Commission launches debate on corporate restructuring - what lessons from the crisis?

The aim is to identify successful practices and policies in the field of restructuring and adapting to change. The results will feed into the upcoming employment package.  

 

Jean Pisani-Ferry writes that S&P's mass downgrade is a message to the European policymakers. Rather than blaming the rating agencies once again for their (indisputable) failings, they should listen to them and accept that it is the policy system as a whole that is weak and in need of repair.  

 

European leaders promised on Saturday to speed up plans to strengthen spending rules and get a permanent bailout fund up and running as soon as possible, a day after US agency S&P cut the ratings of several eurozone countries' creditworthiness.  

 

Standard & Poor's today announced its rating actions on 16 members of the eurozone, following completion of its review. The outlooks on the long-term ratings on just two coutries, Germany and Slovakia, are stable.  

 

Deloitte (US) published a Financial Reporting Alert regarding the impairment of Greek government bonds and debt issued by other eurozone states. The alert applies to all entities with holdings of eurozone sovereign debt, and outlines accounting and disclosure considerations for affected entities.  

 

Press remarks by European Council President, Herman Van Rompuy, following the meeting with Spanish President, Mariano Rajoy 

Mr Van Rompuy said that the consensus reached in Spain on Golden Rule is an example of the determination of the Spanish democracy to act to solve the debt crisis.
 

Mr Van Rompuy stressed that financial stability is key, not only for the eurozone, but for the EU as a whole.  
 

"Lowering the credit rating of sovereign countries struggling to reduce their excessive debts only compounds the problem further, undermines their recovery and means that tough austerity measures to save money is just gobbled up by international investors requiring higher interest on their loans."  


Economic Governance Developments  

 
Reuters: Will hedge fund holdouts scuttle Greek swap deal?

Hedge funds holding Greek bonds that mature in March may have the strongest hand in the critical negotiations to restructure the cash-strapped country's debt.  
 

Italian Prime Minister, Mario Monti, and European Council President, Herman Van Rompuy, met in Rome on Monday to press Mr Monti's case for a stronger focus on economic growth.
 

European leaders will try to rescue under-fire efforts to deliver new fiscal rules and cut Greece's debt burden, as investors ignore Standard & Poor's euro region downgrades.  
 

According to the Lisbon daily, Público, the enforcement of the principle of balanced budgets in the EU Member State constitutions is about to be abandoned, although Germany is not yet totally convinced.  
 

The European Central Bank said on Thursday there were "tentative" signs of economic stabilisation in the eurozone, as successful Spanish and Italian government bond auctions also pointed to at least a temporary easing of the region's debt crisis.  
 

Introductory statement by Mr Mario Draghi, President of the European Central Bank, and Mr Vítor Constâncio, Vice-President of the European Central Bank.  

EFSF/ESM/Eurobonds  

 
EFSF holds six-month bill auction

The European Financial Stability Facility (EFSF) today held a six-month bill auction. The auction was met with very strong demand, attracting over €4.6 billion in bids, of which over €1.176 billion were non-competitive. The bid/cover ratio was 3.1.  
 

Mr Juncker said that S&P's decision will not reduce EFSF's lending capacity of €440 billion. EFSF has sufficient means to fulfil its commitments under current and potential future adjustment programmes, and will continue to be backed by unconditional guarantees by euro area Member States.  
 

EFSF continues to be assigned the best possible long-term and short-term credit rating by Moody's (Aaa) and Fitch (AAA), underlining the solidity of EFSF. Neither rating agency has indicated any rating action for EFSF in the immediate future.  
 

Standard & Poor's stripped the eurozone's bail-out fund of its AAA credit rating, potentially constraining its ability to contain the region's debt crisis and focusing attention on efforts to create a more robust successor.  
 

Under the recommendation, Member States should designate an authority in national legislation to conduct macro-prudential policy. Such a macro-prudential authority should be either a single institution or an ad hoc board composed of all institutions whose actions may affect financial stability.   

At-Risk States  

 

Italy's technocratic prime minister has no criticism of ratings downgrades – just of persistent policy weakness at the European level.   
 

WSJ: Hungary accedes to IMF concerns on bank laws 

Hungary aims to secure an agreement with the European Union and the International Monetary Fund on a loan package by the end of the first quarter.  
 

The Greek government appeared to move closer to a deal with private bondholders that would avert a threatened default by Athens.  
 

