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Thursday March 10th 2011
European politics
Charlemagne's notebook
Italy and Europe
Oh deer, it's Silvio again
Mar 5th 2011, 16:03 by The Economist | Helsinki
SEVERAL times, in recent weeks, I have found myself writing about Italy and Silvio Berlusconi. Better change the subject, I thought. And what better way to get away from Il Cavaliere than to retreat to the snow-blanketed north of Europe?
But no sooner had I arrived in Helsinki than I was confronted by Mr Berlusconi again. There he was, in a photomontage of “Don Silvio” as The Godfather. The picture was being held aloft by a group of protesters outside the Kamp hotel, venue of a summit of centre-right European leaders (see my earlier post). “Mafioso! Mafioso! Mafioso!” they shouted. Some wore pig-face masks. Others held up a banner: “Keep Finland Clean. Leave”
The demonstrators were a few score Italians living in Finland who had organised on Facebook - one said he had come from 400km away - to denounce Mr Berlusconi’s attendance at the summit. They certainly outnumbered the Finnish nationalists denouncing the prospect of an impending round of European integration (and perhaps of another possible bail-out, this time for Portugal). The Italians were louder too, so much so that the Finns seemed to give up and joined in shouting anti-Berlusconi slogans.
Maurizio, a 24-year-old IT specialist, said: “We are sick and tired of being made fun of by this idiot. We have come here to work. We try to beat the stereotype about Italians. We are honest citizens. But the way Berlusconi is carrying on only strengthens the stereotype. Every day he does something that worsens Italy’s terrible image abroad.” The Italian diaspora had once been a source of electoral support for Mr Berlusconi. On the evidence from Helsinki, that constituency is evaporating.
Finns, too, have reason to dislike Mr Berlusconi. Their beef, or perhaps better said their "venison", is his insulting attitude about Finnish food. In 2001, during the campaign to stop the European Food Safety Authority from being established in Helsinki, he described Finns as ignorant about food. In 2005, when the agency was finally set up in the Italian city of Parma, he quipped that he had succeeded by using his "playboy" charms on the country's president, Tarja Halonen. He complained about having had to "endure" Finnish food. “There is absolutely no comparison between culatello (a kind of ham) from Parma and smoked reindeer,” he quipped. In response to the outrage, a Finnish pizza chain invented a “Pizza Berlusconi” with smoked reindeer.
Over dinner at the summit, Mr Berlusconi was treated to a meal of venison. As he emerged from the summit, amid questions about the political upheavals at home and his impending trial on allegations of having sex with an underage prostitute, Mr Berlusconi was gracious: “The filet of venison was extraordinary,” he said, “I even asked for a second helping.”
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EU and Ireland's bail-out
A frosty response to Enda Kenny
Mar 5th 2011, 13:58 by The Economist | Helsinki
HE MAY have won an overwhelming endorsement from voters for his promise to renegotiate the terms of Ireland’s €85 billion bail-out. But on his first outing on the international stage as the Taoiseach-in-waiting, Enda Kenny is finding it much harder to convince his fellow European leaders of the justice of his cause. The Irish Independent summed it up well this morning: “Enda gets a few pats on back - but little else from EU allies”.
In Helsinki for a summit of leaders from the European People’s Party (EPP), the centre-right “family” of parties in the European parliament, Mr Kenny’s election bring the EPP’s crop of presidents and prime ministers up to 15 of the EU's 27 member-states.
But for all the congratulations, the EPP’s matriarch, Angela Merkel, the German chancellor, only conceded Mr Kenny “a couple of minutes” of her time for one-on-one talks, says one well-placed source. On the substance of his plea, the response was a cold as the ice that still covers Finland's lakes. Mrs Merkel said that any concession to Ireland would have to be matched by “further commitments” and “further conditionality”. The host, Jyrki Katainen, Finland’s finance minister and possible prime minister after April’s general election, put it bluntly: “There are no free lunches”.
Wilfried Martens, the EPP president and former Belgian prime minister, put a hopeful gloss, saying “nobody spoke against” Mr Kenny in the meeting behijnd closed doors. But had anyone supported him? Uhm, no.
In truth, there is growing sympathy within Europe for the demand by Ireland and Greece to pay lower interest. The rate they pay, about 6%, is much lower than the market would demand. Yet it represents a substantial premium (more than 3%) above the rate that the European Commission and the special-purpose fund, the European Financial Stability Facility, are paying to raise the loans.
This bail-out rate was deliberately designed to impose a degree of pain to deter other countries from seeking bail-outs except in the direst need. The worry, though, is that the burden is adding to the mountain of debt that Ireland and Greece are already carrying. The European Commission, for one, privately thinks that the rate should be reduced. One senior source argues that the danger of “moral hazard” should be addressed by the tough austerity measures imposed on countries, not by "punitive" interest rates.
The EPP statement at the end of the summit spoke vaguely of “periodic re-evaluation” of the rescue terms, and the possibility of “possible amendments”.  But these seemed to require “certain adjustments at national level”. So what could Mr Kenny offer? The obvious concession is a reduction in Ireland’s low corporate-tax rate, which most other EU states resent. But Mr Kenny says that is a non-starter: it would lead to lower investments and job losses in Ireland. The European Commission is working on a plan to harmonise the corporate-tax base, rather than the tax rate. But Mr Kenny sees this as the thin end of the wedge for future tax harmonisation.
Mr Kenny also seems to have given up his one weapon: imposing losses on senior Irish bank bond-holders, which would have a knock-on effect on other European banks, not least German ones. “There were strong comments that that wouldn’t be a runner,” he said, according to the Irish Times.
The trouble for Mr Kenny that his electoral mandate runs into the wall of the electoral problems of the core-within-the-core of the euro zone: the six AAA-rated countries, among them Germany and Finland. Mrs Merkel faces a series of regional elections, and Mr Katainen is hoping his centre-right Kokoomus party will lead the government after next April’s election (thus becoming the EPP’s 16th leader). Both face a strong backlash from electors for having to bail-out less disciplined European partners.
Indeed, the EPP summit was held in Helsinki in part to boost the profile and standing of the boyish Mr Katainen, still only 39 years old. As he walked in to the Kamp Hotel, Mr Kenny was the only one who played his assigned part. He pointed to Mr Katainen and told the cameras: “He’s a good man and I hope he gets elected.” Mr Katainen looked sheepish. “Thanks Enda,” he might have thought, “but if you want me to get elected you’d better stop asking for special favours.”
* The matter of interest rates is not closed yet, it seems. Since I put up this post, I see that Olli Rehn, the economic and monetary affairs commissioner (and a Finn) has now come out explicitly in favour of lower interest rates for Ireland.
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Democracy in Europe
The Baron and the Cavaliere
Mar 1st 2011, 17:16 by The Economist | BRUSSELS
IN GERMANY, Karl-Theodor zu Guttenberg, the defence minister and rising political star, regarded as a possible future chancellor, has just resigned for plagiarising his doctoral thesis. “I must agree with my enemies who say that I was not appointed minister for self-defence, but defence minister,” he declared today.
In France Michèle Alliot-Marie, the foreign minister, was prised out of her job at the weekend for her Tunisian gaffes, among them accepting private plane rides from an associate of the now-ousted president, Zine al-Abidine Ben Ali.
In Tunisia itself, the caretaker prime minister, Mohamed Ghannouchi, first appointed by Mr Ben Ali, stepped down on Sunday after another round of street protests.
But in Italy, Silvio Berlusconi, Italy’s prime minister, goes on and on. He faces three separate trials in the coming weeks, including for tax fraud and paying for sex with a minor. Hundreds of thousands have taken to the streets to demand his resignation. He has even kissed the hand of Muammar Gaddafi.
With the approach of Italy’s 150th anniversary (and, by the way, the centenary of Italy’s occupation of Libya) I struggle to come up with a good explanation for this Italian exception. Any thoughts from readers on why Baron Cut-and-Paste is compelled to leave while Il Cavaliere manages to remain in the saddle?
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Europe and Libya
Europe's backflips over Libya
Mar 1st 2011, 12:10 by The Economist | BRUSSELS
FOR some reason that I cannot quite explain, watching the European Union’s policymakers trying to keep up with events in the Middle East brings to mind an amateur gymnastics event.
Germany’s foreign minister, Guido Westerwelle, though a poorly regarded performer at home, pushed early and consistently for sanctions against Libya. A gold medal for his powerful run and ramrod-straight vault.
France’s Michèle Alliot-Marie humiliatingly slipped off the balance beam during the revolution in Tunisia. She has been replaced as foreign minister by Alain Juppé, who has been sure-footed on the Libyan crisis. As defence minister he was the first to call for Muammar Qaddafi to step down, and in his new post he is ensuring that France remains on the straight and narrow. His boss, François Fillon, France's prime minister, twirling on the pommel horse between domestic and foreign policy, made an impressive acrobatic twist by sending aid planes in to liberated areas of Libya. A silver medal, for an uneven performance salvaged by considerable artistic flair.
From my vantage point, Britain’s foreign secretary, William Hague, has been hard to spot. Instead it is his boss, David Cameron, who flexes the military muscle most visibly, sending in military planes and special forces to pluck Britons from the desert and now agitating for the creation of a no-fly zone. Mr Cameron deserves silver, but the British government's points had to be reweighted to account for its unfair advantage: less than a year in office, it has not suffered any injuries from having to cut too many dirty deals with Arab dictators, notably Mr Qaddafi. So a bronze medal, unfairly perhaps.
Italy’s Franco Frattini gets my vote for best recovery from impending disaster up on the parallel bars. He was comically out of touch at a dinner of foreign ministers on February 20th: he told fellow ministers that the unrest in Libya was insignificant, only to be contradicted by the socially networked Swedish foreign minister, Carl Bildt, who pulled out his smartphone to update ministers with the latest Twitter feeds on the growing protests and violence in Libya. Mr Frattini later acknowledged the violence but tried to protect Mr Qaddafi by arguing that his downfall risked the break-up of Libya, the creation of a dangerous Islamic emirate and a wave of migrants.
By February 23rd, though, Mr Frattini had found his grip again, blaming the colonel for the “bloodbath” that was taking place. Italy agreed to allow discussions on EU sanctions to begin. By February 28th, with his options limited by a UN Security Council vote on sanctions, Mr Frattini was fully in line. He suspended Italy’s friendship treaty with Libya, in theory allowing Italian territory to be used for military operations. He spoke of opening humanitarian corridors to areas free of Mr Qaddafi’s rule. Indeed, he even portrayed himself as the true friend of Libya’s rebels, boasting that “only Italy is in contact with the new Libyan National Council”. Mr Frattini does not deserve a medal after his dreadful start, but he remains on the scoreboard after landing in the right place.
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Europe and Libya
Italy's shame in Libya
Feb 25th 2011, 19:06 by The Economist | BRUSSELS
"WE MUST not allow Libya to become another Afghanistan just next door to us,” declared Italy’s interior minister, Roberto Maroni, at the end of a European ministerial meeting in Brussels yesterday (February 25th).
