The new head of SPIV

That stands for Special Purpose Investment Vehicle and its task will be to raise funds for the EU's new bail-out fund. The name is entirely apt, one would say and so is the name of the man who has been appointed to head it. Step forward Jacques Santer,

a former Luxembourg prime minister, Jacques Santer gained notoriety for presiding over a weak commission, which resigned en masse in 1999 amid allegations of corruption.

They could not have picked a better person.

You mean he didn't veto this?

Troubling news for all those who are rejoicing about the Boy-King vetoing treaties, getting us out of the euro (when were we in?), putting us on the same footing as Switzerland and generally restoring Britain's pride in herself: it seems that there is a fair chance that Britain will have to cough up another £30 billion in the form of loans to the IMF (loans?) that will be used to shore up the eurozone, which is not, incidentally what the IMF is supposed to be doing.

The fund revealed in its official Survey Magazine that non-euro countries would put up a quarter of all new money under the EU summit deal.

“European leaders agreed to make bilateral loans to the IMF of as much as €200bn —with €150bn contributed by eurozone members and €50bn from other members of the EU,” it said.

The report relied on a briefing by IMF chief Christine Lagarde, who was in the room with EU leaders during last Friday’s summit talks. Britain is the EU’s only large economy outside the euro.

The EU statement contained no reference to the €50bn figure for non-eurozone states. “If Britain has really agreed to this, it is a huge deal,” said Julian Callow at Barclays Capital.

David Cameron gave no hint of such an obligation in his statement to the Commons on Monday. “Alongside non-European G20 countries, we are ready to look positively at strengthening the IMF’s capacity to help countries in difficulty across the world,” the Prime Minister said. “But IMF resources are for countries not currencies, and can’t be used specifically to support the euro.”

What else might have happened at that meeting about which we have not been told?

More detailed analysis

Der Spiegel has an article that analyzes in greater detail the Karlsruhe decision. There is still no mention of those pesky Articles 122 and 125. Did they not rule on that? Also, it is hard to avoid the conclusion that this ruling may give the German parliament more power in theory but in practice it will be possible to circumvent it, thus infuriating yet more people, which is something politicians are rather good at doing.

Another article describes the scene at Karlsruhe.

Shortly thereafter, the fun came to a halt. Germany's highest judicial authority, the Federal Constitutional Court, issued its anxiously awaited ruling on the euro rescue package on Wednesday morning. Although their cases were rejected, the decision still represented a partial victory for Nölling and the remaining plaintiffs. The justices declared that the billions in guarantees for Greece and other highly indebted euro-zone countries were fundamentally constitutional, but they also demanded a greater say and participation in future bailouts by Germany's parliament, the Bundestag.

This, as many swiftly realized, might well mean that there will be preliminary agreements between the Bundestag and the government in order not to cause any trouble. However, there will always be the possibility that those agreements will not work and that possibility will become stronger with every new bail-out.

The Economist is pleased with the result - the euro is safe for the time being, more or less - but thinks Merkel loses in the court of public opinion.

As expected ...

... the German Constitutional Court in Karlsruhe denied that the existing bail-outs are unconstitutional but decreed that in future the Bundestag budgetary committee must give a prior agreement "before any further German financial guarantees for loans to its 16 partners in the eurozone". The decision does not seem to have made anyone particularly happy, though as the Financial Times, a fervent supporter of the continuation of the eurozone, says

The judgment amounts to an important victory for the German government, although it could complicate negotiations over future crisis measures by reinforcing the parliamentary control of the Bundestag.

It lifts a cloud over the €110bn rescue package agreed last year for Greece, and the €440bn European Financial Stability Facility (EFSF) used to provide further financial assistance for both Ireland and Portugal. It should also clear the way for German parliamentary approval for further crisis measures to extend the powers of the EFSF.

What could be worse than reinforcing parliamentary control over an unaccountable procedure that will be the EFSF?

