The Financial Times is providing blanket coverage of the EU summit meeting, the importance of of which cannot be overstated. This post includes significant portions of the FT’s live blog of the event. All times are London times, which are five hours ahead of New York time.
Thus far, the key development is that Italy has held up a €120bn package of measures to enhance economic growth and create jobs by refusing to give the green light unless and until Germany supports short-term measures to provide relief from the debt crisis. This has been predicted to be the concrete achievement of the summit.
Whether the summit can recover from this impasse remains to be seen. If it cannot, all hell is likely to break loose in world financial markets.
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July 28
12:42: Big news in a Wall Street Journal interview with Wolfgang Schäuble, the German finance minister, who the paper quotes as saying his country may be willing to move faster than previously thought towards common sharing of Europe’s debt burden.
Note however, that the second word of the story is “may” and Mr Schauble says: “There will be no jointly guaranteed bonds without a common fiscal policy.” Which is quite a big if. Our immediate reaction here is that this is not quite as clear cut as the Journal’s “Berlin blinks” headline would have us think.
Schauble says: “As soon as we have a joint EU fiscal policy, we can consider joint liability—the sequencing is key…”. Here at FT Towers, we won’t hold our breath on that one.
12:57: And it appears that the German finance ministry also agrees with the FT interpretation of the Schäuble comments. This from Reuters [their capital letters not ours, denoting the importance of their report]:
“GERMAN FINANCE MINISTER SPOKESMAN SAYS REPORT THAT GERMANY HAS CHANGED ITS POSITION ON EURO BONDS IS NOT TRUE REUTERS
GERMAN FINMIN: ‘WE’VE ALWAYS SAID WE CAN TALK ABOUT SHARED DEBT MANAGEMENT ONLY AT THE END OF A PROCESS TOWARDS A GENUINE FISCAL UNION’
14.25: Quentin Peel, the FT’s Berlin bureau chief, has been to a German government briefing ahead of the summit, where a senior German government official dropped a heavy hint that Italy and Spain could tap into the eurozone’s €440bn rescue fund – the European Financial Stability Facility – to provide insurance to bond buyers and thus reduce the interest rate on their government borrowing.
Germany is adamant that the tools already exist to help eurozone countries in difficulty, and there is no need constantly to invent new ways of seeking to tackle the region’s financial crisis.
He said the summit was supposed to focus on a €130bn growth plan, and on long-range reforms of the European monetary union, but the German government would discuss any crisis resolution proposals put forward by its partners.
“There is a toolbox which is available,” he said, referring in particular to the EFSF and the permanent €500bn European Stability Mechanism that is supposed to be set up in July. He stressed that applications for support from the funds were subject to “certain procedures and conditions”.
14.55: Reuters has compiled the best quotes form the leaders as they arrived at the summit. Some of the highlights:
German chancellor Angela Merkel on the summit’s aims:
“Today we will talk about the pact for growth and jobs. We have created a good programme here in particular regarding investments in the future and more over what will create more job opportunities specially for young people.
“I hope that we will be able to agree on this today and with that make an important signal, also for the fiscal pact, that we need solid budgets on the one hand and on the other hand growth and jobs.
“Twenty percent of Europe’s young are without jobs, that’s much too high a figure. The council today feel obliged to create more jobs for these people and tomorrow I will tell you about the other points for discussion.”
Dutch PM Mark Rutte on dealing with the eurozone’s banking and sovereign debt problems:
“I’m not prepared to think up all kinds of new instruments. There are existing instruments, under strict conditions, which countries can use who can’t make it on their own.”
“We don’t solve problems in Europe by transferring sovereignty, we solve the problems by sticking to what we have agreed to.”
“There is no medicine, no paracetamol to solve these issues. These countries will have to continue with their reforms. There are instruments available for countries who say they can’t cope on their own in the short term but I don’t see no necessity to think up new instruments.”
Rutte on Spain and Italy:
“The only way for Spain and Italy to get out of this crisis is to bite the bullet and to continue with what has not happened sufficiently in past years: to reform their labour markets, to make savings and make reforms.”
“I can be prepared to use existing instruments to help those countries to get back on track if they carry out difficult reforms but one measure can never replace the other. Italy and Spain can never stop reforms because they are on a European emergency infusion.”
French president François Hollande on his hopes for the summit:
“I have come so that Europe can have a medium-term framework to give confidence. I have come so that growth will be at the heart of our commitments and that there will be decisions that, I hope, will be accepted and that will allow us to generate extra (economic) activity for countries that need it.
“And I have come so that there are very rapid solutions to support the countries that are most in difficulty on the markets, while they have made considerable efforts to straighten out their public finances. So I come in a spirit of giving to Europe the necessary force, coherence and solidarity.”
“If we succeed in having more growth through the pact that we’re going to adopt, a long-term vision and immediate measures to support countries that have made efforts but who can’t support excessively high interest rates – we will have worked well.”
“The important thing was that we go beyond words. Growth cannot simply be noted in a final communique.