From indifference to the crisis in Libya - early on Silvio Berlusconi said he had not called his friend Colonel Muammar Qaddafi because he did not want to “disturb” him - Italy has shifted to shrill alarm. It fears the prospect of Libya breaking up, the threat of a radical Islamic state taking root across the Mediterranean and, above all, the threat of a biblical exodus of refugees and migrants. In short, Italy is worried about everything except the really important consideration: the fate of Libyans themselves as Colonel Qaddafi murderously clings to his shrinking “state of the masses”.
Such short-sightedness would be distasteful from any European state. But it is particularly disturbing coming from the country that had once colonised Libya as its “fourth shore”, cruelly putting down resistance. “Lion of the Desert”, the movie re-enacting those turbulent years, featuring Anthony Quinn and Oliver Reed, was officially banned in Italy for years.
Resentment over the colonial era has been a thorn in relations between Italy and Libya. It was formally settled with the signing in 2008 of a treaty on “friendship, partnership and co-operation”. Mr Berlusconi apologised for the ills of Italian colonialism and agreed that Italy would make $5 billion worth of investments in Libya over 20 years.
Italy also made a controversial deal allowing its navy to push boats carrying illegal migrants and asylum-seekers back to Libyan shores. Clandestine migration to Italy was largely shut down, only to be diverted to Greece, via Turkey (see my column).
The Italian government worries that, with Colonel Qaddafi’s loss of control, and perhaps ultimately loss of power, the boat-people will take to the sea once more. It had its first scare earlier this month, with the sudden arrival of about 6,000 Tunisian migrants on the island of Lampedusa. Mr Maroni says he is making plans to receive hundreds of thousands of people – whether Libyans fleeing the fighting, or migrants from further afield exploiting the opening provided by the collapse of Libyan authority. “I consider that there is zero control on Libya’s coast,” declared Mr Maroni, “Why has migration not yet resumed? Because the machine run by criminal networks has not yet started.”
Under current EU rules, asylum-seekers and migrants (the two are too often confused) must be sifted and processed in the country of first entry, which is then responsible for looking after those granted refugee status and for repatriating those who are not deemed to be in need of protection. Italy says this is unfair on “frontline” states in the Mediterranean. These rules, said Mr Maroni, were suitable for normal times but were inadequate to deal with a looming “humanitarian emergency”.
Earlier in the week Italy banded together with five other EU Mediterranean states to demand greater European “solidarity” – not just in terms of money but, more importantly, in terms of parcelling refugees across Europe. This has happened, on a voluntary basis, when Malta was swamped with boat people. This Club Med group, it seems, wants “relocation” to become more institutionalised.
Germany, France, Britain and several others rejected the call. "Share out refugees more equitably? Great idea," says one German official sarcastically, "Italy can take some of our refugees." Others may well nod their heads. According to UNHCR's figures (zipped .xls file), at the end of 2009 Germany had a refugee population of 594,000, the UK 269,000 and France 196,000. Italy, the last of the “big four” EU states, had a refugee population of 55,000, lower than that of Sweden which, even though it has just one-sixth of Italy’s population, shelters 81,000 refugees. In any case, notes UNHCR, most of the world’s refugees live in developing countries like Pakistan and Iran.
Mr Maroni’s campaign for EU solidarity smacks of hypocrisy. For now, the biggest escape routes from Libya are across the land borders to its neighbours, Tunisia and Egypt. These states are doubly deserving of European “solidarity”, having just cast off their dictators and now welcoming those fleeing from Libya.
And those who most need help are the Libyans themselves. Italy should be at the forefront of international action against Colonel Qaddafi. Yet Italy has hampered a forceful European response (see my column this week) and, though Mr Berlusconi has changed his tune of late, is most resistant to sanctions. Indeed, the rumour in Brussels is that Italy is making its support for EU sanctions against Libya conditional on guarantees of EU “solidarity” on migrants, a claim that President Giorgio Napolitano has denied (Italian).
Italy’s reticence about sanctions, and its public alarm about refugees, raises suspicions about its motives. Is Italy protecting its oil interests? Do Italian politicians fear their dirty deals with Libya will be exposed? Is Mr Maroni’s anti-immigrant Northern League trying to stir fear of foreigners for domestic advantage? Is Mr Berlusconi trying to divert attention from his legal problems and allegations of sex with underage prostitutes?
The most charitable interpretation is that Italy is genuinely in a panic, and cannot think straight. Its fears are not unfounded. But precisely because they are real, it needs to think about how best to avert the most dire scenarios. A sober assessment of Italy’s national interests would conclude that Colonel Qaddafi must be prised out of power as quickly as possible. It took the French defence minister, Alain Juppé , to say so clearly: “I hope wholeheartedly Gaddafi is living his last moments as leader.”
This is not to say that, a hundred years after Italian troops invaded Libya, there should necessarily be a direct military intervention. But bringing humanitarian supplies to Libya’s liberated areas and to refugees in neighbouring countries seems overdue. Imposing a no-fly zone makes sense too. It only takes a glance at the map to see that Italy is best placed to help on both counts.
The departure of Colonel Qaddafi is not just for the best of Libyan people, but it would also be the best means of allaying Italy’s fears. Prolonging the conflict would only increase the risk of splitting Libya, of radicalising its population, of stirring its peoples’ resentment at Western countries’ collusion with Colonel Qaddafi and of pushing them out to the sea to seek shelter. In short, getting rid of the quixotic colonel is the best way of stopping Libya from becoming another Afghanistan.
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Europe and the Middle East
Egypt: 1989 and all that
Feb 11th 2011, 21:20 by The Economist | BRUSSELS
WATCHING the jubilation in Cairo’s Tahrir Square, I am mulling over a question I was asked at a seminar a few weeks back: why did Europe embrace the democratic revolutions in eastern Europe in 1989 yet supported dictatorships in the Arab world? Was it, my questioner asked, because Europeans considered Arabs to be unworthy or incapable of democracy?
I don’t have an entirely satisfactory answer, but here are some thoughts.
First of all, I think time has sharpened the proposition. In 1989 and after, there was real wariness in European chanceries about, for instance, the impact of German reunification. Moreover I think the notion of Western support for Arab regimes has been overstated. Watch some Western television tonight: there are not many tears for Hosni Mubarak, and there is great and genuine admiration for the people of Egypt.
This said, I do not deny that there has been a real difference in Europe’s (and America’s) attitude to events in the east and in the south.
I don’t believe many Westerners ever thought that the kings and presidents-for-life of the Arab world were a particularly admirable bunch. But forced to make a choice in a region of dictators and strongmen, some seemed to be less bad than others (Mubarak’s Cairo was not as oppressive as Hafez al-Assad’s Damascus or Muammar al-Gaddafi’s Tripoli); some supported Western interests while others undermined them.
Supporting those who dared make peace with Israel is justifiable. But backing Saddam Hussein’s war against Iran was dubious, though perhaps understandable in the context of the vehement anti-Western ideology of the Iranian revolution.
In eastern Europe, by contrast, the communist states were all foes. When Communism fell, a mortal danger to the West was lifted. And just as Berlin and Germany were reunified, Europe was re-united too.
Historical experience has a big role to play. In the Arab world, Europe and then America have been the direct or indirect imperial masters. Protest against rulers was often synonymous with protests against the West; the alternative to an unpopular incumbent president or king was, perhaps, a less sympathetic or even hostile opponent, whether nationalist, Marxist or Islamist.
In eastern Europe, the occupier was the Soviet Union. Protests against it were, almost by definition, pro-Western.
This means that, to many in the West, democracy in eastern Europe was less scary in 1989 than democracy in the Arab world today. The fear is not entirely unfounded. Elections in Algeria in 1991 were won by the Islamic Salvation Front, and the new democracy was soon crushed by a military coup. A particularly bloody civil war ensued. Elections in Palestine in 2006 were won by Hamas, leading to a short-lived internal conflict that left Fatah in control of the West Bank and Hamas in Gaza. This was followed by Palestinian missiles on Israel, harsh Israeli military campaigns in Gaza and a stifling economic blockade of Gaza.
The prospect of a hostile “Iran” on Europe’s doorstep is an understandable fear. But to have connived in the suppression of democratic results was a serious error. Better to have tried to wait until Islamists either moderated in office, or to fail to deliver on their promises.
The West is guilty of two errors, in my view.
Firstly, in the contest between the police state and the mosque, it too easily fell into the trap of backing the police state. It therefore became associated with oppression and hypocrisy in the minds of many Arabs. It never sought to help foster other democratic opposition forces, or to criticise rulers for their oppressive ways. President Barack Obama’s brilliant speech in Cairo in 2009 criticised the Bush-era’s (short-lived) notion that democracy could be brought at the point of a gun, but did not shy away from making a powerful case for freedom. The trouble is, Mr Obama’s America then did little to support the cause of democracy in the Arab world. The same was true of Europe.
Any promotion of democracy in the Arab world cannot avoid the encounter with some form of Islamism. And this is Europe’s second error: its failure to distinguish between different currents of political groups inspired by Islam. Not all groups bearing the name of “Islamic” are puppets of Iran’s mullahs, or comrades of Osama bin Laden. Hamas may be the violent Palestinian offshoot of the Muslim Brotherhood, founded in Egypt. But the Egyptian branch declares itself to be non-violent and democratic, and is hated by al-Qaeda. At the very least, its democratic credentials should have been tested through greater dialogue.
The brotherhood has not been much in view in these days in Cairo, but it remains a force to be reckoned with. Talking to Islamists, even to those with objectionable views, does not mean rolling out the red carpet for them and raising their status. During its years in Iraq, the United States has protected an elected government made up of several Islamist forces, even pro-Iranian ones. Time to get over the hang-up in the rest of the Middle East.
As the Egyptians celebrate their big day, Europe’s role is to stand on the side of the demonstrators and help the process of transition: freeze the assets of Hosni Mubarak, tell the army that it should not think of staying in power forever and help foster a democratic system. Europe should be well-placed to offer assistance: after all, many of those running eastern and central Europe in 2011 were the revolutionaries of 1989.
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Saving the euro
Divergence over convergence
Feb 4th 2011, 23:47 by The Economist | Brussels
IT IS only a paragraph long, but the leaders of the European Union fought over it for hours. The words in the conclusions (PDF) of the European summit on February 4th  hide the deep cracks that have been re-opened within the EU over how to restore the euro zone after the year-long sovereign-debt crisis:
Building on the new economic governance framework, heads of state or government will take further steps to achieve a new quality of economic policy coordination in the euro area to improve competitiveness, thereby leading to a higher degree of convergence, without undermining the single market. Non-euro members will be invited to participate in the coordination.
This is a long-winded reference to the “competitiveness pact” that France and Germany had wanted to unveil at the summit. The idea is for leaders of the euro zone to agree to co-ordinate and align their economic policies more deeply in sensitive areas like wages, pensions and taxation. The declared aim is to encourage "convergence" to reduce the economic imbalances that contributed to the sovereign-debt crisis. But it could also have a deep political impact, in terms of splitting the euro zone from the rest of the EU.
