December 4 2012

In the broadcast today: Is the EUR Ready to Stay in the $1.30′s vs. USD? As the EUR maintains its bullish momentum against the USD, we examine the factors fueling the rally of the single currency and ponder if this time around the market is ready to keep the EUR/USD exchange rate in the $1.30′s, we analyze the latest trend developments in the EUR/USD currency pair, we keep an eye on the pullback in the USD/JPY pair, we take a look at the AUD/USD and USD/CAD currency pairs, we highlight the market’s reaction to the Reserve Bank of Australia and the Bank of Canada interest rate announcements, the Eurogroup meeting, the Euro-zone PPI, and the U.S. ISM Manufacturing Index, we discuss new forecasts from JPMorgan Chase and Bank of New York-Mellon, and prepare for the trading session ahead.

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Paris-Berlin dispute over details of banking union shows clear division. Three big problems to overcome. Jean-Claude Juncker stepping down. Boris Johnson: “the euro is a calamity”. Protests in Slovenia turn violent. Angela Merkel speaks at CDU convention…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Ministers fail to agree banking supervision as France and Germany clash” was written by Graeme Wearden, for guardian.co.uk on Tuesday 4th December 2012 13.56 UTC

1.56pm:

Eurocrisis brings strife to Slovenia

All is not well in the state of Slovenia, where violent demonstrations took place last night for the third time in a fortnight.

John Hooper, our Southern Europe Editor, reports on the situation in the euro zone’s fifth-smallest nation (which has a population of just two
million):

Twelve people were injured and more than 40 arrested during a protest in Maribor, the country’s second-biggest city. At the end of last week, there was rioting in the capital, Ljubljana, where police using tear gas and water cannon battled rock-throwing demonstrators.

By the time the dust had settled, 15 people were injured and another 30 in custody.

This sort of thing just should not be happening in a choc box-pretty Alpine state much favoured by honeymooners – let alone one that, until a few years ago, was considered a paragon of post-communist development. But then that is the magic of the euro zone crisis for you (Slovenia adopted the single currency in 2007).

The protests are ostensibly against graft. Maribor’s mayor, Franc Kangler, has refused to step down even though he has been accused of corruption and slung out of his party. Slovenia’s centre-right prime minister, Janez Jansa, is on trial charged with involvement in bribery.

There is plenty of evidence that Slovenia’s economic miracle, which saw its GDP more than quadruple in the 15 years from 1993 to 2008 hid a fair amount of graft (as well as some very dubious lending that has landed the country in a classic credit crunch). But with many of its euro zone trading partners in recession, Slovenia would doubtless have felt the draught anyhow.

It has to contend with one of Europe’s deepest downturns. National output is off by more than 9% from its peak and, to avoid having to seek a bail-out, the government is imposing a tough programme that includes a deferment of the retirement age, labour market reforms and public-sector wage cuts.

1.04pm:

Ministers fail to reach a deal

It’s official – European finance ministers have failed to reach a deal over a banking supervisor for the eurozone.

Pierre Moscovici has just told reporters in Brussels that another Ecofin meeting will take place on 12 December (that’s next Wednesday).

As Europe editor Ian Traynor explains, there has to be a deal before EU leaders begin their two-day summit on Thursday 13th.

The talks failed for the reasons that we’ve been banging on about in the blog all morning (Ian’s 9.48am post explains the main hurdles). In a euro-sized nutshell, France and Germany are simply too divided over how the eurozone’s banks should be regulated.

Paris wants every bank in the region to be covered by the new regulator, and full banking union as soon as possible.

Berlin does not want smaller banks (such as its own savings banks) to be overseen, and is also in no rush to see banking union. Wolfgang Schauble suggested today that treaty changes might be needed – which would delay things for years.

Behind Germany’s refusal to cave in is the fear that it will foot the bill for future banking losses in weaker members of the eurozone. A delay gives more time to implement the tighter budget controls that German politicians believe are necessary to keep those peripheral countries in line.

12.43pm:

Maria Fekter rules out replacing Juncker

Austria’s finance minister has declared that the next president of the eurogroup should be a head of government, following the example of Jean-Claude Juncker (see 8.07am for details of his decision to vacate the role)

Asked if she might fancy the job, Maria Fekter replied:

That’s a position for a head of government and as you know I’m not a head of government. The bosses will decide how they want to handle this.

