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Thursday, September 29, 2011

What’s a few hundred billion between friends…?

Below is the current status of the EFSF upgrade as ratified by national parliaments. A reminder that this is the vote on the package of measures agreed by Eurozone leaders back in July, and does not increase the overall size of the EFSF, merely its lending capacity (from €250bn to €440bn) and expands its scope, allowing it to buy government bonds, engage in precautionary lending and capitalise banks.

Already Ratified:
Belgium – 14th September
Cyprus - 29th September
Finland – 28th September
France – 8th September
Germany – 29th September
Greece – 27th September
Ireland - 22nd September
Italy – 15th September
Luxembourg – 15th September
Portugal – Government has rubber stamped the deal
Slovenia – 22nd September
Spain - 28th September

Yet to Ratify:
Austria - Parliament’s finance committee approved the EFSF bill yesterday, paving the way for a special session of the assembly to give final approval in a vote tomorrow.

Estonia - Parliament is due to ratify the EFSF bill later today after making amendments to local legislation required by a constitutional watchdog and opposition Social Democrats. Also proposed amendment which would require the Estonian parliament to give approval every time EFSF is used (seems unlikely to be accepted given that it would stir huge controversy with other countries).

Malta – Government officially proposed the bill yesterday, voting is due to take place early next week.

Netherlands - Parliament is scheduled to approve a supplementary budget, which includes the proposed EFSF changes, next week. Government will probably have to rely on the votes of the centre-left opposition as Geert Wilders' Freedom Party is likely to oppose the bill.

Slovakia - Voting is planned for October the 25th, but Prime Minister Iveta Radicova has said that she would like Parliament to vote on the plan by October 17th, possibly as early as the 11th. There have been some indications from the second-largest ruling party, Freedom and Solidarity (classic liberals), which had opposed the upgrades, that the ruling coalition was close to an agreement on approving the EFSF overhaul, but this is yet to be confirmed. The centre-left opposition has said it won't prop up the government if the coalition fails to come to an agreement but that it will vote in favour if the government comes to a united position.

It appears that there should be no major problems with passing the EFSF expansion through the remaining national legislatures, although the Slovakian situation is still uncertain.

This entire eposide serves as an important reminder that national democracy is still king, and, at the end, will determine the fate of the euro (markets, analysts, diplomats and government cabinets can squirm all they want).

The somewhat scary thing is that the series of EFSF votes is essentially a legacy issue. Markets have already set their eyes on the next big battle as European, and (increasingly concerned) global leaders, are mooting that the EFSF needs effective resources of €2 trillion (some suggest using ECB leveraging, which we consider a non-starter).

The political manoeuvring that has been/will be necessary to squeeze the relatively modest July measures through national parliaments (particularly Germany, Finland and Slovakia) will be tested to the limit if the Governments go back to national parliaments asking for a multi-trillion top-up - not least in Germany(see our earlier blog on today’s vote).

The markets know all this, which is why the whole situation remains so uncertain in spite of the apparent consensus among eurozone members...


Peripatetic Scribe said...

Having read this article, I can now more easily empathise with the people of Iceland who, after an initial love affair with the EU (and the wish to join), are now showing far more circumspection in their wishes. Bravo!

Anonymous said...

I am somewhat puzzled by your assertion that in Europe "national democracy is still king". I was in Athens on 27 and 28 June, when the Greek parliament was voting on the Medium-Term Fiscal Strategy and the law executing it (i.e. measures upon which the bail-out was conditional) and I have to say that all my remaining illusions about democracy in Europe were shattered. When something as crucial as the survival of the Euro and of the global financial system is at stake, you can be sure that no stone will be left unturned, and where poltical persuasion fails there is always gunboat diplomacy, personal threats, blackmail and bribery.