Angela Merkel and Nicolas Sarkozy beat a partial retreat, however. They did not present a formal paper at the summit, as had been widely expected. But that did not stop an ill-tempered debate over lunch of poached organic salmon and roasted cauliflower. Enough of the contents had been leaked previously – the most detailed summary was an article in Der Spiegel. Most countries found something to object to, whether in substance, in form or both.
Ireland, for example, was livid about the idea of “convergence” in taxation that might force it to raise its low rate of corporation tax. Belgium was apoplectic about the insinuation that it would be made to abolish its index-linked wage system. Several countries outside the euro-zone disliked the notion that the 17 euro-area members would hold separate summits, rather as finance ministers of the euro zone meet regularly the day before ministerial meetings at 27.
More generally, smaller countries, of which there are many, resented the diktat from France and Germany. They were also suspicious of the Franco-German call to co-ordinate such far-reaching measures directly among governments, rather than through the European Commission (the EU's civil service). These doubters include fiscal hawks like the Netherlands, who are less likely to object on the substance.
Many of the same issues are already being addressed through the commission’s beefed-up system to monitor economic and budgetary policies. Under legislation being discussed since September, this will eventually include the option of economic sanctions against countries that do not follow Brussels’ economic prescriptions.
The day ended with a fudge: Herman Van Rompuy, president of the European Council (representing the 27 leaders) is being asked to confer with the 27 member-states to find out what kind of economic co-ordination could be agreed, in close consultation with the commission. The outcome will be discussed at a one-off summit of the euro-zone in early March, and finalised at a summit of all 27 members at the end of the same month.
So does this mean the Franco-German proposal is dead? Not so fast. One European official says it was “greatly reshaped”. But there seems to be enough left in it for Mr Sarkozy to boast that the notion of “economic government”, of which he had once been a lonely proponent, is now becoming reality.
He also seemed to take for granted a multi-speed Europe: leaders of the 17 countries of the euro-zone would meet when necessary to discuss business strictly related to the euro. This has happened three times in the past but may become more regular. Countries outside the euro would be invited to join in the “competitiveness pact” if they so wished; the leaders of this “17-plus” group would meet to agree matters related to the pact. Finally, leaders of all 27 EU members would meet as usual to discuss all other business, including matters related to the single market.
If all this comes to pass, one can envisage a European Union of three concentric circles: a 17-member euro-zone core, and wider “17-plus” group of countries willing to co-ordinate their economic policies and a looser group of 27, including Britain, which has no desire to be involved in the integration of the euro zone and is becoming ever more distant from it.
What Mr Sarkozy probably wants most of all is the smaller core of 17*, which resembles the older, smaller European Union where France wielded great influence. Mrs Merkel is probably most interested in the 17-plus group, requiring the political commitment from fellow leaders to adopt the economic model of the “most successful countries” (that is, Germany). This is the price she wants for Germany’s agreement to create a permanent bail-out fund for the euro zone from 2013, and to expand the current temporary one.
Few euro-zone members will disagree with the need for greater convergence, but agreeing what specific measures to take is another matter altogether. Not even the French and the Germans agree on what should be included in the pact. Asked whether France would reform the wage-indexation of its minimum wage, Mr Sarkozy replied curtly: no.
* My apologies for a confusing typo. The sentence which read "smaller core of 1" should be "smaller core of 17".
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EU and Egypt
Talking tough(ish) to Mubarak
Feb 4th 2011, 17:57 by The Economist | Brussels
CATHERINE Ashton has been given a difficult mission: go to Egypt to tell Hosni Mubarak’s regime to begin political reforms immediately.
Events in Cairo continue to push Baroness Ashton into the limelight. If ever there was a moment to raise her game as the EU’s foreign-policy chief, as I suggested she should do in my column this week, this is it.
She got a roasting in the European parliament on Wednesday for being too invisible, too late and too timid. “Vous êtes une résistante de la vingt-cinquième heure”, said the leader of green MEPs, Daniel Cohn-Bendit. (“You are a resister of the 25th hour", in other words, a Johnny-come-lately in supporting the protesters).
To be fair, Baroness Ashton has stopped issuing communiqués and has started speaking more frequently in person, including to TV cameras. By her own admission, though, she will not step an inch beyond the agreed line. “I’m not somebody who can go out and give my personal view,” she told MEPs, “I speak for the European Union.”
Over lunch at their summit in Brussels today, European leaders toughened their language towards Egypt. Their statement (PDF) condemned violence “in the strongest terms”, and told the Egyptian government “to meet the aspirations of the Egyptian people with political reform not repression”. Transtion to democracy “must start now”.
There was a faint hint of possible sanctions when the EU declared that relations with Egypt must be based on “the principles set out in the Association Agreement and the commitments made”, in other words, Egypt’s promise to abide by democratic and human-rights norms in exchange for EU aid and trade preferences. The EU gives Egypt about €100m-€150m a year.
This sterner language, Downing Street is telling us, is due in part to the efforts of Britain's David Cameron, who denounced “state-sponsored violence” in Egypt. The foot-draggers seem to be Italy, Greece and Cyprus. Indeed, Italy's Silvio Berlusconi declared: “I hope that in Egypt there can be a transition toward a more democratic system without a break from President Mubarak, who in the West, above all in the United States, is considered the wisest of men.”
Baroness Ashton has been asked to “convey the message” when she visits Egypt and Tunisia, though the details of the trip are still unclear. She spoke to Egypt’s new vice-president and former intelligence chief, Omar Suleiman, on Thursday. The conversation focused in on part on changes to Egypt's constitution needed to hold fair elections
The EU may have “saluted the peaceful and dignified expression by the Tunisian and Egyptian people of their legitimate, democratic, economic and social aspirations”. But its treatment of the two cases is still different. It is freezing the assets of the ex-president Zine al-Abedine Ben Ali, and of his wife. One report says 46 names of Mr Ben Ali’s entourage have been added to the asset-freeze list.
Will the EU do the same for Hosni Mubarak and his lieutenants? Not yet.
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The EU's foreign policy
The test for Ashton and Europe
Feb 1st 2011, 11:17 by Charlemagne | BRUSSELS
FOREIGN affairs is back at the forefront of the European Union, for the moment at least. The euro crisis is in a chronic rather than an acute phase, and no big decisions on the euro are expected at Friday’s summit. Time, then, to consider the political crises around the EU’s rim, from Belarus’s rigged election and violent suppression of opposition protests, to unrest in Albania and, of course, the spread of the anti-government protests—the “jasmine revolution”—across North Africa and the Middle East.
These represent a big test of the ability of the External Action Service, the EU’s “foreign ministry” headed by Catherine Ashton, to respond to unexpected events. Twice yesterday, the baroness spoke before the cameras. On the way to a meeting for foreign ministers in Brussels, she made no mention of the need for Egypt to hold “free and fair elections”. Only at the end of the meeting did she come forward with this exhortation.
One draws two lessons from this. First, for a foreign minister Baroness Ashton is strangely allergic to the media, especially what her officials call the “Brussels bubble". She has reluctantly had to step into its the limelight because of the pressure of events and because of complaints about her lack of visibility. French papers have resumed the stream of criticism of the baroness, whether for allegedly stitching-up top jobs (in French) in favour of Britain and its allies, or because of her alleged lack of vision. “Mme Ashton est nulle” (“Mrs Ashton is useless”), Le Monde reports (in French) one senior French official as saying.
Second, she is averse to showing leadership to her fellow foreign ministers*. Even as the Americans had shifted their position at the weekend to call for an orderly transition to democracy in Egypt, and even after the leaders of Britain, France and Germany issued a joint letter calling for elections, Mrs Ashton was reluctant to call for a free ballot. Diplomats say this is because she feared she did not yet have consensus among the 27 states. Is this admirable respect for smaller member states, who had not yet expressed themselves, or is it a worrying timidity?
The statements issued at the end of the meeting offer some intriguing contrasts. The foreign ministers announced a visa ban and asset freeze against senior Belarussian officials and confirmed similar measures against the Ivory Coast’s president, Laurent Gbagbo, and his entourage. They announced their intention to impose “restrictive measures” on members of Tunisia’s former regime. Officials say this means a freeze of assets, starting with those of ex-president Zine al-Abidine Ben Ali and his wife, Leila Trabelsi. “The council salutes the courage and determination of the Tunisian people and its peaceful struggle for its rights and democratic aspirations,” said the ministers.
The words for Egyptian demonstrators were more guarded. “The council recognizes the legitimate democratic aspirations and grievances of the Egyptian population. These should be listened to carefully and addressed through urgent, concrete and decisive measures.” There were no sanctions imposed on President Hosni Mubarak, even though scores of protesters have been killed by his security forces and even though his rule has been far from democratic.
Why the difference? In part, this is because Tunisia’s leader has fled and the current government has asked for the seizure of his assets, while Mr Mubarak remains in office. In part, also, the reason is that Tunisia is seen as much more secular than Egypt. There is an unmistakeable worry that the main beneficiaries of a genuinely free and fair election in Egypt would be the Muslim Brotherhood.
The Egyptian wing of the movement today proclaims itself to be peaceful and democratic, but the Brotherhood has in the past produced violent jihadist offshoots. The Palestinian branch of the Brotherhood, Hamas, turned violent in the 1990s and popularised the use of suicide bombings—and then won Palestinian elections. It still runs the Gaza strip, despite Israel’s blockade.
Israel is plainly alarmed by the prospect of Islamists taking power on their border, even though its prime minister, Benjamin Netanyahu, was once a loud advocate of democracy in the Arab world, calling it a precondition for peace. William Hague, Britain’s foreign secretary, concedes that the situation is “fraught with danger” but argues that, in the end, the outside world had to show “faith in democracy”.
* An error meant this sentence originally appeared incorrectly as "Second, she is averse to showing leadership to her fellow foreign ministers."
 
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Europe and the Middle East
Wanted: a European road-map for peace
Jan 27th 2011, 18:42 by The Economist | BRUSSELS
IN BETWEEN thinking about the crisis of the euro and the fate of Belgium (this week's column), I was asked by the European Union's Institute for Security Studies to offer some thoughts on one of my former obsessions: the Israeli-Palestinian conflict. These appear in the current issue of the institute's quarterly newsletter. I paste the piece below.