So the relief that the reforms to the EFSF, i.e. more powers to control financial measures and transfer of funds, will probably be approved of is tempered by the thought, as expressed by Carsten Brzeski, senior economist at ING Belgium,

"A bigger say for German parliament in future bailouts could easily find copycats in other eurozone countries, undermining the clout of the beefed-up EFSF,” as well as the permanent European Stability Mechanism to be established from 2014.

Meanwhile, Chancellor Merkel, whose joy over this decision must be severely qualified by the thought of her own government possibly not supporting her over those reforms, said in a speech to the Bundestag that serious reforms of the eurozone were needed.

"I'm convinced that this crisis, if a great crisis of the western world is to be avoided, cannot be fought with a 'carry on' attitude. We need a fundamental rethink," Merkel said.

"We must make it very clear to people that the current problem, namely of excessive debt built up over decades, cannot be solved in one blow, with things like euro bonds or debt restructurings that will suddenly make everything okay. No, this will be a long, hard path, but one that is right for the future of Europe."

Quite so, Chancellor.

While her opponents, the SPD cannot claim any credit, being in government when Greece was allowed into the eurozone, the handling of the crisis is ever more unpopular in Germany and that includes Chancellor Merkel's own party and supporters.

Merkel has also come under fire from some members of her own party for going too far in rescuing countries like Greece, Ireland and Portugal.

Horst Seehofer, the head of her Bavarian sister party, told the Bild newspaper on Wednesday morning that a Greek exit from the euro zone could not be ruled out.

Some of Merkel's traditional allies are threatening to oppose new powers for the euro zone's rescue fund in a parliamentary vote later this month, in what is developing into the biggest threat to her leadership since she first took power in 2005.

Meanwhile, the coverage of the Karlsruhe decision is divided between those who think this has given the Bundestag more powers (or, perhaps, returned powers) and those who think that this has really salvaged the whole operation temporarily as nobody really dares to think too far ahead. Daniel Hannan seems to be the only one who raises another aspect of the case, the EU's blatant violation of its own rules, to wit, Article 125, which specifically states

1. The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.

Well, we all know how they got round that: by using or, rather, misusing Article 122:

1. Without prejudice to any other procedures provided for in the Treaties, the Council, on a proposal from the Commission, may decide, in a spirit of solidarity between Member States, upon the measures appropriate to the economic situation, in particular if severe difficulties arise in the supply of certain products, notably in the area of energy.

2. Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member State concerned. The President of the Council shall inform the European Parliament of the decision taken.

On with the motley!

Karlsruhe court's decision is to be published tomorrow

Well, actually, later today as it is past midnight. Here is Reuters preliminary report of what will be in that decision.

Germany's top court is expected to grant parliament more say over future aid payments to crisis-hit euro zone countries in a landmark ruling on Wednesday, but stop short of blocking Berlin's contributions to a series of multi-billion euro bailout packages.

I have written about the case before, here and here. Undoubtedly, I shall write again tomorrow morning.

Misleading titles

Even though my knowledge of German is shaky, I could understand this title in Die Welt: "Die Deutschen wollen mehr Europa". The Germans, I read, want more Europa. But not, I noticed, more European Union. My reading of the title and my stuttering through the article was confirmed by Open Europe and its team of translators:

According to a series of Deutschlandtrend polls conducted by ARD, only 35% of Germans accept “limited” versions of Eurobonds, with 55% opposing them. 66% do not support stronger eurozone countries providing credit guarantees for weaker ones, while 80% believe that “the worst of the euro– anddebt – crisis is yet to come.” 64% support “more common policy making in Europe over the next few years” (mehr gemeinsame Politik in Europa). However, the question does not mention the EU and does not ask whether respondents agree that powers should be transferred to the EU institutions. Answering a separate question, 53% of respondents said they were opposed to the idea of “United States of Europe”, with only 42% in favour.

