Summit on bancing union

EU leaders have agreed to allow the European Central Bank to supervise banks from next year, but questions remain about how the process will work, which lenders will be involved and whether those in trouble can be helped. 

The European Commission has proposed making the ECB responsible for supervision as a step towards a banking union in which euro zone countries and any others that want to join would together resolve problem banks and protect savers' deposits.

But at a meeting of EU leaders that ended on Friday, issues such as what method will be used to accommodate non-euro nations that join the scheme, how many banks the ECB will directly supervise and whether that can lead to countries sharing the cost of resolving problems, were left undecided. 

German Chancellor Angela Merkel acknowledged that the details needed to be worked out, including how the new supervision will fit with existing regulatory structures.

Poland, a non-euro-member country that is interested in joining the banking union scheme, underscored the complexity of the negotiations that lie ahead if the new supervision is to become a reality in the course of next year."Forecasts around the table on when it would start working last night were very different - some thought it would take 2-3 years," Prime Minister Donald Tusk told journalists.

Investors are following the negotiations closely in part because they expect cross-border supervision to allow the euro zone rescue fund, the European Stability Mechanism (ESM), to inject capital directly into struggling lenders. 

This pledge, first made in June, helped drive down borrowing costs for countries such as Ireland and Spain. Merkel signaled, however, that a further element of a banking union would first need to be in place before that can happen, namely the establishment of a resolution fund, and cautioned that direct aid would not cover existing problems. "The critical question is whether the recapitalization by the ESM of bad banks or problems of the past is possible," said Graham Bishop, an adviser to banks on European financial policy. "That has not been answered."

(...) a banking union is expected to establish financial backstops or central funds, paid into or guaranteed by banks or governments, to back problem lenders and shield savers. But such steps are a long way off.

Establishing a unified deposit-guarantee scheme would be a major stumbling block, with Germany regarding a single guarantee as akin to the mutualisation of euro zone debt - something it firmly opposes. The idea appears to have been dropped for now.

Setting up a scheme for the resolution or winding up of troubled banks could be similarly problematic. David Mackie, an economist with JP Morgan, said even a simple banking union combined with other support measures would be sufficient to calm investors: "You don't have to have the federalist dream of full debt mutualisation or the euro bond."

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EU to plan military training mission for Mali

The European Union said on Monday it would draw up plans for a possible military training mission to help Mali's army regain control of the Islamist-dominated north of the country.

Mali descended into chaos in March when soldiers toppled the president, leaving a power vacuum that enabled Tuareg rebels to seize two-thirds of the country. But Islamists, some allied with al Qaeda, have hijacked the revolt in the north.

"We believe there's a real risk for the region if Mali remains an ungoverned space, free for terrorists and drug traffickers to operate," said EU foreign affairs chief Catherine Ashton. "I hope that what we'll see in the future is a Malian government with a credible roadmap for the restoration of democratic government."

Announcing humanitarian and other measures to help Mali, the bloc said it would in particular consider ways to retrain the Malian defense forces, and develop plans for an eventual military mission. The decision was taken at a meeting of EU foreign ministers in Luxembourg, where they called for such a plan to be drawn up for their next meeting on November 19.

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Nobel Gives Peace Prize to Crisis-Ridden EU

Norway's Nobel Committee handed its 2012 Peace Prize to the European Union.

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The committee, whose decision Europeans both celebrated and mocked, said the prize recognized more than six decades during which the conflict-ridden continent pulled together and became a harbinger of "peace and reconciliation, democracy and human rights" at home and beyond.

But Thorbjørn Jagland, the committee's chairman, also stressed that Europeans should see the prize as a warning of what the 27-country bloc stands to lose if the current economic turmoil breaks its cohesion.

"This year we saw that the prize could be important in giving a message to the European public of how important it is to secure what they have achieved on this continent," he said as he announced the award in Oslo.

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"We don't have a position on how to solve the economic crisis, but we believe it will be important to solve it and that European unity can be kept so that Europe can move forward," Mr. Jagland said.

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Rompuy warns Cameron over sensitive budget issues

The European Union's top official fleshed out his ideas for a separate budget for euro zone countries on Thursday, and indirectly warned British Prime Minister David Cameron about using the proposal for his own political gain. 

At a conference to discuss the state of Europe after nearly three years of debt and financial crisis, Herman Van Rompuy, the president of the European Council, said a separate euro zone budget was an idea that needed close examination. 

Even if it is a long-term project and there are a host of political and financial obstacles to overcome, it could help underpin the stability of the single currency, he said. 

"We have to do everything to stabilise the situation in the euro zone, and if a fiscal capacity or a separate budget can help and can contribute to this stability, then you have to reflect on it, to discuss it," he told conference delegates, who included several ministers from EU member states. "Every currency union needs also a fiscal capacity, and certainly a fiscal capacity to stabilise the euro zone."