For decades now, the diplomatic game in the Middle East has been summed up as: ‘America plays, Europe pays’. Now that President Barack Obama has given up on direct peace talks between Israel and the Palestinian leadership, largely because of Israel’s obsession with covering the ancient biblical landscape of the West Bank in concrete, might this be Europe’s moment to act?This was certainly the hope of 26 former European leaders and senior officials when they wrote a letter on 2 December 2010 calling on the EU to ‘take a more active role in resolving the conflict and put its stated position into effect’. Addressed to Herman Van Rompuy, president of the European Council, and Catherine Ashton, the EU’s foreign-policy supremo, the letter’s seven turgid pages can be boiled down to the idea that Europe must impose a ‘price tag’ for Israeli policies that undermine the prospect of a peace with Palestinians.But how? The 26 make some underwhelming suggestions: exclude goods produced in settlements from preferential trade deals (easier said than done); refer the question to the UN if America’s indirect diplomacy yields no results by April 2011 (wrong target; the problem is not lack of mediation, but lack of political will and trust among the parties); eventually cut back support to the Palestinian Authority to make Israel ‘shoulder its obligations as the occupying power’ (Palestinians would thus pay the ‘price tag’); and no ‘enhancement or upgrading’ of EU-Israel relations while settlements continue to expand (meaningless, given that relations are just about as tight as can be).The 26 are wrong to imply that the question of Palestine can be resolved just by applying greater pressure. If only it were so easy. Take one conundrum: even if an Israeli government could be browbeaten into signing a deal with Mahmoud Abbas, the Palestinian president, could its terms be imposed on Hamas, the radical Islamist group that runs the Gaza Strip? Probably not. And Hamas retains the ability to act as a violent spoiler.Europeans should devise a better way forward, based more on terms of incentives for peace, and less on penalties for the lack of it. They should set out a European ‘roadmap’ for peace: a graduated series of incentives that they are willing to offer both sides for progress, culminating with the prospect of NATO and EU membership if and when they reach a final peace deal.Such a move would complement existing initiatives, and help revive both the Bush era roadmap of 2003 and the Arab peace initiative of the previous year, both now semi-forgotten. It would help Israelis and Palestinians focus on what they have to gain, not just what they might lose, in a compromise. By default, a succession of promises becomes a succession of penalties for those who do not move along the road to peace.There would be many objections to a European roadmap. One is that it will not work. Certainly, after a century of conflict between Arab and Jew in the Promised Land one should not expect quick solutions. But a European roadmap would help shape the framework for peace in the medium and long term, and support peace-makers on both sides. Two small states emerging from a partition of the Holy Land should feel less insecure if they were integrated into the Euro-Atlantic community. In my view, the effect would be greatly enhanced if Arab states were to issue a parallel roadmap.Another objection is that neither Israel nor the Palestinians want to join European clubs. For many in Israel, NATO, which comes with a mutual-defence clause and an American nuclear guarantee, would be more attractive than the EU, with its vast acquis and provisions for the free movement of peoples. Palestinians, for their part, may be keener on integration with the Arab world than with Europe. In the end, membership would be for Israelis and Palestinians to decide.Yet making the offer has value in itself. It would be a declaration of goodwill by Europe. And it would blunt Israeli suspicion that European criticism of its policies stems from pro-Arab bias, even anti-Semitism.A third objection argues that neither Israel nor Palestine qualify as ‘European’. Yet Israel is as democratic and European in outlook as Malta, Cyprus or indeed Turkey, a candidate for membership. In terms of defence capability and technological know-how, Israel’s contribution would be disproportionate to its size. What of the Palestinians? They count as a justifiable exception. They are, on the whole, the most democratic, dynamic and globalised people in the Arab world.NATO has promised eventual membership to Georgia, and the EU is offering all the  small states of the Balkans, including predominantly Muslim lands such as Albania and Kosovo, a ‘European perspective’. Would it be such a big deal to do the same for Palestinians if it helps cement peace? And even if Europe is a predominantly Christian club, who could really object to the inclusion of Jerusalem?There is, in all this, a question of historical justice. Zionism was born in Europe in response to European anti-Semitism; the contours of Israel and Palestine were carved out by the British Empire. The embrace of the European family would be an act of atonement.
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Saving the euro zone
Not so fast
Jan 20th 2011, 17:07 by Charlemagne | BRUSSELS
IN DECEMBER the leaders of countries using the euro declared that they stood “ready to do whatever is required to ensure the stability of the euro area as a whole”. One month on, they are plainly not ready to agree on what needs to be done. This week's meetings of finance ministers from the euro area, and then of the European Union, broke up without agreement.
The latest round of bickering may yet lead to the crystallisation of a new, elite club comprising the six euro-area members with a AAA credit rating: Germany, France, Austria, the Netherlands, Finland and Luxembourg. Call them the AAA-6, or the A-Team.
One can sympathise with the argument of Germany's finance minister, Wolfgang Schäuble (pictured above, right), that, rather than rush more half-measures, it would be better to have a comprehensive package that, in the words of one German official, “answers all the questions”. Indeed, the questions are many, and interconnected.
Here are just a few of them: are Europe's bail-out funds big enough? Should they do more than save countries at the point of collapse? Should they, specifically, take over the European Central Bank's emergency bond-buying role? Are bailed-out countries paying too punitive an interest rate? Will Greece, in particular, need to restructure its debt even after its bail-out? If so, can Europe's banks take the hit?
The European Commission says time is short. Markets may fall back into a frenzy at any moment. It wants progress at the next summit of EU leaders in February. Germany says more time is needed, and is aiming for a deal at the following summit, in late March. José Manuel Barroso, the commission president, thus finds himself once again publicly at odds with Angela Merkel, as he was last May when he urged her to move faster to rescue Greece.
Size matters
The most immediate question centres around the market's doubts about the ability of the EU's bail-out funds, worth €750 billion (including a €250 billion chunk from the IMF), to save Portugal, which is close to financial seizure, and Spain, which is at risk of contagion, while having money left over for other contingencies.
Belgium has called for the EU to double the funds, to €1.5 trillion. Willem Buiter, chief economist at Citibank, reckons [PDF] €2 trillion is what is needed. Such figures make euro-area countries, particularly the A-Team, blanch.
Nobody will want to pay for such a bazooka. But Germany has said it is ready to consider ways of making the current weapon more credible. The biggest of three pots of bail-out money is the €440 billion European Financial Stability Facility (EFSF), a special-purpose loan fund created last May by member-states. Each country contributes a quota of loan guarantees, to be drawn upon when the fund is activated, for example to rescue Ireland last year.
The trouble with the EFSF is that it can lend only about €250 billion while maintaining its AAA rating. Raising its lending capacity to the official ceiling would provide an extra €200 billion.
But how to do it? The obvious way to increase its firepower is for everybody, particularly the AAA-rated countries, to offer bigger guarantees. But this could be contentious in Germany. Another is to increase the fund's cash content. One German official suggested that A-Team countries could offer more guarantees, while the B-team could put in more cash.
Everybody is pulling out calculators and preparing arguments for why others should pay more. Giulio Tremonti, the Italian finance minister, told colleagues that Italy's share of the Greek and Irish bail-outs was already disproportionate to its banks' exposure to the debt of those two crippled states.
Flex that muscle
Even assuming that the EFSF is made bigger, there are questions about its future actions. Should it, for example, issue short-term credit lines to countries facing liquidity problems?
Another question is whether the EFSF could buy bonds of vulnerable members. Such action in the bond markets by the ECB has doused the fire but is unpopular on the ECB's board. Would it be better for the EFSF to take it over, leaving the ECB free to concentrate on its core tasks of managing monetary policy and watching out for inflation?
The opacity of the ECB's bond-buying has an advantage. It has stayed out of the public eye, and has kept the market guessing about when and how it would intervene. Handing over the role to the EFSF may make it more public, so more contentious in AAA countries.
One idea is that the EFSF could lend money to countries such as Greece to buy their own bonds. This would be more palatable, but may amount to a form of debt restructuring. Germany and Greece have both denied reports that such a proposal has been under discussion.
Greek wobbles
As The Economist noted last week, Greece is bust. Even after its bail-out, it will end up with such a large mountain of debt that it will never be able to repay its creditors. For now, though, everybody rejects the idea of debt restructuring, for fear of the knock-on effects across Europe.
One idea being pushed by Ireland, which may benefit Greece too, is to reduce the interest rate being paid by the two countries. This was deliberately set high—about 3% higher than the EU's cost of borrowing—to reduce the danger of moral hazard. The problem is that, by making it harder for countries to get back to a sustainable level of debt, it makes restructuring more likely.
Don't bank on it
The weakened state of Europe's banks is a common thread through the sovereign-debt crisis. The bursting of property-price bubbles crippled banks in Ireland and damaged Spanish ones too. The banking sector, moreover, is a channel of contagion. Any plan to restructure the debt of Greece or Ireland will have to consider the effect it would have on European banks.
The EU is preparing a new set of bank stress-tests that, it says, will be more rigorous than last year's exercise, now discredited because it failed to detect the full scale of the horror in Ireland's banking system. The precise methodology is being discussed, with questions about whether scenarios will include the prospect of sovereign default or debt restructuring in the coming years. Other questions are how the new liquidity standards in the Basel III regulations on banking will be incorporated, and, more importantly, whether the results of the tests will be published.
In short, the question is whether governments really want to hear the bad news, and whether they are prepared to do what it takes to re-organise and recapitalise the banking sector. This, in turn, could raise further questions about public finances.
2013 and beyond
All these discussions are coloured by the debate about what the permanent bail-out fund will look like when the current one expires in 2013. Conversely, decisions about changing the EFSF will set a precedent for the future system.
The EU is pushing for treaty change to allow a new mechanism to be set up. It also wants to make it easier to restructure the debt of countries that, in future, are deemed insolvent. This is supposed to apply only to new debt issued after 2013, with collective-action clauses that make it easier to reach agreement on imposing haircuts on bondholders. But it is reverberating back to today's market conditions, as holders of Greek, Irish and other peripheral debt fear they will be wiped out.
Whether a deal is done in February or March, it is hard to believe that all of these questions will be settled.
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European politics
What the Hungarian minister said
Jan 8th 2011, 12:49 by The Economist | BUDAPEST
MY posting on Hungary last night was long, but obviously not long enough. I am told the last paragraph, reporting a dinner conversation with a Hungarian minister about the media law, is causing some excitement in Budapest, notably the last sentence: “By the time the sweet Tokaji dessert wine was poured he conceded: 'OK, we fucked it up.'”
I will not identify the minister unless he chooses to put up his hand. However I should clarify two points. Firstly, the reference to Tokaji wine was intended to give a sense of the flow of time and of argument over an extended conversation, not to imply that the minister's tongue was loosened by the flowing alcohol. My interlocutor was sober; which makes his admission all the more brave and interesting.
The second point is: what precisely was the minister referring to when he acknowledged that the government had “fucked it up”? He has called me to explain that he was only talking about the government's presentation of its case: the timing of the law (on the eve of Hungary's EU presidency) and the failure to appreciate quite what a row it would provoke in the rest of Europe. He still stands by the need for the legislation and its substance. I accept his clarification.
I would add a couple of observations. Given the furore, one does not need a high-level source to understand that the Hungarian government has screwed up its media legislation both in timing and in substance, in my view. The two are connected. Perhaps a less sweeping law that did not try to take in television, radio, print and online outlets would have avoided suspicion that the government was seeking to control all media. And legislation focused on a narrower issues, say, the structure and management of the state broadcaster, might have been enacted sooner, avoiding the clash with the EU presidency.
The minister should not worry too much about his frankness. Other Hungarian ministers and officials have said similar things in private. And the prime minister himself publicly acknowledged tactical mistakes had been made when he admitted his “bad start” to the presidency and expressed his readiness to change the law in light of the European Commission's legal opinion. It would be laughable if the government were trying to claim that it had handled the affair brilliantly.
Candour, and even disagreement, in government is healthy for democracy. Given the worries about the erosion of institutional checks and balances on Viktor Orbán's team, it is reassuring to see that there is at least some openness and debate within the government.
