Category Archives: European Union

Britain ‘will join euro before long’, says German finance minister

Wolfgang Schäuble believes that Britain will have to adopt the euro Photo: REUTERS

Britain will have to abandon the pound and join the single currency “faster than people think”, Germany’s finance minister has said.

Telegraph | Nov 18, 2011

By Bruno Waterfield, in Brussels and Christopher Hope in Berlin

Wolfgang Schäuble said that, despite the current crisis in the eurozone, the euro will ultimately emerge as the common currency of the entire European Union. He said he “respects” Britain’s decision to keep the pound, but insisted that the survival and eventual stabilisation of the euro will convince non-members to join the currency club. “This may happen more quickly than some people in the British Isles currently believe,” he added.

Mr Schäuble also said Germany will stand firm on its call for a financial transaction tax that Britain believes would badly harm the City of London.

Fears over the eurozone crisis saw stock markets fall again yesterday. The FTSE 100 closed down 1.1 per cent. French and German shares also fell.

Meanwhile, a leaked document seen by The Daily Telegraph yesterday showed Berlin has drawn up radical plans for an intrusive new European body which will be able to intervene directly in beleaguered countries.

Sir John Major, the former prime minister, warned last night that the growing integration of the eurozone nations threatens democracy in those countries. He told Al Jazeera television that richer euro members led by Germany and France will “insist on moving towards what we call fiscal union. By that I mean common control over budgets and fiscal deficits”.

Sir John, who advises David Cameron on foreign policy issues, also described the banking transaction tax as “a heat-seeking missile proposed in continental Europe, aimed at the City of London”.



Goldman Sachs conquers Europe

While ordinary people fret about austerity and jobs, the eurozone’s corridors of power have been undergoing a remarkable transformation

What price the new democracy? Goldman Sachs conquers Europe

Independent | Nov 18, 2011

by Stephen Foley

The ascension of Mario Monti to the Italian prime ministership is remarkable for more reasons than it is possible to count. By replacing the scandal-surfing Silvio Berlusconi, Italy has dislodged the undislodgeable. By imposing rule by unelected technocrats, it has suspended the normal rules of democracy, and maybe democracy itself. And by putting a senior adviser at Goldman Sachs in charge of a Western nation, it has taken to new heights the political power of an investment bank that you might have thought was prohibitively politically toxic.

This is the most remarkable thing of all: a giant leap forward for, or perhaps even the successful culmination of, the Goldman Sachs Project.

It is not just Mr Monti. The European Central Bank, another crucial player in the sovereign debt drama, is under ex-Goldman management, and the investment bank’s alumni hold sway in the corridors of power in almost every European nation, as they have done in the US throughout the financial crisis. Until Wednesday, the International Monetary Fund’s European division was also run by a Goldman man, Antonio Borges, who just resigned for personal reasons.

Even before the upheaval in Italy, there was no sign of Goldman Sachs living down its nickname as “the Vampire Squid”, and now that its tentacles reach to the top of the eurozone, sceptical voices are raising questions over its influence. The political decisions taken in the coming weeks will determine if the eurozone can and will pay its debts – and Goldman’s interests are intricately tied up with the answer to that question.

Simon Johnson, the former International Monetary Fund economist, in his book 13 Bankers, argued that Goldman Sachs and the other large banks had become so close to government in the run-up to the financial crisis that the US was effectively an oligarchy. At least European politicians aren’t “bought and paid for” by corporations, as in the US, he says. “Instead what you have in Europe is a shared world-view among the policy elite and the bankers, a shared set of goals and mutual reinforcement of illusions.”


Goldman Sachs rules the world

This is The Goldman Sachs Project. Put simply, it is to hug governments close. Every business wants to advance its interests with the regulators that can stymie them and the politicians who can give them a tax break, but this is no mere lobbying effort. Goldman is there to provide advice for governments and to provide financing, to send its people into public service and to dangle lucrative jobs in front of people coming out of government. The Project is to create such a deep exchange of people and ideas and money that it is impossible to tell the difference between the public interest and the Goldman Sachs interest.

Mr Monti is one of Italy’s most eminent economists, and he spent most of his career in academia and thinktankery, but it was when Mr Berlusconi appointed him to the European Commission in 1995 that Goldman Sachs started to get interested in him. First as commissioner for the internal market, and then especially as commissioner for competition, he has made decisions that could make or break the takeover and merger deals that Goldman’s bankers were working on or providing the funding for. Mr Monti also later chaired the Italian Treasury’s committee on the banking and financial system, which set the country’s financial policies.