The 27 countries in the European Union currently finance a budget which amounts to around 130 billion euros a year - 1 percent of EU output - and which is used for spending on agriculture, science, infrastructure and other areas.
But there is no equivalent budget among the 17 countries that share the euro, a shortcoming that many economists believe has undermined the stability of the currency project.
Van Rompuy first raised the possibility of a separate euro zone budget in September and developed his thinking in a document sent to EU capitals in early October. It forms part of a series of initiatives to try to resolve the debt crisis.
Germany and France strongly support the proposal and, in a surprise to many EU diplomats, Britain does too, but for different reasons. Cameron sees a euro zone budget as a way of further separating Britain and its increasingly EU-sceptical electorate from the currency bloc and its problems.
He also sees a euro zone fund as a way of potentially reducing the amount Britain has to pay into the EU budget, which is negotiated annually as part of a seven-year framework. The issue has become particularly acute as the EU prepares to negotiate the next seven-year plan at a summit in November, a deal Cameron has threatened to veto unless he gets his way.
"There will come a time when you need to have two European budgets, one for the single currency, because they are going to have to support each other more, and perhaps a wider budget for everybody else," Cameron said on Sunday, the first day of his Conservative Party's annual conference.
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David Cameron 'would veto' EU budget

Prime Minister David Cameron has said he would veto a new European Union budget "if necessary".

The EU is beginning negotiations on its next budget for 2014 to 2020. Mr Cameron also told the BBC that in the longer term the EU should have two different budgets - one for countries in the eurozone and one for those outside the single currency. 

Last year Mr Cameron vetoed an EU-wide treaty to co-ordinate budget policies and impose penalties on rule-breakers. Speaking on the Andrew Marr show, on the first day of the Conservative Party conference, Mr Cameron said experience showed that "people in Europe know I mean what I say".

"I sat round that table - 27 countries, 26 of them signing up to a treaty and I said, 'This is not in Britain's interests, I don't care how much pressure you put on, I'm not signing, we're not having it.' "They know I'm capable of saying no and if I don't get a good deal I'll say no again." He said he would block talks if "massive increases" in the budget were proposed or if a deal that "does not have proper control" was put forward.

The prime minister said the EU budget was a "classic example of where we should probably start to draw new lines".
"There will come a time I believe where you're going to need to have two European budgets - one for the single currency, because they're going to have to support each other much more, and perhaps a wider budget for everybody else."
He added that he did not think this would be achieved this time but it was an indicator of the way Europe is going.
Mr Cameron also said he favoured a referendum on a renegotiated role for Britain in the EU but once again ruled out holding a simple Yes or No vote on Britain's membership. "The fact is, I think most people in our country don't actually want to leave the European Union or just accept how it is at the moment. They want to change it."
BBC

Europe’s Richer Regions Want Out

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Europe's richer regions want out

Bad news from the economy

Unemployment in Euro Zone at Record High

Unemployment in the euro zone hovered at a record 11.4 percent in August, according to data released on Monday, underscoring the pain inflicted by the slowing world economy and the financial problems plaguing many of the countries that share the euro.

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The jobless numbers, which compare with the August rate of 8.1 percent in the United States, suggest that Europe’s recession is deepening despite the continued efforts of policy makers and finance ministers to cure the region’s malaise.

Unemployment in Greece and Spain, currently the euro zone’s most economically troubled members, reached euro-era highs. And as both countries move ahead with plans for even tougher austerity budgets — Greece to appease its international creditors, Spain to potentially clear the path for European aid — their job outlooks could worsen further.

Greece had an unemployment rate of 24.4 percent in June, the latest month for which data were available. Spain still had the region’s highest jobless rate, at 25.1 percent, and an even bigger problem among young people. Nearly 53 percent of Spaniards younger than 25 were classified as unemployed in August.

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New York Times

East EU manufacturing dips

Central European manufacturing shrank in September, signaling a deeper than feared recession in the Czech Republic and a slowdown in Poland that economists said authorities should counter with new stimulus measures

in the region's biggest economy, Poland, a collection of dismal new data has spurred Prime Minister Donald Tusk to begin drawing up an economic contingency plan after growth there slowed by almost a third in the second quarter to 2.4 percent.

Poland's Purchasing Managers' Index (PMI) fell for the sixth straight month to a worse-than-expected 47.0 points, the worst result since the depths of the previous economic crisis in July 2009.

In the neighboring Czech Republic, PMI fell to 48.0 in September from 48.7 in August, according to the data released by Markit. It was the sixth month below the 50-point barrier separating expansion from contraction.

In both countries, the declines were driven by weak output and new orders, a factor exacerbated in Poland by the end of a 19 billion euro investment project tied to the Euro 2012 soccer tournament and in the CZech Republic by a two-year government campaign to slash spending and raise taxes.

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Hungary's PMI, calculated under different methodology, rose to 52.5 in September, versus a revised 49.6 in August.

Reuters