Wednesday

20th Nov 2019

Barroso raises alarm about severity of euro crisis

  • Barroso: 'Whatever the factors behind the lack of success, it is clear that we are no longer managing a crisis just in the euro-area periphery' (Photo: consilium.europa.eu)

European Commission President Jose Manuel Barroso has indicated that bond market developments on Italy and Spain threaten the very survival of the euro.

The top official in a letter sent to the Heads of State or Government of the Euro area on Wednesday (3 August) and made public by the commission on Thursday said new bailout measures agreed by the 17 eurozone countries in July "are not having their intended effect on the markets", after the cost of borrowing for Italy and Spain spiraled this week.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 year's of archives. 30-day free trial.

... or join as a group

He added: "Whatever the factors behind the lack of success, it is clear that we are no longer managing a crisis just in the euro-area periphery. Euro-area financial stability must be safeguarded."

Barroso blamed in part "the undisciplined communication and the complexity and incompleteness of the 21st July package" for the escalation of the crisis.

But his letter also sent out a mixed message on the new measures.

On one hand, he said governments should quickly ratify the July package and refrain from fiddling with its details by "introducing excessive constraints in terms of either additional conditionality or collateralisation of ... lending."

On the other hand, he said there should be a "rapid reassessment of all elements related to the EFSF, and concomitantly the ESM [the two new bailout mechanisms], in order to ensure that they are equipped with the means for dealing with contagious risk."

A commission spokesowman, Karolina Kottova, said the reassessment could involve increasing the size of €440 billion bailout kitty.

She added that this does not mean extra money is needed to bail out Italy or Spain, whose public debt is counted in the trillions.

"When we speak about all elements we mean all elements and all elements might include the size [of the bailout money] as well," she told press in Brussels on Thursday. "Discussion of magnitude is not related to the situation that some of you have raised about Italy and Spain. It's part of a broad reflection."

Kottova declined to say which EU countries are seeking extra "conditionality" for the bailouts or what type of new conditionality is being talked about.

Barroso's public warning on the crisis is his second in as many days, with the tone of the letter published on Thursday sharper than his press release on Wednesday.

Markets will on Thursday also look to the European Central Bank in Frankfurt to decide if it will resume buying weak eurozone bonds.

"A revival of the ECB's securities markets program is the only real option that would prevent a liquidity crisis for Spain and Italy," Goldman Sachs economist Dirk Schumacher told Agence France Presse ahead of the announcement, due at 2.30pm local time.

Full text of Barroso letter

Brussels, 3rd August 2011

Dear Colleagues,

Developments in the sovereign bond markets of Italy, Spain and other euro area Member States are a cause of deep concern. Though these developments are clearly unwarranted on the basis of economic and budgetary fundamentals and the recent efforts of these Member States, they reflect a growing scepticism among investors about the systemic capacity of the euro area to respond to the evolving crisis. Markets remain to be convinced that we are taking the appropriate steps to resolve the crisis.

The 21st of July bold decisions on the Greek package and the increased flexibility of the EFSF (precautionary use, recapitalisation of banks and intervention in secondary bond markets), are not having their intended effect on the markets. Markets highlight, among other reasons, the global economic uncertainties due to both economic growth and the protracted decision on budgetary adjustments in the US but, first and foremost, the undisciplined communication and the complexity and incompleteness of the 21st July package.

Whatever the factors behind the lack of success, it is clear that we are no longer managing a crisis just in the euro-area periphery. Euro-area financial stability must be safeguarded, with all EU institutions playing their part with the full backing of euro area Member States. We need also to consider how to further improve the effectiveness of both the EFSF and the ESM in order to address the current contagion

Concretely, I would like to call on you to accelerate the approval procedures for the implementation of these decisions so as to make the EFSF enhancements operational very soon. These changes should also avoid introducing excessive constraints in terms of either additional conditionality or collateralisation of EFSF lending. I trust that governments and national Parliaments will rapidly approve these decisions necessary to improve the EFSF flexibility.

I also take the opportunity to urge a rapid reassessment of all elements related to the EFSF, and concomitantly the ESM, in order to ensure that they are equipped with the means for dealing with contagious risk.

Finally the Commission stands ready to contribute to the improvement of working methods and crisis management in the euro area.

Yours faithfully,

Jose Manuel Barroso

Barroso: EU moving too slow on debt crisis

European Commission head Jose Manuel Barroso has urged EU countries to speed up ratification of the bloc's new-model bailout mechanism to reassure markets on Italy and Spain.

EU agrees 2020 budget deal

EU governments and the parliament agreed in marathon talks ino next year's budget - which will boost spending on climate, border protection, and the European satellite system. It will also be a benchmark if there is no long-term budget deal.

EU and China agree to defend 'gastronomic jewels'

Manchego cheese, Panjin rice and Polish vodka will all be protected under a new EU-China agreeement. But the two trading giants continue to struggle over other trade-related deals.

News in Brief

  1. Estonia working on 'Plan B' for Nato
  2. Report: Hungary gagged EU on Israeli settlers
  3. Polls suggest draw after Johnson vs Corbyn TV duel
  4. EU ambassador to testify in Trump impeachment inquiry
  5. Hungary, Poland block EU conclusions on rule of law
  6. France: wide EU backing for enlargement change
  7. EU Council calls for policy action to protect marine life
  8. ECJ: Poland's judicial independence in doubt

Opinion

Why von der Leyen must put rights at core of business

Ursula von der Leyen's in-tray must include those European executives on trial for systematic workplace harassment, the break-up of European slavery rings, and allegations of European companies' abuse in palm oil, including child labour, land grabs, and deforestation.

Stakeholders' Highlights

  1. Nordic Council of MinistersEarmarked paternity leave – an effective way to change norms
  2. Nordic Council of MinistersNordic Climate Action Weeks in December
  3. UNESDAUNESDA welcomes Nicholas Hodac as new Director General
  4. Nordic Council of MinistersBrussels welcomes Nordic culture
  5. UNESDAUNESDA appoints Nicholas Hodac as Director General
  6. UNESDASoft drinks industry co-signs Circular Plastics Alliance Declaration
  7. FEANIEngineers Europe Advisory Group: Building the engineers of the future
  8. Nordic Council of MinistersNew programme studies infectious diseases and antibiotic resistance
  9. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  10. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues
  11. Nordic Council of MinistersNo evidence that social media are harmful to young people
  12. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021

Stakeholders' Highlights

  1. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  2. Nordic Council of MinistersEducation gets refugees into work
  3. Counter BalanceSign the petition to help reform the EU’s Bank
  4. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  5. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  6. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  7. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  8. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  9. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  10. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  11. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  12. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year

Join EUobserver

Support quality EU news

Join us