With these connections, it was natural for Goldman to invite him to join its board of international advisers. The bank’s two dozen-strong international advisers act as informal lobbyists for its interests with the politicians that regulate its work. Other advisers include Otmar Issing who, as a board member of the German Bundesbank and then the European Central Bank, was one of the architects of the euro.

Perhaps the most prominent ex-politician inside the bank is Peter Sutherland, Attorney General of Ireland in the 1980s and another former EU Competition Commissioner. He is now non-executive chairman of Goldman’s UK-based broker-dealer arm, Goldman Sachs International, and until its collapse and nationalisation he was also a non-executive director of Royal Bank of Scotland. He has been a prominent voice within Ireland on its bailout by the EU, arguing that the terms of emergency loans should be eased, so as not to exacerbate the country’s financial woes. The EU agreed to cut Ireland’s interest rate this summer.

Picking up well-connected policymakers on their way out of government is only one half of the Project, sending Goldman alumni into government is the other half. Like Mr Monti, Mario Draghi, who took over as President of the ECB on 1 November, has been in and out of government and in and out of Goldman. He was a member of the World Bank and managing director of the Italian Treasury before spending three years as managing director of Goldman Sachs International between 2002 and 2005 – only to return to government as president of the Italian central bank.

Mr Draghi has been dogged by controversy over the accounting tricks conducted by Italy and other nations on the eurozone periphery as they tried to squeeze into the single currency a decade ago. By using complex derivatives, Italy and Greece were able to slim down the apparent size of their government debt, which euro rules mandated shouldn’t be above 60 per cent of the size of the economy. And the brains behind several of those derivatives were the men and women of Goldman Sachs.

The bank’s traders created a number of financial deals that allowed Greece to raise money to cut its budget deficit immediately, in return for repayments over time. In one deal, Goldman channelled $1bn of funding to the Greek government in 2002 in a transaction called a cross-currency swap. On the other side of the deal, working in the National Bank of Greece, was Petros Christodoulou, who had begun his career at Goldman, and who has been promoted now to head the office managing government Greek debt. Lucas Papademos, now installed as Prime Minister in Greece’s unity government, was a technocrat running the Central Bank of Greece at the time.

Goldman says that the debt reduction achieved by the swaps was negligible in relation to euro rules, but it expressed some regrets over the deals. Gerald Corrigan, a Goldman partner who came to the bank after running the New York branch of the US Federal Reserve, told a UK parliamentary hearing last year: “It is clear with hindsight that the standards of transparency could have been and probably should have been higher.”

When the issue was raised at confirmation hearings in the European Parliament for his job at the ECB, Mr Draghi says he wasn’t involved in the swaps deals either at the Treasury or at Goldman.

It has proved impossible to hold the line on Greece, which under the latest EU proposals is effectively going to default on its debt by asking creditors to take a “voluntary” haircut of 50 per cent on its bonds, but the current consensus in the eurozone is that the creditors of bigger nations like Italy and Spain must be paid in full. These creditors, of course, are the continent’s big banks, and it is their health that is the primary concern of policymakers. The combination of austerity measures imposed by the new technocratic governments in Athens and Rome and the leaders of other eurozone countries, such as Ireland, and rescue funds from the IMF and the largely German-backed European Financial Stability Facility, can all be traced to this consensus.

“My former colleagues at the IMF are running around trying to justify bailouts of €1.5trn-€4trn, but what does that mean?” says Simon Johnson. “It means bailing out the creditors 100 per cent. It is another bank bailout, like in 2008: The mechanism is different, in that this is happening at the sovereign level not the bank level, but the rationale is the same.”

So certain is the financial elite that the banks will be bailed out, that some are placing bet-the-company wagers on just such an outcome. Jon Corzine, a former chief executive of Goldman Sachs, returned to Wall Street last year after almost a decade in politics and took control of a historic firm called MF Global. He placed a $6bn bet with the firm’s money that Italian government bonds will not default.

When the bet was revealed last month, clients and trading partners decided it was too risky to do business with MF Global and the firm collapsed within days. It was one of the ten biggest bankruptcies in US history.

The grave danger is that, if Italy stops paying its debts, creditor banks could be made insolvent.  Goldman Sachs, which has written over $2trn of insurance, including an undisclosed amount on eurozone countries’ debt, would not escape unharmed, especially if some of the $2trn of insurance it has purchased on that insurance turns out to be with a bank that has gone under. No bank – and especially not the Vampire Squid – can easily untangle its tentacles from the tentacles of its peers. This is the rationale for the bailouts and the austerity, the reason we are getting more Goldman, not less. The alternative is a second financial crisis, a second economic collapse.