Unusually, Juncker was prime minister and minister for finance when he took on the eurogroup presidency in 2005. Obviously this is not the case for two likely front-runners – Wolfgang Schauble or Pierre Moscovici.

I’m struggling to think of a sensible suggestion for a head of government who could run the eurogroup. Elio Di Rupo of Belgium perhaps?

As Lorcan Roche Kelly, chief Europe strategist at Trend Macrolytics points out, many leaders are too busy:

Lorcan also suggests that Di Rupo could be a plausible successor.

Incidentally, I suggested that Juncker’s reign would be remembered for all those late night meetings where nothing ever seemed to get resolved. Kostas Karkagiannis, journalist at Greece’s Kathimerini newspaper, has a more charitable view:

12.10pm:

Photos: Angela Merkel at the CDU convention

Some photos of Angela Merkel‘s speech to her party convention (see 11.18am) just landed.

They show that the chancellor rallied the CDU rank-and-file alongside large German and European flags:

And here’s the full quote from Merkel about how the worst of the crisis may not be over:

I could take it easy and say the euro is saved….But I am very cautious about saying the worst of the crisis is over.

As well as warning against complacency, Merkel also told the convention that Germany needs “a clear compass” to guide it through the challenges ahead (wonder how that will play at the polls…)

11.55am:

German exports rise

On the economics front…German exports rose by 3.6% in the third quarter of this year, with strong demand from the US helping to offset the impact of the eurozone crisis.

My colleague Nadine Schimroszik explains:

Exports to countries outside the EU rose by 9.9% compared with a year ago, helping to offset the decline of deliveries into the euro zone.

Exports to the US jumped sharply, with year-on-year growth of almost 26%, Korea followed with a 16% increase. Deliveries to countries outside the EU now make up around 44% of total German exports.

The ongoing euro zone crisis hampered sales of German goods, which fell by 0.9 % to countries in the 27 EU member states and by 3.0 % to the euro zone. Exports to Spain dropped by around 13 % and to Italy by around 12 %.

Exports to the UK were an exception, though, rising by almost 14%. However UK exports into Germany were down by 7% compared with a year earlier.

According to the Federation of German Wholesale, BGA, also reported Germany’s exports broke through the €1 trillion mark at the end of November.

German newspaper Spiegel has hailed the US economy for rescuing German exports (thanks to northland for flagging up in the comments below).

11.41am:

How France and Germany clashed today

From Brussels, Ian Traynor confirms that France and Germany are deeply divided over banking union (less than two weeks after falling out over the EU budget at the last summit)

Ian writes;

Amid the worst Franco-German frictions for years over Europe, both countries’ finance ministers have been keen to radiate common purpose in recent weeks and engage in damage limitation.

Wolfgang Schäuble and Pierre Moscovici made a joint appearance before the European Parliament on Monday while also appearing together before the media following a recent EU ministerial session.

The gloves came off today, though, with both men clashing utterly on the fundamentals of the eurozone’s proposed banking supervisor.

Schäuble said there was no way that the European Central Bank could supervise 6,000 banks in the eurozone, while Moscovici retorted there was no way the eurozone could introduce a “dual” system of banking supervision, meaning some are monitored at the eurozone level, while others (mainly German) stay under a national regime.

These may be opening shots in the long and bloody battle to reach agreement. “A game of two halves,” said an EU official. Or they may represent an unbridgeable divide.

The River Rhine just seems to get wider and wider.

11.18am:

Merkel: we can’t say the crisis is over

Angela Merkel has warned that the worst of the eurozone crisis may still be ahead, in a speech to her party convention in Hanover.

Merkel also told CDU members that Germany had “kept its promise” exit the crisis stronger, and also cut unemployment despite the downturn.

11.08am:

Reuters is now flashing a headline that a deal on banking supervision is ‘unlikely today’ (as our own Ian Traynor reported earlier – see 9.48am).

Interestingly, they also reckon that Ecofin might meet again on 12 December for further talks. That would be the day before the next EU summit.

10.53am:

Protests as CDU party convention begins

Over in Hanover, Germany’s governing CDU party is holding its national party convention.

Merkel is expected to be re-elected as leader with a large majority, and will want to rally the troops as next autumn’s general election approaches.

Gerd Langguth, a political scientist at Bonn University and biographer of the chancellor, predicts “a big Merkel show,”. He told Reuters:

Calling it a cult is too much, but she is very popular in the broader population. In the CDU, she is more respected than loved.