It is a pity that Hungary's democracy should be questioned at a time when it is saying sensible things about European matters: maintain fiscal discipline to bring down debt and shore up the euro, build gas interconnectors to increase energy security and adopt a Europe-wide strategy to integrate Romanies and alleviate their poverty. The ministers we met seemed, for the most part, to be competent and well-organised for the EU presidency.
Mr Orbán could do himself a world of good if he, like my ministerial interlocutor, were to admit that the media law had been a mistake and, even better, pledge to review it with the involvement of non-Fidesz appointees. Take our dinner: by the time coffee was served, we had moved on to a discussion about pipelines, Russian gas politics and much else besides.
 
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European politics
Orbán's obsession with order
Jan 7th 2011, 17:03 by The Economist online | BUDAPEST
AFTER three days in Budapest, where Hungarian ministers have been asked about little else apart from the media law, it is still hard to understand why Viktor Orbán and his Fidesz party felt the need to push through such sweeping and contentious measures.
One minister said they were necessary to protect people’s “dignity” on reality television, or to shield children from sexually explicit scenes on TV; another said the bankrupt and leaderless Hungarian public broadcaster had to be reformed; yet another spoke of the outrage at Hungarian newspapers publishing the picture of a footballer, Miklós Fehér*, who died during a match in Portugal (even though it happened before thousands of fans and the video is widely available on YouTube).
None of this seems to merit 200-odd pages of legislation, the amalgamation of the newsrooms of all publicly-funded media, a Fidesz-appointed council to oversee all of television, radio, online and print media, with the threat to impose heavy fines for ill-defined offences. Mr Orbán says all of the law’s provisions are drawn from the laws of other countries. Even if he is right, there is the danger of picking all the most rotten bits of Europe’s media legislation.
The English translation of the legislation, a media “constitution” (PDF) and a more detailed media act (PDF) is available on the justice ministry’s website, along with a commentary (PDF) seeking to rebut criticism. What is one to make of Article 13, setting out the obligations of the media, which seems to be both all-encompassing and oddly chauvinistic? If journalists have to provide accurate and balanced information on Hungary and the Hungarian nation, do they not have the same obligation towards other countries and nations?
(1) All media content providers shall provide authentic, rapid and accurate information on local, national and EU affairs and on any event that bears relevance to the citizens of the Republic of Hungary and members of the Hungarian nation. (2) Linear and on-demand media content providers engaged in news coverage operations shall provide comprehensive, factual, up-to-date, objective and balanced coverage on local, national and European issues that may be of interest for the general public and on any event bearing relevance to the citizens of the Republic of Hungary and members of the Hungarian nation.
In private conversions with Fidesz ministers, the visitor begins to sense an underlying drive to refashion society, a desire somehow to complete the anti-Communist revolution of 1989. Hungary had a surprisingly peaceful negotiated transition to democracy. But for Fidesz the compromises made at the time led to the rot of recent years. In the view of Fidesz, the communists were never ejected; in return for surrendering political power, they were allowed to retain economic power and re-invent themselves as the Hungarian Socialist Party.
The socialists’ poor job of running the country for eight years was encapsulated in the tape-recording of the-then prime minister, Ferenc Gyurcsany, admitting in 2006: “I almost died when for a year and a half we had to pretend we were governing. Instead, we lied morning, evening and night.”
For Fidesz, the election victory this year is the latest round of a battle that began in communist times. And now that Fidesz has a two-thirds majority, it claims finally to have the mandate and means to complete the job. The media law is just the latest in a series of actions to grab power. Fidesz says it will pass a new constitution to replace the existing one, dating from communist times. For Mr Orbán, Fidesz’s actions are unimpeacheable; they are the real democrats, they defeated the communists, and they know what is right for the country.
In theory, the presidency should provide a check on the government, except that the current holder of the job, Pal Schmitt, an Olympic fencing gold-medallist from 1968 and 1972, seems to view his role as Fidesz cheerleader-in-chief.
 This is what he told the visiting Brussels press corps today:
Last year the Hungarian citizens gave a mandate that is unprecedented on the European scale to the political forces that now form the parliamentary majority and government. It was this force, this will that elevated me into my current office.I know that the working tool of journalists is news, but perhaps even more, it is the truth. The truth, the good news is: that Hungary today has a government with huge public legitimacy, extremely strong parliamentary majority, that is capable of overcoming the economic difficulties and capable of establishing order. The mandate given at the democratic elections is not only huge in terms of its proportions but it also reflects the expectations of Hungarians, the extent of the sovereign power, legitimacy transferred. The majority of my compatriots have not only said no to the past, but have also stated what they think the future should be like. I look at the processes that have taken place in 2010 as a great sigh of Hungarians, with which we wanted to exhale the poison that held everything back and to inhale fresh, invigorating oxygen. This sigh demanded order. Order in the way the state functioned, discipline in finances, and justice in laws and procedures. It demanded the recovery of the economy and the health system, the protection of jobs and families. It is this peaceful making of order that is required for Hungary to become stronger. For a strong Europe can only be made up of strong nations.
How far this re-ordering of Hungary will be pushed, and what sort of society Fidesz wants to establish, is left vague. Mr Schmitt says he wants the new constitution to acknowledge the central place of Christianity (though Fidesz spent a long time showing us journalists the revival of Jewish culture). Mr Orbán, for his part, is keen to have a constitutional brake on government deficits and debt.
 Clearly, for Mr Orbán strength is a virtue, His slogan for his presidency of the EU is “Strong Europe”. For the rest of Europe, though, his strength is starting to look like authoritarianism. The media law has attracted an unwanted spotlight and Mr Orbán is now under close observation.
 Over a long dinner assisted by the expertise of the specially-appointed “EU presidency sommelier” one minister first claimed the media law was no different from other European countries. He later admitted that it was, indeed, more stringent than similar laws elsewhere. “You have to understand, this is central Europe, where there is anti-Semitism and anti-gypsy sentiment. The government has to protect people.” By the time the sweet Tokaji dessert wine was poured he conceded: “OK, we fucked it up."
* The name of Miklós Fehér has been corrected since this post. My thanks to eagle-eyed Quitz. I've taken the opportunity to restore the accent to Viktor Orbán.
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Barroso in Budapest
Barroso vs Orbán
Jan 7th 2011, 16:14 by The Economist online | BUDAPEST
"I DON’T want to make this a combat issue," says Viktor Orbán. But that is what the controversy over Hungary’s media law risks becoming if the fragile ceasefire between the Hungarian government and the European Commission reached yesterday fails to hold.
After talks this morning in Budapest between teams led by Mr Orbán and by José Manuel Barroso, the commission’s president, the two sides could not hide their disagreement. They said the commission’s legal experts would examine the sweeping media law adopted last month and judge whether it complies with EU legislation. Mr Orbán said he was ready to change the law in light of their opinion.
As discussed in my column this week, an analysis within the confines of the EU treaty is likely to be a limited affair, and is unlikely to quell the disquiet across Europe. Mr Barroso told Mr Orbán as diplomatically as he could that he had to go further: he had to address the wider "political" dimension so that Hungary could "have the full backing of the member-states and of the European institutions" to make a success of its six-month presidency of the EU.
"Hungary is a democracy," said Mr Barroso. "It is important to have no doubt about it. It is important that the prime minister and his government take all necessary steps for this to be clear in Hungary and outside Hungary."
Mr Orbán seemed to bristle. He said he was willing to listen to reasoned legal arguments. But, he declared, "No campaign, no pressure… If there is no common sense or any reasonable argument—no change. However, we are open to change if practice shows that there is a need for such change."
In other words, the commission wants Hungary to act quickly to stop the row hampering the EU’s work. Mr Orbán wants to play for time in the hope that pressure will abate.
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Hungary's media law
A fine way to kick off an EU presidency
Jan 6th 2011, 13:14 by The Economist online | BUDAPEST
HAPPY new year to readers of this blog. I am in Budapest for the customary press trip at the start of a new EU presidency.

Given the furore over Hungary’s new media law, it has not been a good start of the year for Viktor Orbán, the Hungarian prime minister, as he himself admitted at a press conference this morning. "I agree this is a bad start. Who would want a start like this? But I did not write the script. We adopted a law we considered to be perfectly OK, but the world criticised us… There is nothing we can do to change it. We will protect the law and I will protect our national policies."

Such is the combative stand of Mr Orbán. Having flown scores of journalists to Hungary (The Economist is paying its own bill), Mr Orbán risked letting the beast into his house. But far from being devoured, he played the lion-tamer: part verbal whiplash, part soothing and calm.

Journalists, he said, had every right to criticise his media law. But governments played by a "different traffic code" and had no right to tell Hungary to change its legislation. Germany has warned Hungary that, as EU president, it has "a special responsibility for the image of the European Union as a whole". France has asked for the law to be modified.

Such calls, says Mr Orbán, are "unnecessary and too hasty". Worse, they are an "insult" to Hungary. Still, the prime minister left himself ample space to modify the legislation if the European Commission formally concludes that it breaches EU law. This seems unlikely. Commission officials have been explaining this week that the EU’s charter of fundamental rights does not apply to national policies; it only covers the actions of European institutions, or of member-states when they are enacting EU laws.

And if the commission does demand changes, Mr Orbán says, other countries should by rights also amend their media laws. That is because the Hungarian legislation has been inspired by the laws of other unimpeachable European democracies.

"If this passage of the Hungarian media act should be amended, then the media laws in France, Germany and the Netherlands should be changed too, as there is nothing in our legislation that is not in their media laws. I defy anyone to find anything in our law that is not in other EU member states' media laws."

Was Mr Orbán offended by comparisons that have started to crop up between him and Russia’s prime minister, Vladimir Putin, as well as the Belarusian president, Alyaksandr Lukashenka?

"From 1998 to 2002 [Mr Orbán’s first stint as prime minister] the western press said I was reminiscent of Hitler and Il Duce. Now they compare me with Putin and the Belarusian president. I will leave it up to you to decide if this is progress or not… Personally I am not hurt by such remarks but I think it hurts, it is insulting to Hungary. Hungary is a democratic country."

Listening to Mr Orbán connect his present troubles with his anti-Communist past, one gets a sense of a man convinced that he has right on his side. Armed with a two-thirds majority in parliament, he seemed this morning to be on a mission to transform the country after the mess that the previous Socialist government had left behind.
Yes, he said, there have been controversies over many of his policies, including taxes on big businesses, turning down IMF strictures, and extending citizenship to ethnic Hungarians in neighbouring countries. But critics were ignoring his achievements: the deficit had been sharply reduced (3.9% of GDP in 2010) and the national debt would be brought down to about 70%-73% of GDP by 2014. The labour market was being made more flexible, and Hungary wanted to become "as competitive as China".
What's more, Hungary’s previously "unmanageable" relations with Slovakia had improved; the two countries would soon sign an agreement to build a gas interconnector to improve energy security. The constitution is an interim law dating from communist days in 1949; only now does Mr Orbán's Fidesz party have the majority to change it.