“I wanted a growth pact with a number not simply for show, but a translation – 1 percent of European GNP, 120 to 130 billion euros – which we will make sure is spent rapidly and in ways that will be useful for economies and investment.
“All this will allow use to create jobs and prepare for the future. So I think that this summit has already been useful, on condition that it accepts the growth pact.”
15.05: There’s a lot of talk today about the European rescue funds buying Spanish and Italian bonds – a bailout lite – and how it might be done. Peter Spiegel, the FT’s resident Brussels wonk last week compiled an excellent explainer on the subject.
16.30: A sense of realism is biting in Brussels, it seems, especially on the issue of eurobonds. Martin Schulz, the president of the European parliament, told ZDF television of Germany: “I think we should stop talking about eurobonds now because, with the German government’s “no,” with this definitive “no” from Mrs. Merkel, eurobonds are now a non-issue. I personally continue to see it as a good solution, a sensible one, but there is no sense in conducting theoretical debates when the house is on fire.”
18.20: As promised, Brussels bureau chief Peter Spiegel explains what you need to know about where things stand: EU leaders are now considering buying up government debt directly at auction.
While Germany and its northern allies have stood their ground on how, exactly, the eurozone would intervene to help Italian and Spanish bonds (only using existing tools – no newfangled contraptions), he argues a close reading of recent comments reveals that “in that seeming intransigence lies a subtle shift”:
Until now, the German-led alliance has been reluctant to take more action to lower Spanish and Italian borrowing costs, arguing that such short-term action was counterproductive unless Madrid and Rome did more to get their own economic house in order.
Now, eurozone leaders are actively considering which of a burgeoning array of tools created over the course of the last year they should now deploy to bring down Italian and Spanish borrowing costs, both of which continued to rise on Thursday.
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Officials said the focus of the deliberations had shifted to purchasing bonds on the primary market – essentially buying bonds directly from governments as they auction them. For creditor countries, such a plan has clear advantages, particularly the fact that rescue money could be doled out in much smaller amounts, depending on the size of the auction.
Under already agreed guidelines, the European Financial Stability Facility – the bailout fund – could promise to buy up to 50 per cent of bonds issued, in essence creating a price floor that could lure private investors back in.
But there are drawbacks for Italy – and it’s unclear that the ESFS has enough money to bail out Spain’s banks.
18.30: Benoit Cœuré, ECB executive board member, has sounded a warning on any rush to eurozone bonds. This from a speech just delivered in Rio, flagged by the FT’s James Wilson in Frankfurt:
Common funding instruments would require shared decision making on national debts and deficits and probably joint control on fiscal expenditures and taxation. They can only result from further political integration; they cannot precede it.
Likewise, and importantly, a fiscal union can only come about once the participating countries have successfully restored domestic fiscal sustainability and solidified the conditions for long-term growth. Joint debt issuance cannot be a substitute for putting national fiscal houses in order and restoring competitiveness.
19.21: Tomorrow’s news today – the FT’s Peter Spiegel and Quentin Peel have a wrap-up of today’s “flurry of activity” in Brussels:
After weeks of insisting they would not budge on short-term measures, the sudden German acquiescence led to a flurry of activity in Brussels, where EU leaders gathered for the latest in a series of high-stakes summits intended to solve the crisis.
Unexpectedly, senior officials from all 17 eurozone finance ministries met on the sidelines of the summit to weigh emergency plans for Rome and Madrid, which focused on using the rescue fund to buy Italian and Spanish bonds to reverse the recent spike in yields.
The group, known as the “euro working group”, last met during an EU summit amid the interminable negotiations over a Greek bailout last year, and was the most concrete signal yet that officials were preparing to launch a multi-pronged assistance programme.
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According to officials involved in the talks, Paris was pushing for wide-ranging help that included purchases of Italian and Spanish debt by the European Central Bank in addition to action by the eurozone rescue fund, known as the European Financial Stability Facility.
But those measures were strongly resisted by a German-led group of northern creditor countries, who were concerned about ECB independence and wanted to limit action to the EFSF.
“There is a toolbox which is available,” said a senior German official.
21.37: Straight from the horse’s mouth: European Council president Herman Van Rompuy announces a €120bn growth initiative.
22.42: Quentin Peel has this update from what’s turning into a late night in Brussels:
It looks like it’s Spain and Italy blocking the growth pact to get a better deal on interest rate reduction. ”It’s ironic that the countries that need help think they can dictate the terms,” was one (unofficial) German comment. Sherpas and finance officials labour on to find some interest rate solution.
23.12: Now Bloomberg is also quoting (unnamed) Italian officials confirming Italy is holding out for lower borrowing costs:
Italian Prime Minister Mario Monti may block the 120 billion-euro ($149 billion) growth initiative announced by European Union President Herman Van Rompuy without an effort to reduce its borrowing costs, two Italian officials said.
Italy is withholding its official endorsement as it pushes for collective action at an EU summit in Brussels to push down its bond yields, said the officials who spoke on the condition that they not be named.