Not by everyone, though — union members dressed up in Santa Claus outfits outside the arena to call for a minimum wage of €8.50 per hour:

10.12am:

France criticises Germany’s ‘two-speed’ approach

In the Franco-German tiff over the scope of the eurozone banking supervisor (see 9.48am megapost), Paris is now accusing Berlin of seeking a “two-speed” system which the French say has to be avoided at all costs.

A senior French official told Ian Traynor:

This is the most sensitive point.

A balance has still to be found. A large majority [of governments] wants the small banks to remain under national supervision. That’s not France’s position, but realistically France would accept that with two reservations: there must be no impact on the single market, small banks are defined as those not carrying out any cross-border operations; the ECB retains responsibility for the entire banking system and can supervise any bank at its discretion. We need to avoid a two-speed system at all costs.

The official added:

The problem is Germany also says it wants to avoid a two-speed system but all the changes it is proposing go in exactly the opposite direction. We need clarification from the Germans. Germany is a bit isolated here.

Going into today’s meeting, Michel Barnier, the French politician in charge of drafting the banking regulation law as European Commissioner for the single market, also said there should be no two-tier system, Ian reports.

9.48am:

Ian Traynor: Three big issues that might sink a deal today

From Brussels, our Europe editor Ian Traynor confirms that it appears there will not be a breakthrough today on a new eurozone banking supervisor.

Here’s the full story (long, but well worth it)

Ian writes:

Already, despite pre-session optimism from the Germans, French, and British, the signals are that there will be no breakthrough today ahead of next week’s EU summit.

Senior sources tell me the ministers are already talking of calling another so-called Ecofin meeting within days, ahead of the summit on Thursday next week, not least because several of the ministers are keen to keep control of the complex issue and not hand it over to chancellors, president, and prime ministers.

There are three big issues:

the scope of the new supervisor which is to be the European Central Bank. Essentially this is a Franco-German tiff over which and how many banks come under the ECB remit. Paris insists on all banks, the Germans want to restrict the scope to keep the eurozone supervisor away from its scores of small local savings and development banks.

The likelihood here is of a fudge, say diplomats in Brussels. Formally the ECB will be empowered to supervise and regulate some 6,000 eurozone banks, but in practice it will leave much of the supervision with national authorities while focusing on the big and the problematic.

The second big issue concerns Britain, outside the eurozone and seeking jealously to guard its single market rights and the interests of The City against ECB domination and eurozone caucusing when voting on new rules and regulations.

The dispute has been worsened this week by demands from France’s central bank chief, Christan Noyer, that London no longer be the biggest financial centre on matters euro – a call that the British see as protectionist, dirigiste, anti-single market and utterly in line with traditional French ambitions and policies.

The third issue revolves around how those not in the euro but eventually intending to join relate to the new supervisor – the east Europeans and the Swedes.

Non-euro countries coming under the ECB supervision would be given seats and votes on the banking supervisory board, but legally the ECB’s governing council whose remit extends solely to the 17 single currency countries remains the paramount authority.

There is an intractable problem here, but diplomats and officials think the circle can be squared with a bit of legal craftiness.

Behind all of this, there is the politics. The Germans and the Swedes would be happy to see the ECB and the supervisory authority more formally separate. That could mean opening the Lisbon Treaty and renegotiating – a Pandora’s Box.

Taking this route would effectively delay the “banking union”, possibly for years. That may precisely be the aim of Berlin and Stockholm.

There is a growing consensus, however, that the finance ministers should settle the disputes themselves to avoid the topic being passed up the food chain to government leaders next week. The leaders decided last June to fast-forward towards the banking supervisor, then dumped the hard work on the finance ministries.

Finance ministers are said to be fed up with their leaders and are keen to keep control themselves of the ticky banking supervision agenda, hence the likelihood of another Ecofin session within a week if there is no deal today.

9.34am:

Boris: euro is a calamitous project

London mayor Boris Johnson is giving a speech on Europe, and Britain’s place in it, at Reuters London HQ this morning.

Our Politics Live blog is tracking all the details.

So far, Boris has damned the euro as “a calamitous project”:

Exactly as foretold, its one-size fits all monetary policy has
become a lethal engine that simultaneously trebuchets German goods across the euro zone, while deepening the misery for the peripheral countries whose unit labour costs make it hard for them to compete.