As my colleague notes, the Putin comparison is discordant. No Hungarian journalists have been murdered. In his pugnacious manner, Mr Orbán is perhaps more reminiscent of France’s president, Nicolas Sarkozy (who of course has Hungarian roots—in Budapest they like to pronounce the name the local way: "Shaar-kozy"). But now, with his flawed media law, Mr Orbán may also be taking on something of Italy’s Silvio Berlusconi.
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Britain and the EU
Happy on the sidelines
Dec 17th 2010, 13:58 by The Economist | Brussels
ANOTHER summit, another British letter. In October David Cameron, the British prime minister, collected the support of 12 other countries to limit next year’s European Union budget to a rise of 2.9%. After an ill-tempered fight with the European Parliament, Britain (and the other net-contributors) got its way.
At the summit that ended today, Mr Cameron circulated another letter – this one about limiting the size of the next multi-year budget that starts in 2014. Britain wants the paymasters of the union to agree to freeze the budget in real terms. It seems to have got the support of Germany, France and the Netherlands, among others. A text may emerge in the coming days.
"You have a new British government that has taken the initiative on spending, has galvanised other European leaders and is having an impact,” declared Mr Cameron. “You are seeing a different approach that is yielding results.”
Another victory for Britain? Not yet. To begin with, Mr Cameron is likely to get fewer signatures than he did for his letter in October. Moreover, he has upset some of his most important allies among the ex-Communist members of eastern and central Europe. Finally, the position is likely to fossilise the EU budget even further: no change to the Common Agricultural Policy, no change to the British rebate and so little scope to shift resources to invest in real growth-promotion rather than aid and subsidies.
“What we are seeing now is the ritual dance of the different tribes before the real partying begins,” says José Manuel Barroso, president of the European Commission. In private, commission officials are even more scathing. The British move is “very unhelpful” and “divisive”, they say, and even counter-productive from Britain’s own perspective. “For Britain to lose the great credit it has among new member-states is a great mistake,” says one senior Eurocrat.
Increasingly, these days, Britain seems to be attending a different summit from other countries. Most leaders went to Brussels in the hope of demonstrating unity and determination in safeguarding the euro; Mr Cameron made the trip to safeguard the British (and, he says, the European) taxpayer.
That is a noble aim which, if adopted by other European leaders at home and in Brussels alike, might have spared them high debt levels and prevented the euro from plunging into such trouble.And yet the British move was mis-timed and discordant. Germany's chancellor, Angela Merkel, was irritated by the British move at a time when she wanted European leaders to rally in defence of the euro.
There is a distinct detachment about Britain and the burning questions of Europe. Partly it is circumstance: the crisis is raging in the euro zone, and Britain is not a member of it. But partly it is also a matter of choice: Mr Cameron seems most comfortable sitting on the sidelines. This attitude that is much different from that of, say, Sweden, a non-euro country that is nevertheless strongly involved in every aspect of the debate about the euro.
The crisis is slowly creating a two-speed Europe: a more integrated euro core, with a looser fringe that Britain is happy to inhabit.
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The euro-zone crisis
The "adequate" commitment
Dec 17th 2010, 10:00 by The Economist | Brussels
AT breakfast with José Manuel Barroso this morning, the signal is that some kind of general promise to increase the size of the European Union’s bail-out fund, should it be needed, may yet be made by the EU.
The president of the European Commission, the EU’s civil service, read through the seven-point declaration (see my earlier post) that, he said, now represents the “consensus” of the summit. Negotiations were taking place to include them in the body of the final communiqué later today, including the pledge to provide "adequate financial support” for the European Financial Stability. “This is a very important commitment,” said Mr Barroso, “I hope it will be adopted today.”
At last night’s press conference Herman Van Rompuy declined to be this specific when asked whether the fund would be increased as the Belgian presidency, among others, has called for. Mr Barroso talked up the “radical” changes adopted by the EU in response to the crisis, repeating the now-standard phrase that European leaders were “ready to do whatever is required to ensure the stability of the euro area”.
But nobody will say what may be required, and the leaders will certainly not talk of specific figures for the fund. This, say senior officials, would only create a "self-fulfilling prophecy" that there is more trouble brewing in the euro zone.
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The euro-zone crisis
Whatever it takes?
Dec 16th 2010, 23:39
FOLLOWING my previous post, here is a final wrap-up of tonight’s events in Brussels. The deal on the euro is done. The key text of the proposed treaty change reads:
The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality
So the Germans got something close to what they wanted, in the word “indispensable”*. The Brits, too, got something like a commitment that Article 122 would not be used after 2013, but not after some surprisingly strong resistance from the European Commission. The commission's president, José Manuel Barroso, argued that explicitly limiting the scope Article 122 would amount to “emptying a provision of the treaty”. In the end, fudged words on Article 122 will appear in the final communiqué
On all the other measures proposed in recent days to shore up the euro – Eurobonds, increasing the size of the EFSF or making it more flexible – the Germans shut down the debate. A seven-point declaration on economic policy for the euro-area was skewered too. It is now to be used only as “speaking points” by EU officials, even then in curtailed form.
For example, a draft of the declaration included a commitment to ensure the availability of "adequate financial support through the EFSF pending the entry into force of the permanent mechanism." In other words, even though the EU would not increase the size of the fund now,  it stood ready to do so should it be necessary in the future if, say, Spain should ever need bailing out.
All that was left of this promise was the repeated but oblique statement by Herman Van Rompuy at tonight’s press conference that the EU was “ready to do whatever is required” to preserve euro, without saying what this might involve. A good argument for such ambiguity is that EU leaders do not want to make the EFSF bigger for fear of convincing the markets that there really is a big problem looming in Spain. One suspects, though, that the real motive is a bad one: the EU cannot agree on what to do if the crisis gets much worse.
For now, it seems, Angela Merkel is determined to do whatever is required to avoid further financial commitments to the euro.
* in the original version of this post I had written "inevitable". It should be "indispensable". Sorry for the late-night slip-up.
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The euro-zone crisis
A triple no
Dec 16th 2010, 19:54 by The Economist | Brussels
NEIN, nee, ei. Whatever language one chooses, the reply of fiscally austere northern European countries tonight to demands for a more ambitious response to the euro crisis is: no. As European leaders meet for their end-of-year summit in Brussels, Germany, the Netherlands and Finland are among those that think the most important action is greater economic rigour.
That means no to issuing joint eurobonds, no to making the European Union’s bail-out fund larger and no to making it more flexible (eg by using it not just as a last resort to save crisis-hit countries, but to issue short-term loans or even buy up loans from “peripheral” countries).
Instead, the leaders want the summit to finish what it started: agree the language of an amendment to the European treaties that would allow the temporary bail-out fund to be made permanent, and sketch out the details of how and when to restructure the debt of overstretched countries.
When I told the BBC World Service this morning that this was the agenda for the summit, the presenter’s reply was: “That’s boring, isn’t it?” I suspect that, similarly, markets may regard this as an inadequate response to the crisis. And if the markets think so, then it probably is inadequate, if only because the interest rates that investors demand to hold the debt of the most vulnerable countries could start to rise again – perhaps in the coming days of low trading volumes. Spain had to pay substantially higher interest this week when it sold its last batch of bonds, following the threat of a ratings downgrade from Moody’s.
A small “yes” has been forthcoming, albeit indirectly from Frankfurt, where the European Central Bank announced it would double its capital from €5.76 billion to €10.76 billion. One assumes this is a measure to strengthen its ability to continue buying bonds of distressed countries­ - the one short-term tool that is being used to calm the markets - and insure against possible losses.
It is a sign of how fast the crisis has evolved that the treaty change should already be discounted as insignificant. It was a big deal when it was announced at the last summit in October, and the wording remains contentious tonight.
A quick recap: Angela Merkel demanded, and got, agreement to amend the treaties to allow the European bail-out funds –the €440 billion ($580 billion) European Financial Stability Facility (EFSF), plus a €60 billion fund run by the European Commission - be made permanent. The reason is that she feared that Germany’s constitution court would declare the EFSF in contravention of the “no bail-out” clause in the treaties.
In exchange for a permanent fund, the Germans also want a way of imposing losses on bondholders so that taxpayers do not always have to bear the risk of bailing out over-indebted states.
For some legal background, readers may want to look at this column. For details of restructuring, see this post and this article from the magazine.
The draft text proposed by Herman Van Rompuy, president of the European Council (the grouping of the EU’s leaders) for adoption by the leaders states:
The Member States whose currency is the euro may establish a stability mechanism to safeguard the stability of the euro area as a whole. The granting of financial assistance under the mechanism will be made subject to strict conditionality.
The key features are:
In tonight’s debate there have been at least three sets of objections to this language, though none seem insurmountable.
First come the Germans, who want it to specify that financial assistance provided by the fund should only a “last resort”. The word is that they have settled for an assertion that it would only be used when “indispensable” to preserve the euro-zone.
Another unhappy country is Britain, which has demanded a guarantee that bail-outs after 2013 will no longer be based on a creative interpretation of Article 122, which allows financial help to be extended to a country that is “in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control”.
Britain’s objection is that Article 122 involves all 27 members of the EU, not just the euro area. Last night British officials said that David Cameron, the British prime minister, had secured a deal to the effect that Article 122 “need not and should not” be used for financial bail-outs. They did not say “will not”. In short, this is a political commitment, not a legally-binding one.
Finally, Finland is among those who would like an explicit commitment that any use of the permanent bail-out fund be made subject to unanimous decision by the euro-area members, as currently applies to the EFSF. It should be subject to any kind of majority vote.
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The euro-zone crisis
Fumbling the ball
Dec 7th 2010, 0:18 by The Economist | BRUSSELS
DID Jean-Claude Juncker, Luxembourg's prime minister who is also head of the euro zone's finance ministers, score an own-goal yesterday? With the markets savaging bonds issued by “peripheral” countries such Greece, Ireland and Portugal, he proposed that euro-zone members should issue collective “E-bonds” for up to 40% of the euro zone's GDP. The idea came out of the blue in an article written with Giulio Tremonti, the Italian finance minister. Common Eurobonds, they claimed, would “send a clear message to global markets and European citizens of our political commitment to economic and monetary union and the irreversibility of the euro.”
Their fellow finance ministers, though, do not seem to have received it particularly well. Germany, in particular, has been allergic to any notion of Eurobonds that would bring it a step closer to a “transfer union”. If not actual money, the Eurobonds proposal would mean extending part of Germany's hard-won credit-worthiness to all European countries. The French seemed less than enamoured. Only the poor Greeks welcomed it.
So no sooner had Mr Juncker launched his idea than it fizzled. Late last night, when he emerged at the end of the meeting, he did not mention the subject. And when he was asked about his op-ed in the Financial Times, he replied: “It was not part of the agenda. We did not discuss it.” He had written the article to show the idea “is not as stupid as it sounds”.
Plainly his fellow ministers did think it was silly, but he claimed he was not upset. In 2005, noted Mr Juncker, he had proposed a “European semester”, the notion that countries should submit their budget outlines for scrutiny by Brussels well before they are approved by national parliaments. The idea was quashed then, as it was as the beginning of the year when the Greek debt crisis broke out. But in the autumn it was accepted as part of strengthened EU “economic governance”.
