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IMF: Greece will find it difficult to avoid a ‘selective default’; Germany sees no rush for agreement on second Greek bailout

In a staff report released yesterday the IMF warned that Greece’s debt burden risks spiralling out of control and slammed eurozone leaders for their public disagreements which the IMF believes caused the cost of borrowing to increase, pushing Greece closer to a disorderly default. The IMF forecasts that Greek debt could reach 172% of GDP next year, if there is a debt rollover. The report suggests that there should be some burden sharing with the private sector but it will be nearly impossible for Greece to avoid slipping into “selective default” territory. Eleftherotypia reports that, according to the IMF, a new bailout for Greece will include a €71bn loan from the eurozone and €33bn from private sector involvement. Fitch followed the other big rating agencies by downgrading Greece yesterday.

Meanwhile, Germany has dismissed the possibility of having an emergency meeting of eurozone leaders on Friday and reiterated its stance that an agreement on a second bailout of Greece is not needed before September. The front page of Handelsblatt carries the headline "Goodbye from Europe?" and quotes Rainer Brüderle MP, leader of the FDP in the Bundestag, saying, "an orderly restructuring (of Greek debt) cannot be a taboo any longer”.

FT Alphaville highlights a report by RBS, which suggests that for the European Financial Stability Facility, the eurozone’s temporary bailout fund, to fully act as a buyer of last resort for eurozone government debt, it would need to be increased in size to €3.45tr. However, since this is not politically viable, the ECB would need to fulfil this role. FAZ reports on a study by the Zentrum für Europäische Politik (ZEP) which estimates that the annual cost of a European transfer union would amount to €108bn per year for Germany, while separate research carried out by Deutsche Bank puts it at €137bn per year.

The Irish Independent reports that the ECB has warned that it may remove €50bn in liquidity from Anglo Irish Bank and Irish Nationwide if the Irish government forces their senior bondholders to take write-downs.
FT WSJ Guardian FT 2 European Voice Mail Le Monde Le Figaro Les Echos La Tribune Le Soir La Stampa La Repubblica Il Sole 24 Ore El Pais Expresso Kathimerini Eleftherotypia Ethnos Isotimia Kathimerini2 FAZ FDP Press release NRC FT 3 FT 4 FT 5 IHT Le Monde Le Figaro Les Echos 2 FT 6 FT 7 Ethnos Times Les Echos 3 Independent Independent 2 Independent 3 El Pais 2 El Pais 3 El Pais 4 El Pais 5 Irish Times Irish Times 2 Irish Times 3 Irish Times 4 Irish Independent FTD FTD 2 FTD 3 FTD 4 FTD 5 Handelsblatt Handelsblatt 2 FAZ 2 FT Alphaville Le Figaro: Laskine AP Reuters Corriere della Sera Corriere della Sera Irish Independent 2

German bank withdraws from stress tests following criteria dispute German public sector bank Helaba announced yesterday that it will withdraw from the EU’s banking stress tests, over a dispute on how the tests are conducted. It will instead separately publish its own results, raising concerns that other lenders may decide to do the same, and calling into question the credibility of the tests. The WSJ reports that UK banks are expected to pass. Meanwhile, Spanish bankers are reportedly calling for the European Banking Authority to adjust the terms of the exam. El Pais claims that the stress tests have been harsher on Spanish banks than the rest of Europe. Polish Finance Minister Jacek Rostowski has said that member states are preparing plans for banks, so-called ‘backstops’, to address any problems following the release of the results tomorrow.
FT City AM FT 2 WSJ European Voice WSJ Heard on the Street WSJ Ahead of the Tape WSJ 2 El Pais El Pais 2


Mats Persson: Germany needs to act on euro-crisis or risk rising discontent with the entire EU project Writing for German magazine The European, Open Europe Director Mats Persson argues that “The Greek and eurozone debt crisis has ceased to be about political economy – it has evolved into an existential crisis for the EU itself. The euro has resulted in benefits for Germany and other countries but over the last 18 months we have been reminded how the euro was born with some inherent defects.” He argues that Germany should back a long-term resolution to the crisis, including debt relief for the struggling economies as soon as possible, or risk a growing tide of voters across Europe willing to turn their back on the EU altogether.

