According to new data from Eurostat yesterday, European debt has increased despite austerity measures. Some of the countries that have made the most progress in closing their budget gaps — Greece, in particular — have also had their overall debt loads actually get bigger as a percentage of the economy, the data show. A recent report from the International Monetary Fund has also reached a similar conclusion. The economies of the debt-stricken countries of Greece, Portugal, Ireland and Spain have contracted sharply under the austerity measures, while the size of the debts relative to economic output has soared. Still, the Greek government is trying hard to work out a €13.5 billion austerity package; negotiations with their international lenders continued yesterday, and the European Commission said they hoped an agreement would be made within days.
British Foreign Minister William Hague is to issue a stark warning to European leaders, in a speech in Berlin today, that the EU faces crisis if it continues to take more powers from national governments. According to Hague, the EU has to decide how to accommodate the different kinds of integration members states want; and how to deal with the problem of democratic legitimacy and accountability within the EU. “Public disillusionment with the EU in Britain is the deepest it has ever been”, he is to say, adding that “People feel that in too many ways the EU is something that is done to them, not something over which they have a say. If we cannot show that decision-making can flow back to national parliaments then the system will become democratically unsustainable”.
Germany denied reports yesterday that they would call off the EU summit in November if Britain threatened to veto a deal. German government spokesman Steffen Seibert told reporters that Berlin “explicitly rejects” a report in the Financial Times, according to which Chancellor Angela Merkel said she would “seek to cancel” the November summit if London stuck to its guns. Meanwhile, Britain said they have not received any message from Germany that it would force the summit to be called off.
France agreed with the German position yesterday that crisis-hit Ireland is a “specific case”, and that their banks should therefore be able to benefit retroactively from the European Stability Mechanism rescue fund, which was launched officially this month. The support eased Irish fears that were sparked when German Chancellor Angela Merkel ruled out a similar proposal for troubled Spanish lenders.
Moody’s ratings agency downgraded five of Spain’s biggest regions to “junk” status yesterday. “Very limited cash reserves” as of September and “significant reliance on short-term credit lines” are Moody’s main arguments for slashing Catalonia, Andalucia, Castilla-La Mancha, Extremadura and Murcia to below investment grade, where default risks are high when buying bonds.