Italy's prime minister has pleaded for Germany and other creditor countries to do more to help lower his country's borrowing costs, warning there would be a “powerful backlash” among voters in the eurozone's periphery if they did not.  
 

In his article for the FT, deputy Greek finance minister Mourmouras writes that the austerity programmes in the eurozone's periphery have been unsuccessful, not only because of problems with their implementation, but also due to their incorrect design.  
 

Greece's international creditors are considering an appeal to the French and German leaders to break a deadlock in negotiations over the size of the losses to be taken by banks and other bondholders, as part of a €100 billion deal seen as crucial to bringing the country's debt under control.  
 

Talks over Greece's debt restructuring broke down, an unexpected blow that makes it increasingly likely that Athens will become the first government of a developed country in more than 60 years to suffer a full-scale default on its debt.  
 

Co-chairs, Charles Dallara and Jean Lemierre, met today in Athens with Prime Minister, Lucas Papademos, and Deputy Prime Minister and Finance Minister, Evangelos Venizelos.  
 

IMF Statement on Hungary
International Monetary Fund (IMF) Managing Director, Christine Lagarde, discussed the new economic developments with Hungarian Minister, Tamas Fellegi.  

International Comments on the EU Crisis  

 
ALDE Verhofstadt: The solution to the crisis is common bonds 

Verhofstadt stressed that the European leaders should read the reports from CRAs because what they are saying is true. CRAs described the lack of political courage and unity in Europe.   
 

The International Monetary Fund has identified a need for an extra $500 billion to $600 billion in resources to help fight the European debt crisis.   


Commentataries on the Economic Crisis  

 

The story of the eurozone is also a story of systematic mispricing of the sovereign debt, which in turn led to macro-economic instability and multiple equilibria.  
 

The costs of failure are so large that the possibility of domestic and eurozone reform must be kept alive, writes Martin Wolf in his FT column. Mr Draghi's leadership of the ECB can help do that. Meanwhile, Mr Monti is in a position to cajole other members, including the Germans, towards reforms.   
 

Speaking at a conference in Hong Kong, Barnier stressed that the current debt levels must be put into perspective. In 2010, public debt in the eurozone amounted to 85 per cent of GDP. This compares to more than 100 per cent in the US, and nearly 200 per cent in Japan.   
 

David Marsh writes that after the French downgrade, things could start to go downhill in Europe: Five top-rated European countries outside EMU – and only four inside.
 

Sebastian Dullien: The ‘Fiscal Compact’ - Much ado about nothing
Dullien is of the opinion that as this “fiscal compact” will do nothing to spur the economy, but will in contrast guarantee that fiscal policy will remain adverse to economic growth at least until the middle of this decade, it will contribute nothing to a solution of the euro area's problems.  
 

In his FT column, Münchau writes that by downgrading France and Austria but not Germany and the Netherlands, Standard & Poor's also managed to shape expectations of the economic geography of an eventual break-up.   
 

Goldschmidt writes that when former EIB president, Philippe Maystadt, or former French PM, Michel Rocard, recommend that the ECB consider loans to eurozone governments, it is necessary to examine such proposals carefully.  
 

Commissioner Rehn stressed that the ESM will have its own capital base and thus will be less vulnerable to changes in ratings of its Member States.
 

In this FT article, Nordvig writes that even though there was no plan for a eurozone break-up when the EMU was created, ironically, spelling out guidelines for a eurozone break-up may – at this stage in the crisis – even help to reduce the risk of the break-up itself.  

Think Tank Contributions  

 
EPC report: A European Union stronger after the crises

Today's EU faces an existential challenge. Although it's self-evident that the euro's failure would have truly calamitous effects, that doesn't mean it won't happen, said former EU Competition Commissioner, Peter Sutherland.  
 

Jean Pisani-Ferry says that for the third year in a row, the eurozone is the weak spot of the world economy and the focus of international attention. The question for 2012 is whether tensions are going to abate or reach a new climax.  
 

In his Policy Contribution, Jean Pisani-Ferry emphasises that an impossible trinity of no-coresponsibility over public debt, strict no-monetary financing and bank-sovereign interdependence is at the core of euro area vulnerability.  
 

Katinka Barysch asks which eurozone country will be next in line to hold up a bail-out package or veto new rules, and says that Austria could be a good candidate.  
 

Philip Whyte obvserves that although Britons have become far more critical of the City since the crisis, this growing ambivalence has coincided with a mounting political estrangement between the UK and the rest of the EU. What explains this paradox?