In the FT, former EU Commissioner Mario Monti argues that “the rating agencies, who normally concentrate on short-term financial conditions, have this week emphasised Italy’s weak policies on growth.” He warns however that, “The need for a new generation of reforms capable of raising levels of growth and productivity is not widely accepted on either Italian right or left.” Les Echos’ Co-Editor in Chief Nicolas Barré argues that, “The eurozone tragedy first inspires discouragement and anger. Discouragement because the European leaders seem to be doing it on purpose and every day they offer new targets for market speculation in the absence of decision-making”.

Meanwhile, in the WSJ, columnist Geoffrey Smith argues that the ECB’s assurance that the Italian banks will pass this week’s stress tests “looks depressingly like the familiar European habit of saying things that are correct in their own narrowly defined context, but that have no practical meaning in any other. It is clear that such sanguine assessments have no relevance to the market in its current mood.”
The European: Persson FT: Monti FT: Giugliano WSJ: Dalton WSJ: Smith WSJ: Editorial WSJ: McCourt Independent: Whittam Smith El Pais: Vidal-Folch Expresso: Costa Expresso: Santos Expansion: Schwartz Liberation: Daniel Les Echos: Barre Guardian: Lanchester Guardian: Foot Guardian: Vendola Les Echos: Barre

EU referendum lock set to become law after Lords back downThe Government’s EU Bill, which includes the so-called “referendum lock”, is set to become law after peers last night accepted MPs’ rejection of three of their proposed changes to the Bill and a compromise on the fourth. The Lords dropped their demands for a “sunset clause”, a 40% turnout threshold for referendums and a limit to the number of areas subject to referendum and suggested a compromise involving a technical legal modification to the Bill’s “sovereignty clause”.
Hansard

Anthony Browne: UK Government should concentrate on EU reform, withdrawal would be a distraction Writing on Conservative Home, Anthony Browne, the former Brussels correspondent for The Times and Policy Advisor to Boris Johnson, argues that, “The arguments for and against leaving the EU are finely balanced, but there is an overwhelming reason why Conservatives should not want the government to try to leave: it would derail everything else the government wants to do.” He concludes that, “We should give EU reform a serious push, in a way that no government has previously done – and as David Cameron [has said], the EU crisis could be an opportunity for that.”
Conservative Home: Browne

Following yesterday’s announcement to revise the Common Fisheries Policy, the FTD’s Fabian Löhe argues that the move will benefit small fishing companies as well as fish stocks and the environment. A leader in the Independent argues that while it’s a “welcome admission…Unfortunately, it will do little to solve the long-standing problem of over-fishing”. FTD: Löhe European Voice IHT Le Monde Independent Independent: Leader Times: Pope Guardian

The Guardian reports that Transport Secretary Philip Hammond has said the Government was bound by EU procurement laws that prevent the Department for Transport from reversing its decision to make Siemens rather than Bombardier the preferred bidder to build 1,200 carriages for the London Thameslink route.Guardian

The IHT reports that the Commissioner for Home Affairs, Cecilia Malmström, has proposed plans for a European Terrorist Finance Tracking System that would “limit the amount of personal data transferred to the US” but would cost nearly €50m to implement and about €11m in annual running costs.IHT

EurActiv reports that the EU is considering a weighting system or even a ban on fluorinated gases, claimed to be over a thousand times more potent than CO2 in causing global warming and predicted to constitute between 9% and 19% greenhouse gases in 2050.EurActiv

EurActiv reports that a research paper by the Romanian think tank Institute for Public Policies (IPP) has warned that Romania is much further behind than Bulgaria in the absorption of the structural funds allocated to it by the EU and warns that there is a significant "lack of transparency" within the Romania administration.EurActiv

Euractiv reports that during meeting in Brussels, between national parliamentarians from Central and Eastern member states, it was agreed that plans to reform the CAP do not go far enough. Polish and Estonian politicians are said to have argued that the continued inequalities in direct payments to farmers would “destroy competition” and “threaten the EU single market.”Euractiv

World

Moody’s credit rating agency placed the US triple-A rating on review for a possible downgrade yesterday, following the failure of US politicians to reach a deal on the debt ceiling.FT

EUobserver reports that EU-led attempts to revive Arab-Israeli peace talks and avoid a UN vote on Palestinian independence have failed. EUobserver

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