EU tries to resolve debt crisis differences

Finance ministers to discuss eurozone support and Van Rompuy task-force to hold first meeting.

EU finance ministers will meet in Brussels tomorrow (21 May) in an attempt to patch up a united European front on the eurozone’s debt crisis.

The meeting was called after the ministers failed to agree on Monday on all the details of how a €750 billion financial support mechanism for eurozone countries is to work. The impression of disarray was compounded on Tuesday night (18 May) when it emerged that Germany was unilaterally imposing a ban on the practice of naked short selling – when traders agree to sell assets that they do not yet possess, on the assumption that they can be bought or borrowed.

The ban applies to naked short selling of eurozone government debt, of shares in major German financial institutions (including Allianz, Commerzbank and Deutsche Bank) and of credit default swaps on sovereign debt.

Angela Merkel, Germany’s chancellor, defended the move yesterday (19 May) as a necessary step to protect the eurozone from financial speculators. “The euro is in danger…if we don’t deal with the danger, then the consequences for us in Europe are incalculable,” she said, adding that Germany would not hesitate to take further unilateral action to preserve financial stability. She said the ban would stay in effect “until another solution has been found at the European level”.

Michel Barnier, the European commissioner for the internal market, said he planned to launch a consultation in the next “few weeks” on possible restrictions on short selling, with legislative proposals to follow in October.

But several member states, including France and the Netherlands, have said that they do not plan to follow Germany’s lead.

As well as short selling, the eurozone finance ministers may continue discussions on the procedure for activating a special purpose vehicle (SPV) comprising €750bn of possible support for eurozone countries in debt difficulties. Although the broad elements of the mechanism were agreed on 10 May, ministers are still arguing over the detail. Germany appeared on Monday to have secured acceptance by other governments of its position that eurozone countries will have to vote by unanimity on each request for financial support. But some countries, notably France, are reluctant to acquiesce to a German demand that national parliaments should hold a veto to approve each release of aid. Discussion on this issue may take place as a video-conference between civil servants, a member state diplomat said.

Germany’s parliament will vote on the same day as the meeting on whether to authorise German participation in the aid mechanism.

Fact File

Talks on hedge-fund regulation

The European Parliament and the Council of Ministers will meet on 31 May to broker a deal on how to regulate hedge funds.

Finance ministers approved a draft law to regulate the funds on 18 May, over-riding British complaints that the proposal is protectionist. The Parliament’s economic and monetary affairs committee approved its own version of the legislation the previous evening, leaving the two texts to be reconciled.

The draft directive would subject managers of alternative investment funds (eg, hedge funds and private equity) to mandatory registration and reporting requirements. The law would also require a fund that takes over a company to share financial information with the firm’s shareholders. MEPs and member states want to broker a deal before the Parliament’s summer break.

The UK has argued that the Council’s version of the law is protectionist as it would place regulatory requirements on funds and fund managers based outside the EU without granting them full access to the single market.

Passport plan
George Osborne, the UK’s new finance minister, said after the meeting that he preferred the Parliament’s text, which preserved the idea of allowing fund managers and funds based outside the EU to get access to the whole single market through a ‘passport’ scheme.

He said he thought that there was “still much to play for” in the negotiations to come, not least because the UK has secured a written commitment that Spain, which holds the rotating presidency of the Council of Ministers, will take the UK’s concerns into account in its negotiations with the Parliament.

Convincing the markets

The ministers will be in Brussels to participate in the inaugural gathering of a task-force set up by Herman Van Rompuy, the president of the European Council, to agree reforms to economic governance. The reforms are supposed to prevent any repetition of the current crisis, and to convince markets that the EU is serious about consolidating its public finances.

The task-force includes a representative from each EU member state (in almost all cases finance ministers) and representatives from the Commission and the European Central Bank (ECB). Van Rompuy wants the task-force to agree on a set of reforms that would then be submitted for approval by EU leaders at a summit in October.

The UK, France, the Netherlands, Austria, Sweden and Denmark are strongly opposed to a proposal from the European Commission, to be discussed at the task-force meeting, that the EU should examine the broad lines of draft national budgets. The surveillance would include a Commission assessment and the adoption of recommendations by finance ministers.

Germany is more supportive of budgetary surveillance but wants it to be conducted by the ECB, an idea opposed by the Commission.

Olli Rehn, the European commissioner for economic and monetary affairs, yesterday (19 May) defended the Commission’s proposal. “Everyone can see that this is not about breaching democracy, but ensuring that the member states respect those very same [fiscal] rules that they have themselves decided on – to practise what you preach,” he said.

Click Here: cheap sydney roosters jersey