“Now it seems that the fathers are numerous,” said Mr Juncker, “The same fate is reserved for the Eurobonds.”
Another defeated idea, this time proposed by the IMF and by the Belgian government, was to increase the size of the euro zone's bail-out funds, worth €750 billion ($1 trillion), to remove any doubt that Portugal and Spain could be helped should the need arise. “For the time being there is no need to increase it,” declared Mr Juncker curtly. Klaus Regling, who runs the €440 billion European Financial Stability Facility (EFSF), the biggest part of the bail-out fund, was on hand to explain that the fund was “sufficient” to help Spain if needed. The actual amount that could be lent would be less than the €440 billion, Mr Regling said, but he declined to give a figure.
For now, the finance ministers want to press ahead with completing measures that they have started: toughening up supervision and sanctions for countries that breach the fiscal limits set by the euro zone's stability and growth pact (deficits no bigger than 3% of GDP and accumulated debt no greater than 60% of GDP), changing the treaty to make the bail-out fund permanent and setting up a system to restructure the debt of insolvent countries from 2013 onwards.
The latter proposals have been softened from demands by some Germans that any country seeking a bail-out should renegotiate its debt with creditors. Now debt restructuring would only be considered “case by case”, and in line with current IMF practices.
In the absence of radical measures—be it a demonstrative act of integration like issuing joint Eurobonds, or getting an bigger bazooka for the EFSF, or even forcing over-indebted countries to restructure their debt immediately—the euro zone seems destined to muddle along for now. The euro zone can only hope that the European Central Bank, which is buying up the bonds of troubled countries and is providing liquidity to banks, can defend the euro zone long enough for better days to come.
An unexpected threat has appeared in the form of Eric Cantona, the former football star who has called for French citizens to stage a mass withdrawal of funds from banks today. This, he claimed, would be a much more effective means of protest than marches and strikes. For Mr Juncker, the call is “totally irresponsible”. Olli Rehn, the economics commissioner, claimed to be a fan of Mr Cantona's former club, Manchester United, but said: “Eric Cantona is a better footballer than an economist.” That might seem harsh coming from a former Finnish professional goalkeeper.
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The euro-zone crisis
Time to send the barber home?
Nov 29th 2010, 0:34 by The Economist | BRUSSELS
THE barber can put the scissors away for now. European politicians have given in to the tantrums of the markets: the threat of an ugly haircut for bondholders has been postponed for several years. Such is the conclusion one draws from Sunday's extraordinary meeting of European finance ministers. Whether it is enough to pacify the distressed markets as they re-open today, after dumping the bonds of the most vulnerable countries and sending their interest rates soaring, is a different matter altogether.
Ministers tried to soothe the wailing with two (actually, three) promises: first, they drew up an €85 billion ($113 billion) package [PDF] of loans for Ireland to try to quell the immediate crisis. Second, they quietly agreed to consider extending the three-year repayment period for Greece, which was bailed out in May, to match the more generous loan term for Ireland. Third, they issued a promise that, under a future mechanism [PDF] to resolve debt crises, holders of European government bonds were not in danger of losing their investment any time soon.
The Irish package is a complex mixture of contributions. €35 billion will be required to restructure Ireland's collapsed banking sector. Of this, €10 billion will be issued immediately, and the rest will be available as a contingency fund. A further €50 billion will be used to assist the state budget. Ireland will provide €17.5 billion of the overall sum from its own reserves (including pension-related funds). The rest, €67.5 billion, will be divided equally among the International Monetary Fund, the European Commission and the European Financial Stability Fund (EFSF), a special-purpose fund created by euro-zone countries in May, augmented by extra contributions from Britain, Sweden and Denmark.
The interest rate that Ireland will pay ranges from 5.7% to 6.05%. The overall rate, said Ireland, would be about 5.8%, higher than the roughly 5% paid by Greece. But the repayment terms are more generous. According to Christine Lagarde, the French finance minister, the loans will stretch over ten years: three years without repayment, followed by repayments over about seven years. The ministers said they would consider extending Greece's repayment period to match this, an implicit admission that the conditions imposed on the Greek government were unrealistically severe.
The latest phase of the crisis began with the decision by European leaders last month to create a “permanent crisis resolution mechanism”. This would involve making permanent the temporary EFSF, while also demanding that bondholders take some of the pain. The burden of helping troubled countries could not fall only on the taxpayer, said Germany. Fearing the imposition of “haircuts” (a reduction in the value of bonds), investors dumped the debt of the most vulnerable countries, notably Ireland and Portugal, in turn spreading alarm that others could be infected by the crisis.
In their decision last night, finance ministers tried to assuage the markets. Only new bonds issued by euro-zone states after 2013, which will all carry identical new “collective action clauses” (CACs), would be at risk of having the bonds restructured. This could be done through a standstill in repayments, extension of maturity, interest-rate cut or, in the most severe cases, the dreaded haircut.
Other measures were designed to make this prospect seem even more distant. A troubled country's finances would first have be studied by the European Commission and the IMF. Those deemed able to repay their loans would receive help from European partners, subject to strict conditions. Only “in the unexpected event that a country would appear to be insolvent” would it be told to negotiate a restructuring plan with its creditors. And given that bonds with the new CACs will only start to be issued from July 2013, and that it will take some years for a substantial part of the outstanding borrowings to evolve into the new restructurable sort of debt, it would seem that bondholders do not face a significant threat for several years, perhaps not until around 2020.
Moreover, any restructuring would take place in accordance with the IMF's current policies. In other words, the holders of European bonds will not be subject to cruel or unusual punishment. The risk of haircuts is no greater in Europe than in other parts of the world. In short, big bad Angela Merkel, Germany's chancellor, did not really mean all those nasty words about making the private sector bear the pain of irresponsible lending to irresponsible countries.
Will all this assuage the cantankerous markets? Like a suspicious child, they will be acutely aware of any hint of doubt or inconsistency in mum and dad's kind words.
Take the comments by Olli Rehn, the EU's economic-affairs commissioner, who said there should be a new set of bank stress-tests next year, not just in Ireland but across the EU. This is an admission that the last lot of European stress-tests were flawed, in turn casting doubt on the heath of the banking sector, in turn raising the prospect of more banks having to be recapitalised by taxpayers, in turn increasing the danger to public finances.
Mr Rehn, moreover, was adamant that senior bondholders of Irish banks due for restructuring would not have to take losses, an option that the Irish government had been considering. "There will be no haircut on senior debt, not to speak of sovereign debt,” declared Mr Rehn. The Irish Times reports that Brian Cowen, the politically crippled Irish prime minister, explained that the EU would not agree to such a radical course because it could destabilise the European financial system. There was no “political or institutional support” for the idea, he said.
In other words, European banks are highly vulnerable to any losses incurred on the bonds of either the Irish government or Irish banks. Punishing the private sector, as Mrs Merkel has mused, would risk punishing Europe as a whole.
Another sign that all is not well is the hint by Didier Reynders, the finance minister of Belgium, which holds the EU's rotating presidency, that the successor to the EFSF would have to be bigger. He did not quite spell it out that way, but his comment that “we need to have the largest size possible...to be able to give an answer to the crisis”, backed by Mr Rehn, seems to confirm reports of behind-the-scenes pressure to increase the size of the bail-out fund—if not immediately, then at least when a permanent one is created in 2013.
If Europe's finance ministers are not sure sure they have stopped the rot in the banks, and are not sure they have enough resources to deal with future crises, why should investors think otherwise?
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The euro crisis
Needed: a butterfly to still the storm
Nov 22nd 2010, 18:29 by The Economist | BRUSSELS
IT WAS the proverbial butterfly that caused the hurricane. On October 29th, leaders of the European Union agreed that they should re-open the treaties “to establish a permanent crisis mechanism” that would include “the role of the private sector”. The markets took this as a sign that bond-holders would be made to pay for future bailouts of troubled euro-zone members, and duly dumped the debt of the most exposed countries, notably Ireland and Portugal.
Now that the storm is battering Ireland, which has decided to grasp the life-raft offered by the EU, where has that butterfly gone? Germany keeps schtum about the need to make speculators pay. The European Commission, which was asked to draw up proposals for the “mechanism”, declines to speak of it. Herman Van Rompuy, the president of the European Council who is supposed to be consulting members on how to effect the necessary treaty-change, has taken a monastical vow of silence since maladroitly talking of the euro being in “a survival crisis”. For now everybody is trying to pacify the storm-gods, not antagonise them. They got a bailout for Ireland and the promise that curent bond-holders will not have to pay.
None of this means the butterfly has disappeared. Unheard in the thunder, it is still flapping away. Foreign-affairs ministers discussed it today at the EU’s general-affairs council, held to prepare next month’s summit. They seemed no closer to deciding how it would work, but Steven Vanackere, the Belgian foreign minister, suggested that had at least decided on a new name: they would stop calling it the “crisis-resolution” mechanism, but rather a “stability mechanism”. Mr Vanackere himself accepted this was unlikely to work: “It’s like calling the minister of war the minister of peace or the minister of defence.”
  Spiegel magazine, though, seems to have more precise details of German thinking, contained in a “non-paper” that the German finance minister, Wolfgang Schäuble, is preparing to present to fellow-ministers in early December. One senior European source tells me that markets these days listen only to what Germany says, so let me quote Spiegel’s account:
"According to the Germans' plans, the conditions for all new bonds in the euro zone would include a debt restructuring clause as of 2013. The goal of the clause is to "make it possible to achieve a legally binding change in the payment terms through majority decisions of the creditors in the event of the debtor's inability to perform." The document lists maturity data extensions, rate reductions and debt waivers as measures.  A neutral chief negotiator would mediate between bankrupt countries and investors. "This task should be assigned to an inter-governmental institution that can also be a provider of financing at the same time," the document reads.  The new facility could also provide ailing countries with liquidity assistance. The money for the program would come from two sources. First, there would be the revenue from the penalties euro-zone countries would pay for repeatedly violating the upper deficit limit. Second, the euro-zone countries would pay into the fund, with their contributions possibly being based on their shares in the ECB.  A condition for the procedure is an analysis of a country's "debt capacity" prepared by the European Commission, the ECB and the IMF. German government experts are convinced that their plan will be successful. "The affected country gets a realistic prospect of quickly regaining its reputation and trust," they write, while the creditors would receive the chance of "securing a portion of the value of their bond."The drawback of the plan is that it cannot go into full force in 2013, because not enough bonds with restructuring clauses will be on the market right away. Recognizing this weakness, the government experts concede that there would be a transitional period. This would amount to a "period of six to eight years, for which transitional solutions will have to be found."
The problem, as Mrs Merkel has discovered, is precisely how to manage the transition from blanket protection for bond-holders to a system where they are exposed to greater risk and, in turn, impose greater discipline (and impose it earlier) on sovereign borrowers.
The view among most European leaders is that all this would have been easier to deal with next year, once more stringent rules to monitor countries’ deficits, backed by sanctions, would be in place. By then, the hope was, the markets would have settled down. So should the matter of a restructuring system be dropped as a bad idea?
