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Saturday, October 20

20th Oct - Weekender: Europe

The European summit turned out to be a dud, even given the very low expectations. Dedicated sections on both the summit and European banking union design.

Previously on MoreLiver’s:

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Whither the Euro? Seeking Resolutions for the EurozoneCFA Institute
Not surprisingly, a major theme of this year’s CFA Institute European Investment Conference in Prague was the prospect for the euro. Most speakers opined on the subject, sharing and supporting their various arguments.

Brussels blog round up for 13 – 19 October – EU summit, the Banking Union and who should collect the EU’s Nobel Prize?europp / LSE

Analysis: Nobel-crowned EU risks future as loveless marriageReuters
The European Union's Nobel peace prize comes just as a realization is dawning that Europe's single currency - the EU's most ambitious project - has survived three years of incessant financial turmoil and is not going to break up.

The eurozone crisis - causes and solutionsBIS (pdf)
Knot, President of the Netherlands Bank, to the Asia Society, Hong Kong, 15 October 2012.

Cameron - eurozone integration means 'new EU settlement' for UKeuobserver
The UK sees banking union and deeper integration of the eurozone as a chance to renegotiate its own status in the EU, Prime minister Cameron confirmed on Friday.

Moody’s – Germany’s banking system outlook remains negativeCredit Writedowns

Slovenia puts the ‘EM’ in EMUalphaville / FT
Slovenia was in the market on Friday — with $2.25bn of bonds. That’s greenbacks, not euros, despite belonging to the currency union.

Foreign buyers and the OMTalphaville / FT
Barclays and UBS have noted the recent halt in foreign liquidation of Spanish bonds — although with different views on what’s caused it and what comes next.

The worst is over for the euro zone? Shh! Stop saying that!MacroScope / Reuters
Often, horror films in a series become worse with each sequel, becoming messier with each tired return to a franchise. The euro zone debt crisis — a particularly depressing horror with real and terrible consequences for many of its citizens — appears to hold true to that.

Why Rajoy's 'Delay-And-Pray' Strategy Won't WorkZH
UBS: the hope that Spain will request a bailout anytime soon is misplaced as there is no immediate pressure to do so and the government would prefer to negotiate a more favorable MoU. However, two major issues stand in the way of that delayed reality - an insufficient bank recap; and the federal nature of Spanish government creating obstacles to deficit reduction.

Spectre of Spanish bailoutEl Periódico de Catalunya / presseurop
The banking union agreed by European leaders on 18 October is just one of a set of measures that also includes supervision of national budgets and a greater role for the ECB. And the goal of these manoeuvres is to determine if, and how, Spain will ask for help.

The return of the Greek buyback (boondoggle)alphaville / FT
Euro-zone countries are considering a proposal that would see Greece cut its debt by buying back bonds held by private creditors at a discount.

Spanish Military Association Wants "Declaration of War" Against Separatist Catalunya; Expect More ExtremismMish’s


EU Summit: Another Plan to Planeconomistmeg
All in all, this summit has teed up a number of issues surrounding the creation of the SSM and a banking union that policy makers will have to thrash out in the lead-up to and during the EU summit in Brussels in December. EU leaders hardly addressed the issue of a common EZ budget, but Van Rompuy highlighted that this too will be discussed in December.

Europe mistakes market lull for vote of confidenceThe Telegraph
Sorry to quibble, but there was no EU banking union deal last night. It was a step backwards from agreements already made in June. Germany has succeeded in kicking the issue into touch until after the Bundestag elections late next year. There will be no decision until deep into 2013 on whether to recapitalise the banks (ie crippled Spanish banks) directly through the European Stability Mechanism.

Germany out on top after late-night summiteuobserver
EU leaders left Brussels Friday after having spent the best part of the meeting tweaking wording on a banking union that was supposed to have been clear in June. But the German slower timetable prevailed.

EU banking supervision is no triumphThe Telegraph
Last night’s summit deal on banking supervision was no triumph. It was another EU exercise in decision dodging and fudge as German procrastination won the day.

Pass The Salt; Pass The GovernmentMark Grant / ZH
How many European nations does it take to screw in a light bulb? Twenty-seven…In the recent summit, however, they couldn’t even identify the light bulb.

Were Hollande and Merkel at the same summit?alphaville / FT
Listening to the comments of the various European leaders this morning, you’d be forgiven for thinking that they were attending different summits yesterday.


EU Tussle Over Costs Threatens to Derail Bank Union Plan BB
The French-backed effort to fast- track a European bank supervisor is running into German-led concern over potential costs as the region’s leaders tussle over putting their crisis-fighting blueprint into action.

Banking union in Europe and other
With most of the debate around banking union in the Eurozone focusing primarily on the financial institutions it will regulate, this column argues that the issue of sovereign debt of the members of the Eurozone needs also to be taken into account.

Bank reforms risk more shadow banking - ECB's LiikanenReuters
One of the dangers of banking sector reforms is that more banking business is driven into the shadow banking sector and this risk must be monitored constantly

Europe’s Flawed Banking UnionProject Syndicate
Europe is trying to achieve a stronger federal model that responds to the weaknesses revealed by the eurozone crisis, but it is doing so without addressing the need to bring its citizens along. That is also true of proposals for a banking union, with the EU adopting devices that are designed to avoid having to consult them.

Banking union as a crisis-management
Countries have various mechanisms that provide lending when a bank fails. But when bank problems far exceed available resources, central banks must be lenders of last resort, even when their role is clouded to mitigate moral hazard. This column explains the ECB is ill-equipped to act as such a lender; it doesn’t have enough control due to coordination problems across countries. The column argues this must change. The ECB must be the lender of last resort and this involves a Eurozone banking union.

Why the rush? Short-term crisis resolution and long-term bank
The Eurozone crisis has shown that the traditional approach of EU supervisory cooperation is not enough. This column argues the gaps in cross-border bank regulations have to be addressed on three levels: A short-term crisis resolution mechanism for the Eurozone, a functioning banking union, and stronger cooperation agreements across the EU and beyond. Critically, such reforms have to start from the resolution component.

Legacy problems in transition to a banking
As a banking union within the Eurozone seems ever more likely, this column looks at banking union as a way of responding to the crisis, but also as a way of preventing the next one.

Banking union: Where we’re going
A piecemeal approach towards banking union is emerging, with banking supervision first and resolution and deposit insurance at some undefined later stage. This column argues that such an approach may lead to an unstable banking union and that any attempt at banking union must include an integrated deposit insurance and resolution authority in order to be successful.

The political economy of (eventual) banking
As the debate regarding banking union in the Eurozone rolls on, this column tackles the subject from a different angle – outlining the political economy ramifications of such an undertaking.

Clock is ticking on European banking unionbruegel
European leaders are meeting in Brussels almost four months after their previous summit, at the end of June, where they launched a project for European banking union and agreed on direct recapitalisation of banks in crisis-hit countries. Since then the eurozone has benefited from a respite, but in fact many of the decisions taken in June still await implementation.

How to achieve a balanced European Banking AuthorityOpen Europe
Proposals for a eurozone banking union, currently being negotiated, could in future make it virtually impossible for the UK and other non-euro countries to block financial rules written by and for the eurozone, in turn fragmenting the single market. This would not be in the interest of most EU member states – or the City of London.