23.42: By all accounts, it’s Spain and Italy who are holding up agreement on the €120bn growth pact, demanding action on their credit costs. Germany says it won’t accept any new financial instruments. So where does that leave France? Our Paris bureau chief Hugh Carnegy sends this dispatch from the wee hours in Brussels:
Italy’s refusal to sign off on the growth pact might look like an awkward moment for François Hollande, the French president who made such a play during his successful election campaign of the need for the eurozone to shift the emphasis from German hair-short austerity to stimulating growth and jobs.
But Hollande has been working very closely with Mario Monti, the Italian prime minister, with French officials saying they are in close agreement on the need for short-term moves to ease Italian and Spanish borrowing costs. The two had a bilateral meeting before the summit began.
Monti’s high-stakes negotiating tactics may unsettle the summit, but Hollande will not mind if the outcome is a deal on both the growth pact and approval of more intervention in financial markets by the eurozone’s rescue funds and even the European Central Bank.
That will help him sell the deal back home – and help to cover the awkward fact that he will also have to swallow the German-driven fiscal discipline treaty agreed in March (before he was elected), which he pledged to renegotiate.
July 29
00.10: How things stand, shortly after 1 in the morning in Brussels – from our FT.com story on the night’s developments:
Italy has held up a €120bn package of measures to enhance economic growth and create jobs that was to be the one concrete achievement of the EU summit, refusing to give the green light until Germany supported short-term measures to provide relief from the debt crisis.
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a eurozone diplomat said the Italian tactics had soured the summit before Friday’s session, when proposals for short-term measures were to be discussed. “The atmosphere is horrid,” said the diplomat.
Both Italy and Spain had agreed the growth measures with France and Germany at a meeting last week – and continue to support them – but were refusing to sign off on them as a bargaining tactic.
“They simply held the whole thing hostage,” one eurozone diplomat said. “They won’t accept the growth pact until they get their short-term measures.”
They want the eurozone rescue funds and the European Central Bank to intervene more aggressively on financial markets to buy Spanish and Italian bonds to ease the very high yields the two countries have been forced to pay on their sovereign debt.
But Angela Merkel, the German chancellor, told the meeting such an approach threatened to derail the whole summit.
00.18: Bloomberg reports that François Hollande, the French president, says he will withhold endorsement of a European Union fiscal pact at least until the end of the summit on Friday.
00.26: From the AP:
The French president says discussions on the future deepening of the Europe’s economic and monetary union, as proposed by four senior EU officials, have been put off until October.
The item had been on the agenda of a summit of European Union leaders in Brussels on Thursday. Talks were tense, however. Spain and Italy declined to sign off on a proposed stimulus package unless they received assurances that action would be taken to reduce their borrowing costs.
French President Francois Hollande said early Friday, “If you were expecting a decision tonight on a federal Europe, you were misinformed.”
However an EU official had said the item would be discussed, with an interim report on progress due in October.
Hollande said he was disappointed with the summit’s results.
00.49: Still awake in Brussels, the FT’s Quentin Peel sends highlights from French president François Hollande’s press conference:
Hollande threw his weight behind the Spanish and Italian leaders, saying: “We need to have lower interest rates than today for Italy and Spain.”
He said the two countries had warned him and Angela Merkel about their position in advance, that they could only agree on the growth pact if it were linked to measures to cut their borrowing costs.
The non-eurozone leaders left the meeting in the early hours, so that the 17 partners sharing the common currency could concentrate on those “stability measures”, the French president said.
He said that tools already provided by the eurozone rescue funds should be used to help the two Mediterranean countries, a position shared by Ms Merkel.
He said there would be no decisions on longer-range integration measures, but they should include a banking union, budgetary union, common economic strategy to boost growth and competitiveness, and finally measures to ensure democratic legitimacy for such an integrated system.
“The eurozone cannot stay in the state it is in today, without a budgetary union and above all a banking union,” he said. “That is indispensable.”
01.18: On FT.com, Peter Spiegel has more details on the late-night negotiations:
The finance ministers’ group, known as the “euro working group”, was forced to continue deliberations into the early morning hours Friday after the Italian and Spanish prime ministers threatened to scupper agreement on the rest of the summit agenda without a deal on new aid.
François Hollande, the French president, said Spain’s Mariano Rajoy was holding out for changes in Spain’s €100bn EU bank rescue plan so that bailout aid would be injected directly into teetering Spanish financial institutions. Under current rules, such funds must be funneled through the Spanish state, adding massively to Madrid’s sovereign debt levels. Germany has insisted on such a structure to ensure repayment.
In addition, Mr Hollande said Mr Rajoy wanted to ensure the new bailout loans did not have seniority over current private debt holders; such seniority for government loans is a requirment once a new eurozone rescue fund comes into effect next month.
Mario Monti, the Italian prime minister, continued to insist on an instrument that would automatically trigger the rescue fund buy Italian bonds if borrowing costs rose too high, Mr Hollande said. Such a mechanism does not currently exist, and the German-led group of creditor countries have refused to create new tools for bond buying beyond those already on the books.
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