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Monday, July 02, 2012

Finland and Netherlands raise doubts over summit conclusions

As we expected, doubts are already arising over the package agreed at last week’s summit. In particular, Finland and the Netherlands have today expressed strong reservations about the plans to allow the EFSF and ESM to purchase the debt of struggling countries.

Finland suggested today that it will not support any bond purchases by the bailout funds, while the Netherlands took a less stringent line simply saying that it would assess each purchase on a case by case basis (although behind the scenes it is widely thought not to be keen on the idea).

However, as has been noted, the countries may have backed themselves into a corner here with one of the previous summit amendments to the ESM treaty, which says:
“An emergency voting procedure shall be used where the Commission and the ECB both conclude that a failure to urgently adopt a decision to grant or implement financial assistance, as defined in Articles 13 to 18, would threaten the economic and financial sustainability of the euro area. The adoption of a decision by mutual agreement by the Board of Governors referred to in points (f) and (g) of Article 5(6) and the Board of Directors under that emergency procedure requires a qualified majority of 85% of the votes cast.”
It is worth remembering though that under the EFSF unanimity is still needed so in the short term they can block any attempt to purchase bonds. However, once the ESM comes into force, in around a week’s time if done on schedule, the countries could well be outvoted, since they control less than 8% of the votes combined. It is obviously not completely clear cut, the ‘emergency procedure’ would need support from the ECB and/or the Commission, although it is unlikely that the purchases would be started up in a non-emergency situation. At the very least it should make for an interesting vote on the ESM in the upper house of the Dutch parliament tomorrow and even though ratification is likely (especially since the lower house has already approved it) we’d hazard a guess that this isn’t the last we’ve seen of this issue.


Anonymous said...

Seriously, if eurozone leaders really think that buying bonds on the secondary market is going to solve anything, we're doomed (which we are anyway). And this get's simply ridiculous when one considers that the ESM won't be fully operational until 2014.

Plus, can you imagine a situation when one of the Aaa-countries is outvoted and sees its money used for a measure that they do not approve? I can't.

To me it seems, that the ESM is dead before arrival.

Rik said...

1. The Dutch PM was considerably more nuanced than the Finnish one.
He basically stated that it has to go the 'normal' procedure and that he thinks it is rather unlikely it will be used.
The problem in all of this is the 'Janus' approach both in the North and the South. Both simply often say different things depending on the audience (home or EU). At best stress other points.
2. A more legal point. Can this at all constitute an emergency. Is an emergency something you could have seen coming for 3 years and should have seen coming for a year?
3. ESM will not be in place according to schedule (main obstacle now looks to be the German Constitutional Court).
4. Secundary market buying is most likely the fastest way to get through your capacity. Imho it should only be used for countries that are basically solvent and come under TEMPORARY market stress.
The only PIIGS that might qualify at the moment for that is Ireland.
The rest is simply stand alone bust. Spain/Italy are kept alive becuse of the possible EZ/ECB measures.
And need stand alone other measures than bondbuying on the secundary market simply huge structural reforms (not the sorry excuse we have seen so far for that).
They simply need long term assistance for which secundary bondbuying is probibly the worst choice.

christina Speight said...

Rik - don't fret about whether the proposals are legal or not. When it suits itself the EU always ignores the law. Otherwise there'd be no Euro at all as Italy, Belgium and Greece were all in breach of the joining criteria`

It seems to me that The Netherlands and Finland are straining at gnats while swallowing camels. The plain unvarnished fact is that the Euro is a busted currency continually held together with string and sticking plaster! It needs putting out of its misery at once otherwise the final collapse will be cataclysmic. NONE of the PIIGS+C countries can prosper with a overvalued euro. You can see that NOW. And that's about a third of the whole eurozone.

Nobody is prepared to face up tp that fact at all - it is taboo just like nobody can argue with the Scientologists' beliefs. The Euro is sacred and Europeans are to be butchered at its altar one by one.