Then Open Europe makes something of a boo-boo of its own. They quote from the Finnish business magazine Talouselämä (goodness, do they have Finnish translators in Open Europe?) and say in the heading: "47% of Finns think euro has done more harm than good, down from 71% a year ago". What?

Ahem, no. As you were. The translated and summarized text says:

Meanwhile, a poll conducted last week by Taloustutkimus Oy for Finnish business magazine Talouselämä shows that 49% of Finns are opposed to Finnish participation in EU emergency aid to Greece, while only 34% support the EU bailout. The same poll showed that 47% of Finns think the euro has done more good than harm, down from 71% in a Eurobarometer poll a year ago.

Exactly, the opposite to what the title says. Here are the figures on the opposition to the bail-out on Reuters. And here is the full story in English on YLE. Maybe there are no Finnish translators in Open Europe, after all. That might explain the perplexing heading.

Finland, meanwhile, refuses to budge on the question of the collateral agreement with Greece and the Prime Minister has been threatened with a meeting with Council President Van Rompuy on Monday morning. There's a threat to bring terror into any politician's heart.

The Finns are not happy

This time it is the Finnish Prime Minister who is not happy. According to this article in the Daily Telegraph

Mr Katainen [Finnish Prime Minister] said that if Finland's bilateral agreement with Greece over collateral payments was overruled, the Nordic country could back out of the rescue programme.

He told reporters that the private collateral agreement, in which Greece agreed to give Finland €1bn (£875m) in cash in return for its suppport, was "our parliament's decision that we demand it as a condition for us joining in".

The problem is, as Investment Week pointed out,

Finland had agreed a private collateral agreement, in which Greece would give €1bn (£875m) in cash in return for the Finnish parliament's support.

This sparked demands from Austria, the Netherlands and Slovakia for similar treatment, with both the Austrians and the Dutch criticising the deal.

Greece would not be able to cope with all those collaterals (any more than it can cope with her domestic economic problems) and they would have to be covered from the bail-outs. This, naturally enough, has annoyed the other eurozone countries.

The Austrian Finance Minister has said "such a unilateral deal is an "intolerable suggestion and an agreement that burdens third parties" — the other eurozone countries participating in the bailout". Then she added that "she will ask the EU's 27 finance ministers to approve Austria's demand that the same terms must apply to all countries shouldering the Greek financial burden. The Netherlands, Slovenia and Slovakia have indicated they would like similar treatment." Makes sense to me.

I am shocked, I tell you, shocked

Apparently Greece is set to default on massive debt burden. Now who could have predicted that? And while we are on the subject of predictions, I have run out of ways of saying politely: WE TOLD YOU SO. Can't help remembering the story about the great Sovietologist, writer and poet Robert Conquest. When his seminal book The Great Terror was about to have its second and much expanded and, above all, updated edition, the publishers asked him whether they should change the title and if so to what. Conquest said "what about I told you so, you f***ing fools"?

Well, what a relief

In answer to Lord Stoddart's Written Question

To ask Her Majesty's Government whether they will take steps to ensure any decisions regarding further bail-outs for the Greek economy are not made using qualified majority voting.

HMG in the person of Lord Sassoon said:

The Government have been clear that the UK should not participate in a new financial assistance package for Greece. At the European Council on 24 June 2011, the Prime Minister secured explicit assurance that a new programme for Greece would be supported by its euro area partners and the IMF, not the European Union as a whole.

We shall see about the EU as a whole but the IMF does, let us not forget, include this country as well.

The German case at last takes off

The German legal challenge to the bail-outs, discussed on this blog here and here, is finally being heard after a year of procrastination while the bail-outs went ahead and the inevitable default has been postponed yet more. A long and interesting piece by Steven Evans on the BBC site. Well worth reading.

Riskier and riskier

A very unhappy article in Der Spiegel points out,

While Europe is preoccupied with a possible restructuring of Greece's debt, huge risks lurk elsewhere -- in the balance sheet of the European Central Bank. The guardian of the single currency has taken on billions of euros worth of risky securities as collateral for loans to shore up the banks of struggling nations.