Shared illusions, perhaps? Who would dare test it?

EU bans claim that water can prevent dehydration

NHS health guidelines state clearly that drinking water helps avoid dehydration, and that Britons should drink at least 1.2 litres per day Photo: ALAMY

Brussels bureaucrats were ridiculed yesterday after banning drink manufacturers from claiming that water can prevent dehydration.

Telegraph | Nov 18, 2011

By Victoria Ward and Nick Collins

EU officials concluded that, following a three-year investigation, there was no evidence to prove the previously undisputed fact.

Producers of bottled water are now forbidden by law from making the claim and will face a two-year jail sentence if they defy the edict, which comes into force in the UK next month.

Last night, critics claimed the EU was at odds with both science and common sense. Conservative MEP Roger Helmer said: “This is stupidity writ large.

“The euro is burning, the EU is falling apart and yet here they are: highly-paid, highly-pensioned officials worrying about the obvious qualities of water and trying to deny us the right to say what is patently true.

“If ever there were an episode which demonstrates the folly of the great European project then this is it.”

NHS health guidelines state clearly that drinking water helps avoid dehydration, and that Britons should drink at least 1.2 litres per day.

The Department for Health disputed the wisdom of the new law. A spokesman said: “Of course water hydrates. While we support the EU in preventing false claims about products, we need to exercise common sense as far as possible.”

German professors Dr Andreas Hahn and Dr Moritz Hagenmeyer, who advise food manufacturers on how to advertise their products, asked the European Commission if the claim could be made on labels.

They compiled what they assumed was an uncontroversial statement in order to test new laws which allow products to claim they can reduce the risk of disease, subject to EU approval.

They applied for the right to state that “regular consumption of significant amounts of water can reduce the risk of development of dehydration” as well as preventing a decrease in performance.

However, last February, the European Food Standards Authority (EFSA) refused to approve the statement.

A meeting of 21 scientists in Parma, Italy, concluded that reduced water content in the body was a symptom of dehydration and not something that drinking water could subsequently control.

Now the EFSA verdict has been turned into an EU directive which was issued on Wednesday.

Ukip MEP Paul Nuttall said the ruling made the “bendy banana law” look “positively sane”.

He said: “I had to read this four or five times before I believed it. It is a perfect example of what Brussels does best. Spend three years, with 20 separate pieces of correspondence before summoning 21 professors to Parma where they decide with great solemnity that drinking water cannot be sold as a way to combat dehydration.

“Then they make this judgment law and make it clear that if anybody dares sell water claiming that it is effective against dehydration they could get into serious legal bother.

EU regulations, which aim to uphold food standards across member states, are frequently criticised.

Rules banning bent bananas and curved cucumbers were scrapped in 2008 after causing international ridicule.

Prof Hahn, from the Institute for Food Science and Human Nutrition at Hanover Leibniz University, said the European Commission had made another mistake with its latest ruling.

“What is our reaction to the outcome? Let us put it this way: We are neither surprised nor delighted.

“The European Commission is wrong; it should have authorised the claim. That should be more than clear to anyone who has consumed water in the past, and who has not? We fear there is something wrong in the state of Europe.”

Prof Brian Ratcliffe, spokesman for the Nutrition Society, said dehydration was usually caused by a clinical condition and that one could remain adequately hydrated without drinking water.

He said: “The EU is saying that this does not reduce the risk of dehydration and that is correct.

“This claim is trying to imply that there is something special about bottled water which is not a reasonable claim.”

Europe’s Politburo

Power brokers: Christine Lagarde, head of the IMF and former French finance minister, left, Angela Merkel, centre, and Nicolas Sarkozy, are calling the shots Photo: AFP/Getty Images

Britain is approaching a key moment in its post-war history. Do we want to be closer to – or further away from – the EU’s inner core?

Telegraph | Nov 7, 2011

At the G20 summit in Cannes at the weekend, a small number of delegates could be seen sporting lapel badges announcing their membership of the Groupe de Francfort (GdF). This has become the informal leadership body of the eurozone, the A-team set up to deal with the crisis – or rather to continue dithering over what to do about it. Members of the GdF include Angela Merkel, the German Chancellor, and Nicolas Sarkozy, the French president. The group also comprises the chiefs of the European Commission, the European Central Bank and the EU Council. It has been called Europe’s Politburo – and the nickname is particularly apposite. For if the European Union has exhibited one defining characteristic over its lifetime, it has been a profound dislike of democratic decision-making. The GdF is something that would have been familiar in the old Soviet Union – a self-appointed body of powerful individuals prepared to topple national governments if they fail to toe the line. The GdF met four times on the sidelines of the Cannes summit, issuing ultimatums to Greece and Italy that have destabilised the administrations in both countries.