Probably not. Now that they have been stirred, the markets are unlikely to be assuaged by yet more uncertainty and speculation. The best hope is to settle the matter as soon as possible. Call it what you want - a crisis-resolution mechanism, a stability mechanism, a peace offering to the gods – but a plan is needed sooner rather than later, with clarity about how it will be phased in after 2013. This time, though, leaders should deliberate knowing that, as one source puts it, “the markets are at sitting at the negotiating table”. The storm could get worse before it gets better. Hold on to your hats.
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NATO and the EU
A rowless summit
Nov 20th 2010, 22:15 by The Economist | Lisbon
IN BUCHAREST in 2008 they fell out over whether to allow Ukraine and Georgia to begin the formal membership process to join NATO. In Strasbourg-Kehl in 2009, they barely patched up the row over the appointment of Anders Fogh Rasmussen as the alliance’s secretary-general, in the face of objections of Turkey. This year Lisbon, the NATO allies seemed to agree on everything. Bad for journalists, but perhaps better for transatlantic relations.
First off, NATO agreed its new “strategic concept” on November 19th. This is intended to be the underlying philosophy of the alliance for the coming years. In the prolonged dispute over whether to concentrate on territorial defence of NATO countries, or on expeditionary missions in Afghanistan, NATO said the allies had to be able to fight both kinds of campaigns and more, not least cyberwarfare. The simmering row over Germany’s call to remove nuclear weapons from European soil was overcome with a compromise that NATO would strive for a world free of nuclear weapons, but until then it had to remain a nuclear-armed alliance.
Then came the debate over Afghanistan but this was, similarly, largely consensual. The “transition” from NATO forces to Afghan security control will pick up pace from next year, district by district, province by province. There is little real novelty here. Transition has been much talked about for a year or more, and the Afghan capital, Kabul, is already under nominal security control of the Afghan government.
The aim of completing the transition by 2014 is distant. To the Americans, this is an objective to be aspired to, and will depend on conditions on the ground. Regardless of conditions, though, Britain’s prime minister, David Cameron, restated his view that British combat operations would be over by 2015 at the latest. “I think the British public deserve a deadline,” he declared.
In a sense, Mr Cameron has copied Canada, which announced some years ago that its combat troops would be out by next year. Yet Canada’s prime minister, Stephen Harper, has now made a commitment to provide 950 soldiers to train Afghan forces “behind the wire” in their barracks. Other countries have also stepped up their training contribution.
President Hamid Karzai of Afghanistan, who had complained in a newspaper interview about night-raids by special forces, saying they were aggravating the insurgency, declined the opportunity to make a fuss about the issue in public. “You are pulling my legs,” he told one journalist who asked him about his criticism of NATO tactics. Mr Obama acknowledged that Mr Karzai had been right to express concern about civilian casualties, but accepted that there would be disagreements in future.
In private, though, the dialogue was sterner. Angela Merkel, the German chancellor, and President Nicolas Sarkozy of France were among those who told the Afghan leader that he needed a more “coherent” message; he should not sound as if he disapproved of the presence of foreign forces. Western leaders also had domestic opinion to worry about, they told him.
Would Russia’s president Dmitry Medvedev, absent last year because of the row over the Georgia war, provide some fireworks for the weary hacks? No such luck. The Russian and western leaders alike spoke of turning a new page in relations. Mr Medvedev thought the occasion “historic”, though quite why was unclear.
He agreed to keep talking to NATO about the missile defence it agreed to create by linking up American ship-based systems with some shorter-range European air-defence rockets under development. But talking was not agreeing, he made clear. If Russia did not feel it was being treated as an equal, he warned, he would not co-operate and the two sides risked returning to an arms race.
It was the question of nuclear weapons, more specifically the new arms-reduction treaty between America and Russia, that provided a bit of passion. Mr Obama urged Republican leaders in the Senate to ratify the treaty, or risk the reversal of the “reset” policy that had eased tensions and convinced Russia to support fresh sanctions against Iran. Several eastern European leaders dutifully emerged to say they supported ratification of the treaty. Mr Medvedev said failure to ratify would make things "very unpleasant". Mr Obama even quoted Ronald Reagan and his dictum of “trust but verify”. Without the treaty, said Mr Obama, America would have no means of verifying Russian nukes.
As the convention centre was packed up, Mr Obama had one final summit: with the two “presidents” of the European Union, Manuel Barroso, president of the European Commission, the EU’s civil service, and Herman Van Rompuy, who represents EU leaders. Mr Obama had declined the offer to hold the summit earlier this year in Spain; now he agreed to a meeting tacked on at the end of the main event.
This was an even more dull affair than the NATO gathering. The leaders promised to work harder to promote jobs and growth. They agreed, among other things, to work to remove non-tariff barriers to transatlantic trade, to draw up common standards for future electric vehicles and to set up a working group on cyber-security.
Was it a waste of time? Mr Obama put it thus: “This summit was not as exciting as other summits because we basically agreed on everything.” What about the trade row between Boeing and Airbus? Or the dispute between Europe and America over currencies? Such was the violent agreement that the leaders refused to take questions.
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Transatlantic attitudes
Young Europeans are from Mars (sort of)
Nov 19th 2010, 19:23 by The Economist | Lisbon
ON THE eve of this weekend’s double summit in Lisbon—the annual NATO gathering, followed by a US-EU meeting that was bolted on to it—Gallup released some interesting data on European opinion. It casts further light on transatlantic relations, and the question of whether, as the writer Robert Kagan put it pithily, Americans are from Mars and Europeans from Venus.
With permission from Gallup, here are some of the highlights. First up is the Obama effect: these two slides (below) illustrate how Europeans’ opinion of America was, in many countries, transformed by the election of Barack Obama.
In some cases, approval of American leadership shot up from single figures to absolute majorities. That said, there is little sign among Europeans of Americans’ disenchantment with the president that led to his “shellacking” in the congressional mid-term elections.
More intriguing is the evidence for “old”  and “new” Europe. Whereas western Europeans swung markedly in their opinion of America, easterners have been much less passionate about either their dislike of Mr Bush or in their love for Mr Obama. This chart (below) summarises the point quite well.
What is even more striking is the level of support for American leadership among different European social groups. One might have though that pro-American sentiment would be concentrated among older Europeans who are more likely to remember America’s role in defeating Nazism in the second world war, its generosity in establishing the Marshall Plan and its role in confronting the Soviet Union during the cold war. In a few countries, such as Germany, this holds true. But strikingly, across Europe the most pro-American groups are the young and the educated (see 2 slides below). On this evidence, at least, the future is bright for transatlantic relations.
But why the gap? Maybe it is the effect of the radical generation of 1968, now well into its grey years. In some countries, such as Portugal, it may be part of a historical perception that America backed the military dictators that were in power until the 1970s.
Gallup's data supports what other surveys have found: Europeans are sceptical of the war in Afghanistan and of the use of military force. Again, though, there is a hint in the chart below that younger Europeans are less averse to spending more on military power.
The chart below, I think, casts fascinating light on the underlying motivations of Americans and Europeans. Gallup asked respondents across the world whether they would be willing to give their lives for a leader, or go to jail for a cause. The resolution does not allow all the countries to be identified. Suffice it to say that the red bar represents America, and the green ones European countries. Americans came out as substantially more ready for self-sacrifice than Europeans; if anything they were closer in their attitude to Palestinians (top in both questions) than to their NATO allies.
Perhaps, the pollsters surmise, this is correlated with evidence from other polls of Americans’ greater religiosity. Young Europeans, then, might be from Mars after all. And Americans are from the Roman temple's sacrificial pyre.
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Ireland and the euro
All over bar the bluffing
Nov 17th 2010, 19:39 by The Economist | BRUSSELS
THE pretence is almost over. International financial inspectors will arrive in Dublin tomorrow to start examining the ruins of Ireland’s banks to decide how much can be rebuilt with foreign help and how much rubble needs to be cleared away.
The Irish government still insists that a European rescue is “not inevitable” and, in public at least, members of the euro zone are careful to say that they have not (yet) been asked for financial help. But everyone assumes that a bail-out of between €50 billion ($68 billion) to €100 billion is just days away, weeks at most.
Even Britain seems ready to help Ireland, whether on its own or through its contributions to the European Union’s budget. Brian Lenihan (pictured), Ireland’s finance minister, is ever more explicit about the need for Ireland to take the assistance aid. He told RTE:
Despite a large range of measures adopted by the government, Ireland is a small country, and if the banking problems in the country are too big for this small country to manage, Europe is making it clear that they will help and help in every possible way to secure the system because we are part of the euro system...and that's the framework within which we work.
Irish officials are signalling that the problem is, indeed, too big. So why not take the money now and end the damaging speculation on the markets? Part of the reason is political: can the Irish government, clinging to a thin majority and facing a by-election later this month, dress up the EU rescue as an operation to salvage the banks rather than the state?
It would be more palatable to pretend that the government's finances are somehow separate from those of the banks. The EU is willing to take part in this dance to some extent. Finance minsters of the euro zone announced [PDF] last night that they would send officials from the European Commission, the European Central Bank and the IMF for a “short and focused consultation” with the Irish government “to determine the best way to provide any necessary support to address market risks, especially as regard the banking sector”. The Commission says Ireland is a different case from Greece, or indeed from Portugal. It has been willing, on its own, to swallow heavy doses of austerity. And there is no doubt about the competitiveness of the Irish economy.
That said, there is a limit to the EU’s ability to sugar the medicine. It is hard enough to convince European taxpayers to bail out other governments; explaining why they should save other countries’ banks may prove even more unpopular. Christine Lagarde, the French finance minister, made clear that this would not be “a plan to save the banks”.
Apart from national pride, another reason for Irish reluctance to grasp the lifebuoy is the hope that, merely by being seen to make it ready, the EU might be able to calm down the panic. Publication of a four-year Irish budget may also reduce the buffeting. The financial inspectors may, perhaps, agree with Irish officials who insist that the damage to the banks, particularly their mortgage books, may not be as terrible as some fear. While this may not avert the need for a bail-out, it may delay it and reduce its scope. As a result, the conditions that might be attached to it might be more limited.
The Irish will fear, above all, a demand to increase their corporation tax rate, which, at 12.5%, is among the lowest in Europe. Officials from other countries complain of Ireland’s low taxes as a form of unfair competition, and speak with glee of Ireland’s “failed business model”. The Austrian finance minister, Josef Pröll, hinted at making aid for Ireland conditional on raising corporation tax.
For Ireland, though, low tax is a totemic issue, largely accepted from left to right. Irish officials argue that raising corporation taxes would be pointless at best, and probably counter-productive, because it would deter investment, drive big exporters out of the country and so lower tax revenues. The authors of this report reckon that even a small shift could have a “dramatic effect” on Ireland. Better, say officials, to widen the base of income tax.
All this makes for an odd kind of crisis. European leaders seem to care more about saving Ireland’s bankers than the Irish government does; and they seem much more upset than Irish voters about big business getting off with low taxes.
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