All a bit of a mess, really. The article is worth reading in full.

Oh and, by the way, 46 MPs voted for Mark Reckless's Amendment earlier today:

That this House notes with concern that UK taxpayers are potentially being made liable for bail-outs of Eurozone countries when the UK opted to remain outside the Euro and, despite agreement in May 2010 that the EU-wide European Financial Stability Mechanism (EFSM) of €60 billion would represent only 12 per cent. of the non-IMF contribution with the remaining €440 billion being borne by the Eurozone through the European Financial Stability Facility (EFSF), that the EFSM for which the UK may be held liable is in fact being drawn upon to the same or a greater extent than the EFSF; further notes that the European Scrutiny Committee has stated its view that the EFSM is legally unsound; and requires the Government to place the EFSM on the agenda of the next meeting of the Council of Ministers or the European Council and to vote against continued use of the EFSM unless a Eurozone-only arrangement which relieves the UK of liability under the EFSM has by then been agreed.

The link is the temporary one and will be replaced by the permanent Hansard link tomorrow. The vote was somewhat more complicated because another Amendment was put down by Chris Heaton-Harris, the well-known "eurosceptic" ex-MEP, which watered the original down and which is generally assumed to have been inspired by the government whips. So, the NO votes are the important ones as they are voting against Mr Heaton-Harris's Amendment to the Amendment. Here is the list. More on all this tomorrow when Hansard will be available.

True Finns will not be in government

True Finns, who did extraordinarily well in the Finnish election, will not be in the new coalition government as they do not go along with the other parties on the question of the Portuguese bail-out, the issue on which they campaigned and were elected.

Meanwhile, here is an article by Timo Soini, the True Finns' leader in its "uncensored" version unlike that published in the Wall Street Journal though I suspect the editing was done mostly for reasons of space.

Bail-out or default?

The Adam Smith Institute comes down on the side of default as is to be expected.

Greece was bailed out, then Ireland was bailed out, and now Portugal has been bailed out. All of these countries were made to agree fairly stringent deficit and debt reduction packages. All three face years of fiscal tightness, reduced services and living standards, and low economic growth. It is by no means certain that the populations of these democracies will tolerate this for the length of time it will require to put their affairs to rights.

There is an alternative. It is to let these countries default, offering a percentage of the debts' face value as settlement. There would be turmoil. Some bondholders, including European banks, would lose substantial sums. But at the end of it confidence would return and economies start to grow again without that burden of debt.

The decision was made to protect small depositors, bondholders and to some extent bank shareholders, at the expense of taxpayers. It was an unwise decision, both morally and from the point of view of efficiency. One could argue that small depositors were not a party to the causes of the crisis, and should not be made to bear its burdens. Bondholders and shareholders, however, should have known better.

The main argument in favour of default is that it will be effective in putting a line under the crisis. Instead of limping along for years with lacklustre economies struggling to meet debt repayments, the over-indebted countries can get it over with and turn the page.

It looks very much as if the bailout option has been taken to protect the euro and European banks, but it would not be the end of the world if a few countries that should never have been in the single currency have to leave it. And if a few European banks had to restructure, recapitalize or be taken over, this, too, could be survived. Allowing the euro to lose momentum might be a setback to European political union, but this would be no bad thing.

Makes sense to me. The euro is a political project, which was, as some French newspapers wrote at the time, supposed to demonstrate the triumph of politics over economics. Some hope!

Was he telling the truth?

The usual method of finding out whether a politician is lying is to watch his or her lips. If these are moving with speech, lies are issuing. In this case, the question is was George Osborne lying to the Commons. Well, of course, he was, I hear you cry, without knowing what it is I am talking about and I tend to agree. However, this is of some importance.