Boris also attacks closer fiscal and political union in Europe as “anti-democratic” and “probably morally wrong.

But rather than quit the EU, he argues that Britain needs a looser relationship with Brussels:

Boil it down to the single market. Scrap the social chapter. Scrap the fisheries policy. We could construct a relationship with the EU that more closely resembled that of Norway or Switzerland – except that we would be inside the single market council, and able to shape legislation.

So, not a Brexit. More of a Breshape?

9.24am:

Our Europe editor, Ian Traynor, reports that eurozone finance ministers are already speculating that another meeting may be needed to hammer out the details of a legislative framework for eurozone banking supervision.

Not an encouraging sign, especially with some nations suggesting it might take years before full banking union is achieved.

9.08am:

How we got here.,…

The creation of a single eurozone banking supervisor is a key step towards full banking union, but the process has not been easy.

In June EU leaders agreed to create a single banking regulation system for the eurozone, with a financial backstop, starting in January 2013.

That was seen as a big step forward, but the deal soon began to unravel – and in October a compromise was reached – with leaders deciding to simply agree the details of a legislative framework that would begin at the start of next year.

Today’s meeting would be a success if ministers did hammer out that framework.

8.59am:

Photos as Ecofin starts

The Ecofin meeting is underway in Brussels – here’s a couple of early photos (I fear they won’t give Hoth25 quite the same opportunity for witty captions)

8.41am:

Euro crisis commentator Yannis Koutsomitis suggests:

8.27am:

France hints at compromise

French finance minister Pierre Moscovici has indicated that he might be able to compromise with Germany over banking supervision.

Speaking to reporters in Brussels at the start of today’s Ecofin meeting, Moscovici said that France could relax its demand that every bank in the eurozone is covered by a new single supervisor:

That might not be enough, though. Germany’s smaller banks are adamant that they shouldn’t face the same regulatory hurdles as international heavy hitters.

As Michael Huber, head of the Karlsruhe Ettlingen savings bank, explained to the FT:

You don’t impose the safety rules you’d need for a 2,000-passenger cruise ship on a yacht taking five people up the coast.

There would be enormous administrative costs that I would have to pass on … it would hit Mittelstand companies and the local economy.

8.13am:

Spain’s jobless total up 1.5% in November

Just in – Spanish unemployment total has risen again.

Spain’s labour ministry reported that another 74,296 people registered as unemployed in November, a rise of 1.5%.

That’s the fourth monthly rise in a row – Spanish firms have been cutting headcount since the end of the summer tourist season.

(this survey is separate to the unemployment data released by Eurostat last Friday, which put the Spanish jobless rate at 26.2%)

8.07am:

Juncker steps down

Jean-Claude Juncker is finally stepping aside as president of the eurogroup.

Luxembourg’s prime minister told reporters late last night that he would end his seven years as the head of the group of eurozone finance ministers at the end of this month.

The BBC has the quotes:

I don’t have to endorse anyone,” Mr Juncker told reporters. “I was asking my colleagues to provide for my succession.

“And I asked them to do everything possible to appoint another minister as chair of the Eurogroup.”

Likely successors are Germany’s Wolfgang Schäuble and France’s Pierre Mosvovici – therewas speculation recently that the two men could even share the post….

Juncker’s time at the eurogroup will probably be remembered for all those long meetings where eurozone ministers struggled to make progress towards resolving the crisis – and his affectionate manner with fellow ministers….

7.52am:

Ecofin meeting kicking off

Good morning, and welcome to our rolling coverage of the eurozone financial crisis – and other key events in the global economy.

European finance ministers are gathering in Brussels this morning for an Ecofin meeting, where plans for banking supervision are top of the agenda.

Analysts expect a bruising session, as ministers attempt to agree the details of a package setting up a single supervisory mechanism (SSM) for the eurozone’s banking sector.

France and Germany have been divided over the issue for months. They disagree over how many banks should be overseen by the new super-regulator (Paris wants all eurozone banks to be covered), and when the SSM should begin (Berlin isn’t convinced that it should start early in 2013).

So we might see a breakthrough, or it could be another meeting where little is achieved.

Also coming up this morning, we have new Spanish unemployment data, a fresh survey of the UK construction sector, and an interest rate decision from Canada – which is rather more interesting now that Britain has poached their central banker

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