Christine Lagarde has slammed the door on the idea that the European Central Bank could ride to the rescue of over-indebted eurozone governments by cancelling the vast piles of their bonds it has bought.
“I don’t even ask myself the question, it is as simple as that because anything along those lines would simply be a violation of the treaty,” the ECB president said in response to a question by a member of the European Parliament.
Ms Lagarde was repeatedly quizzed by MEPs on the idea of debt forgiveness as she spent over three hours answering questions in one of her regular appearances before parliament, which was held online because of coronavirus.
What sparked this new fixation? David Sassoli, president of the EP, told La Repubblica a few days ago that debt forgiveness was “an interesting working hypothesis, to be reconciled with the cardinal principle of debt sustainability”.
This was immediately seized on by Matteo Salvini, leader of Italy’s anti-migration League party, who took to Twitter to declare: “After months of resistance, the European establishment recognises the validity of our proposals.”
Ms Lagarde was visibly unamused by all this. “The ECB operates under the treaty; there is Article 123 of the treaty, which prohibits that kind of approach and I respect the treaty. Period.”
Undeterred, Marco Zanni, an MEP from Mr Salvini’s party, tried a different line of questioning. Wasn’t there a risk of the ECB suffering losses if the more than €3.5tn of bonds it has bought were to fall in value, he asked. Could the ECB burn through its capital and go bust as a result?
Her patience wearing thin, Ms Lagarde read out a statement: “As the sole issuer of euro-denominated money, the euro system will always be able to generate additional liquidity as needed so by definition it will neither go bankrupt nor run out of money.”
The issue of debt burdens is on EU policymakers’ minds after the European Commission this week urged several countries — Belgium, France, Greece, Italy, Portugal and Spain — to be careful about building up unsustainable debt positions, having signed off on their 2021 budget plans.
The commission said the draft budgets indicated that eurozone governments would run up an aggregate deficit of 8.6 per cent of GDP this year, followed by a deficit of 5.9 per cent next year. In total, the two years of deficits are expected to increase eurozone government borrowing by over €1.5tn.
Italy’s government debt is on course to exceed 160 per cent of gross domestic product as a result of extra spending. That would give it the second-highest debt level in the eurozone, behind Greece, which has debt approaching double the size of its GDP.
Chart du jour: European stocks rollercoaster
European stock markets have been interested in only one topic this year: coronavirus. On Wednesday, following encouraging news about vaccines, the Europe-wide Stoxx 600 index was reported to have increased 14 per cent in November, the highest month-on-month gain in at least thirty years. But by Thursday, the index had dropped 0.8 per cent on new restrictive measures announced in European countries to tackle the second wave of the virus. (chart via FT)
Europe news round-up
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EU leaders held a perfunctory, 16-minute discussion on their budget crisis by videoconference on Thursday night, with leaders including Angela Merkel and Ursula von der Leyen urging the bloc to keep calm and negotiate in the face of vetoes from Poland and Hungary. Thursday night’s summit was described by one diplomat as a “stage-managed” attempt to avoid any bust-ups with Warsaw and Budapest, which earlier this week vetoed ratification of the bloc’s €1.8tn budget and Covid-19 recovery package. Ms Merkel said talks to resolve the spat have begun: “It’s a serious problem that we have to solve, and we will work hard and earnestly on it.” (FT)
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Brexit trade talks have switched to a virtual format after a member of the EU team contracted Covid-19. The sides had been in intensive talks in Brussels since Sunday in the hunt for a deal. With time running short to ratify any treaty, countries including France and Spain have asked the commission to update emergency plans for a no-deal scenario. (FT/Reuters)
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Wirecard’s former chief executive Markus Braun appeared on Thursday before an inquiry by German MPs into the company’s collapse. Wirecard executives, including Mr Braun, are accused of defrauding €3.2bn from creditors. The former chief’s statement absolved regulators and auditors of blame — but he refused to answer any questions, infuriating the MPs. (FT)
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The EU should not bend to Poland and Hungary on the rule of law, writes George Soros. The Hungarian philanthropist argues that the EU “can’t afford to compromise” and that there is a way to circumvent the countries’ veto, but it would be a question of whether the EU can “muster the political will”. Mr Soros also suggests sending EU funds to local authorities in Hungary, cutting Budapest out of the process. (Project Syndicate)
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The FT’s chief foreign affairs commentator Gideon Rachman takes a dive into the Macron doctrine in the latest episode of the Rachman Review podcast. Topics include how the French president’s plan for a more independent Europe has been bolstered by the pandemic and the controversy around his policies for tackling radicalisation.
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While policymakers might be elated that Covid-19 vaccines could be approved by the end of the year, they might have to start worrying about how many people will actually want the jabs. According to findings by the French research company Elabe, only 4 out of 10 French people are planning to get vaccinated. The numbers suggest women are slightly more likely to refuse the jab. The reasoning centres around lack of oversight in the approval process.
Coming up
Commission chief Ursula von der Leyen and the council’s Charles Michel will take part this weekend in the virtual G20 summit. EU ambassadors will be debriefed on Friday by a member of Michel Barnier’s team on the state of Brexit talks.
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