The matter under discussion is the "deal agreed by European finance ministers in May last year on the European Financial Stabilisation Mechanism (EFSM), making all EU nations liable to contribute to potential euro bailouts". Alistair Darling, then Chancellor of the Exchequer represented this country and on our behalf though without bothering to ask our opinion, agreed to the deal and signed us up to an open-ended bail-out sum. The question is not whether Georgie-Porgie knew about it - nobody is denying that he did as Mr Darling, quite properly, consulted him - but whether he agreed to it. This is what Douglas Carswell MP has been trying to find out, as different people give different versions.

The controversy for Carswell surrounds what Osborne did or didn't agree with Darling.

The Clacton MP has seized on a Treasury document signed by Treasury Minister Justine Greening from July last year (highlighted by Paul Waugh on his blog at the end of last month) which suggests that there was a "cross-party consensus" over the EFSM.

Yet there has been a series of strenuous denials to the Commons that Osborne agreed with the decision made at the meeting in Brussels on May 9th.

Some say this and some say that and what I say is that Lord Willoughby de Broke is right: one Parliament cannot bind its successor. As this government seems reluctant to act upon that principle, one cannot help feeling just a teensy-weensy bit suspicious.

Back to Iceland and Portugal

The Letters section of today's Daily Telegraph is led by Lord Willoughby de Broke, who has appeared once or twice on this blog and over on EURef. Despite the ridiculously bad sub-editing of the heading (sadly to be expected from the Telegraph these days) one can quickly grasp what the noble lord is saying.

No Parliament may bind its successors, and it is essential for Mr Osborne to review the commitment made by Mr Darling.

Members of the eurozone must solve its problems. President Nicolas Sarkozy of France, at the Davos economic forum, underlined that: "We are fully determined to defend the euro... Mrs Merkel and I will never – do you hear me, never – let the euro fall." With that promise Mr Osborne is surely free to allow France and Germany to back their mouth with their money.

Well, pigs might fly, I suppose, and Georgie-Porgie might acquire some sense and a backbone.

There are other letters, less coherent in what they are trying to say but I do like Colin Bullen's point about not letting Iceland into the EU being the equivalent of throwing Brer Rabbit into the briar patch.

ADDENDUM: I have been reliably informed (by Lord Willoughby de Broke) that his original letter was "castrated". Here is the last paragraph as he wrote it:

Indeed the French President, Nicolas Sarkozy, in full hubristic flow at the Davos World Economic Forum, underlined that “ We are fully determined to defend the euro… Mrs. Merkel and I will never – do you hear me, never – let the euro fall”. With that ringing promise from the two leading members of the eurozone George Osborne is surely now free to allow France and Germany to back their mouth with their money.

It would appear that the Telegraph prefers not to pass sarcastic or unfriendly comments about Le P'tit Sarko.

Meanwhile back in the House of Lords

Lord Willoughby de Broke asked a highly pertinent question:

To ask Her Majesty's Government whether the United Kingdom's participation in the European Union stability mechanism, and the proposed loan to the Republic of Ireland, are in breach of the "no bailout" clauses enshrined in the Maastricht treaty.

After all, we heard a great deal about the "no bailout" clause though it never seemed to me much of a problem. The EU cannot bail out a country but individual members can "decide to help", all at the same time. So, Article 125, I recall saying, may say no bail-out but Article 122 allows you to do just that in a round-about way.

It seems that I (and the Boss on EURef) were not far wrong. On behalf of HMG Lord Sassoon (for it is he, again) answered:

My Lords, Article 125 of the treaty, on the so-called "no bailout" clause, states that a member state,

"shall not be liable for or assume the commitments",

of another member state. Article 125 does not preclude member states from providing loans to one another. The European financial stability mechanism was established under Article 122.2, which allows the Union to lend to a member state that is in difficulties or,

"seriously threatened with severe difficulties ... or exceptional occurrences beyond its control".

To be fair, Lord Sassoon rather sheepishly hinted that he did not think this was a proper use of Article 122.2 but as our friends on the other side of the Channel would say: que voulez-vous?