports in the Guardian. This is what he says: “Following the eurogroup meeting, Olli Rehn and Jean-Claude Juncker, the competent European commissioner and temporarily reinstated head of the Eurogroup, insisted that Spain would not have to guarantee the bank loans. Wolfgang Schaeuble, the German foreign minister, said it would.
“The agreement on Spain was merely an outline “political understanding” with the fine print still to be done within 10 days. It appears that the issue of last-resort liability and guarantees has yet to be resolved.”
Similar confusion is noted by the WSJ’s all-night team. And here is Rehn’s official clarification as re-posted by the Commission today: “The Commission will come forward with legislative proposals for the creation of a Single Supervisory Mechanism for banks in the euro area, involving the ECB. We will present our proposal early September in order to allow for the Council to consider these as a matter of urgency by the end of the year – as decided, requested, insisted (my italics) by the Euro Area Summit.
“We have agreed that work will also start in September on the preparation for the direct recapitalisation instrument for banks, so that the ESM can adopt this new instrument by regular decision once the Single Supervisory Mechanism is established. Direct bank recapitalisation will enable us to break the vicious circle between banks and sovereign risk.
“It is essential that the multiple challenges Spain is facing – the repair of its banking sector, structural reforms to boost growth and jobs and tackle imbalances, and action to restore sustainability to its public finances – are addressed with equally strong determination.”
So, that’s clear then? About as clear as the outcome of today’s talks between Cameron and Hollande on the French president’s first official visit to the UK (Dave snubbed him during the presidential campaign). For the French media this is a pretty peripheral affair – though the Queen taking after her eponymous predecessor and conducting her entire conversation with Hollande in French will go down well outre-Manche. This will almost certainly be another missed opportunity for the government to find EU allies but at least Bradley Wiggins is doing his bit for Anglo-French relations.