It is touching that the group has been given a French nomenclature when the most powerful member is clearly Germany. But it does represent a reassertion of the primacy of the Franco-German bloc that ruled the EU roost before enlargement. The Union’s expansion to 27 members was encouraged by Britain as a way of diffusing the influence of Paris and Berlin. Now, the central powers are back in control, with the UK (and everybody else) once again excluded. We are approaching a key moment in post-war British history: do we try to force our way back in, or decide upon a more disengaged relationship with Europe’s inner core?

Norway firm on anti-European Union stance | Oct 24, 2011

by Michael Sandelson

As European leaders’ debt crisis fears mount and Silvio Berlusconi’s budget deficit balance busts further southwards, comes news Norwegians’ ‘no’ to EU membership is even stronger.

Following this year’s generally downward spiral for EU membership from January and June, just 18.6 percent of voters are now in favour, according to the latest poll.

“My goodness, it must be difficult campaigning for Norwegian EU membership these days,” says Heming Olaussen, leader of organisation “No to the EU”, to Nationen.

The results may also come at an opportune time for Prime Minister Jens Stoltenberg, who decided to bury the issue of EU membership and the Euro almost two weeks ago.

“I’m going to spend my life on more fruitful things than working towards Norway having something to do with the Euro,” he told Klassekampen.

According to Mr Olaussen, saying ‘no’ to the Euro is also a de facto answer to the question of membership.

About today’s poll, he says, “There’s been a majority ‘no’ for the last six-and-a-half years, but we’re now seeing an extra effect due to the EU crisis and the EU’s deficient way of handling it.”

On the other side of the North Sea, Paal Frisvold, European Movement in Norway’s leader tells The Foreigner, “Although I’m confident the Euro is going to survive, I can understand the main impression at the moment is that the Euro being under such pressure creates strong arguments against becoming a member [of the EU].”

His view from Brussels is that now “is not a time to look at EU membership, but more of a time to look at how to solve the European economic crisis.”

“I don’t blame the views of those who mainly just read the front pages of newspapers. I would also be opposed to membership today, but now is not the time to jump to conclusions,” he says.

China holds Europe to ransom over £62bn bailout deal

Beijing plays down expectations of immediate cash injection | Oct 29, 2011

by Clifford Coonan

Eurozone leaders were left sweating last night after China played down expectations that it would quickly make a much-needed cash injection to the EU bailout fund.

The chief executive of the European Financial Stability Facility (EFSF), Klaus Regling, was in Beijing yesterday with the hope of coaxing a speedy investment from the world’s second-largest economy. But, despite hopes that the opportunity to take a leading role in managing global finances would prove a powerful incentive for Beijing, European observers were prepared for the Chinese to exact a heavy price in return for providing up to €70bn (£62bn) to the fund.

After meetings with senior officials, Mr Regling told reporters that a quick deal was unlikely. Meanwhile, the Chinese Deputy Finance Minister Zhu Guangyao said China would need more details of the planned boost to the EFSF before it would commit to any deal. “We must wait for the technical structure to be very clear and have serious and specialised discussions before making a decision on investment,” Mr Zhu told a news conference in Beijing.

Mr Regling was nonetheless bullish about the prospects of China ultimately putting in the cash that the eurozone countries so urgently want for the fund, which was set up in May 2010 and is set to be boosted to £880bn under the plan.

China is a likely candidate to provide a share of that money. Europe is a key export market, and Beijing has cash to spend. With a war chest of £2 trillion, it has the biggest foreign exchange reserves in the world and is keen for vehicles to invest its funds in.

“We all know China has a particular need to invest surpluses,” said Mr Regling. He said a quick deal was unlikely but he was “optimistic we will have a longer-term relationship”.

He said that China had not made any conditions about how it would buy EFSF bonds and that China had been a “good and loyal” buyer so far.

In a sign of the importance of Chinese participation, the French President, Nicolas Sarkozy, spoke to President Hu Jintao by telephone this week. “China hopes all these measures will help stabilise the European financial market and conquer the current difficulties and promote economic recovery and development,” Mr Hu said, quoted on China’s state television.

Mr Sarkozy said the Chinese leader had expressed his relief that Europe had announced a deal to tackle a debt crisis that otherwise could have taken down the entire world economy.

“China has a major role to play. China must deploy more resources to stimulate the world economy. If they decide to invest in the euro rather than the dollar, why reject that? Why not accept that the Chinese place their trust in the eurozone?” he said.

