Thursday

28th May 2020

Van Rompuy: Absurd to treat eurozone like Ukraine or Argentina

European Council President Herman Van Rompuy has lashed out at 'bond vigilantes' over the treatment of peripheral eurozone economies in recent months.

Speaking in London after a meeting with Prime Minister David Cameron on Thursday (13 January), Mr Van Rompuy described recent events as "absurd" and said the likes of Greece and Portugal should not be treated the same as poor countries: "Recent market developments are sometimes rather strange. The spreads now show default risks for some eurozone countries bigger than for emerging countries like Ukraine or Argentina: that is absurd."

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"Give these countries a chance," he added.

He described the treatment of the eurozone periphery as irrational "because of the euro's sound fundamentals. Economic growth in 2010 has been quite good ... Market participants should not underestimate our political determination (to deal with the crisis)."

Even as he was speaking, major eurozone states Spain and Italy held successful bond auctions, following on from a similar success met by Portugal, the most recent member state to join the bail-out death row. The rates the two countries were forced to offer was still up on previous auctions, however.

Spain sold €3 billion worth of five-year bonds at a rate of 4.54, up roughly a percentage point on its last such auction in November. Italy was successful in its issuance of €6 billion in five-year debt, which saw rates of 3.67 percent, up from 3.24 percent also in November, and in its auction of €3 billion in 15-year debt, with rates of 5.06 percent, up on 4.81 percent.

The relative success of the sales suggests the intervention of the European Central Bank in the bond market is helping to keep rates subdued. The ECB moves are nonetheless controversial due to the risk of inflation, with the central bank having now spent a total of around €74 billion on such purchases on Greek, Irish and Portuguese bonds.

In related news, the ECB's governing council in its first meeting of the new year on Thursday decided to maintain interest rates unchanged at one percent, suggesting the bank is still focussed on putting out crisis fires and less worried about the threat from inflation.

The move comes despite a climb in inflation in the eurozone to 2.2 percent, slightly beyond the bank's annual target rate of "below but close" to two percent. The increased inflationary pressure is likely the result of soaring oil and food prices as investors move into commodities because of lack of other opportunities.

Fillon: Britain must support deeper integration'

Separately on Thursday, French prime minister Francois Fillon was also in London meeting with his UK counterpart pushing for British support for moves towards greater co-ordination of economic and social policies across the eurozone.

"What we need is to strengthen our co-operation. The eurozone governments need to put in place a strategy which enables us to harmonize our fiscal policy and how we organize our economies," he told reporters after the meeting at Downing Street. "I've asked the UK to look at the arguments for harmonisation in a favourable light."

He added: "I'm not asking the UK to join the eurozone ... [the] British want to remain British".

Prime Minister Cameron backed the idea of harmonised economic governance for euro-using countries, but said the UK wants nothing to do with it and ruled out participation in any further national bail-outs.

"We want a strong eurozone and want it to sort out its problems, but we are not joining the eurozone and won't be drawn into fresh and new mechanisms within the eurozone." He added: "Let me be absolutely clear: Britain is not a member of the eurozone and we're not going to join the eurozone as long as I'm prime minister."

Earlier in the day, writing in the Times of London, Mr Fillon had voiced concern over the UK's intentions.

"The question is: is the UK ready to accept or encourage greater integration of the eurozone or is the UK distrustful of that and will it create obstacles and make it more difficult to happen?" he said.

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