But Mr Hu made no explicit commitment of Chinese help. And speculation was rife yesterday that it would not provide Europe with the necessary funds without strong incentives.

Some analysts suggested that China could channel money through the International Monetary Fund because it would want to see stringent conditions over the extent of eurozone fiscal deficits applied to its investment. They also pointed to Beijing’s irritation at previous European criticism of its human rights record and suggested that a less interventionist approach from the EU could be a quid pro quo of any deal.

A Chinese official implied earlier this week that the Chinese investment would not come easily.

“The chief concern of the Chinese government is how to explain this decision to our own people,” Li Daokui, a monetary policy adviser to China’s central bank, told the Financial Times. “The last thing China wants is to throw away the country’s wealth.”

While China’s current holdings of euro bonds are not known, they are said to be focused on Germany and France, and much smaller than its holdings of US Treasury bonds. Some analysts reckon probably around one-quarter of its holdings are in euro assets.

New euro ’empire’ plot by Brussels

Britain must decide on the nature of its relationship with the European Union Photo: Corbis

European Union chiefs are drawing up plans for a single “Treasury” to oversee tax and spending across the 17 eurozone nations.

Telegraph | Oct 22, 2011

By Patrick Hennessy, and Bruno Waterfield

The proposal, put forward by Herman Van Rompuy, the European Council president, would be the clearest sign yet of a new “United States of Europe” — with Britain left on the sidelines.

The plan comes as European governments desperately trying to save the euro from collapse last night faced a new bombshell, with sources at the International Monetary Fund saying it would not pay for a second Greek bail-out.

It was also disclosed last night that British businesses are turning their back on Brussels regulations to give temporary workers full employment rights, with supermarket chain Tesco leading the charge.

Meanwhile, David Cameron is attempting to face down a rebellion tomorrow by Tory MPs in a vote over staging a referendum on Britain’s membership of the EU.

Ministers expect 60 or 70 MPs to defy the party’s high command and back the call for a referendum, while some rebels claim the final toll could be up to 100 — about a third of the parliamentary party.

Downing Street has upped the stakes dramatically. Last night, No 10 sources insisted they would impose a three-line whip — effectively ordering all Tory MPs to fall in line.

Mr Cameron, who yesterday took personal charge of the effort to persuade MPs to back the Government, has come under intense pressure from Cabinet colleagues to try to defuse the revolt by offering concessions or a way out to rebels. Sources say a handful of parliamentary private secretaries — the lowest rung on the government ladder — might resign.

The single Treasury plan emerged in Brussels yesterday as Europe’s finance ministers tried to find a way out of the crisis engulfing the eurozone. A full-scale rescue plan could cost about £1.75 trillion.

British sources said Mr Van Rompuy, who is regarded as being close to the German government, suggested plans for a “finance ministry” to be based either in Frankfurt or Paris. The EU already has its own “foreign ministry”, headed by Baroness Ashton, the former British Labour minister, and based in Brussels.

A senior Coalition source told The Sunday Telegraph: “I am well aware of arguments in Brussels and elsewhere in favour of a single Treasury. You’d get any number of different versions of ‘Europe’ all running at very different speeds.”

A series of meetings are due to be held over the next few days on the eurozone crisis that will involve the leaders of EU member states.

They were overshadowed last night as senior sources at the International Monetary Fund indicated privately that it is not willing to further bail out Greece, whose economy has an outstanding debt of about £232 billion.

The IMF, with the EU and the European Central Bank, is assessing Greece’s debt crisis, and a joint report yesterday suggested lenders might have to agree losses of up to 60 per cent in a Greek default.

Any suggestion that the IMF would not be part of a new bail-out of Greece could spark panic in the markets and worsen the eurozone crisis.

Eurosceptic Tories, meanwhile, are arguing in favour of “repatriating” powers from the EU to Britain, including the Agency Workers Directive, imposed last year at an annual cost of £1.8 billion, which is putting at risk 28,000 temporary job contracts for those aged between 16 and 24. Tesco has asked one of its suppliers to take advantage of a loophole in the law which allows workers to “opt out”.

As Mr Cameron led the drive this weekend to neuter the Tory rebellion, Nigel Farage, the leader of Ukip, indicated his party might not field candidates at the next election against MPs who vote for a referendum.

However, there is no danger of Mr Cameron losing the non-binding vote. He can count on the “payroll vote” of more than 100 ministers, most if not all Lib Dams and nearly the entire bloc of 258 Labour MPs.

On Saturday Tory rebels were among speakers at a “People’s Pledge” pro-referendum rally in Westminster. They included David Davis, the former shadow home secretary, who called the EU a “nascent superstate”.